Stock Review: Garden Silk

Garden Silk has a very strong brand equity. They have strong presence with 300 retail outlets, of which 18 outlets are company owned.

If you see the performance in the current year, all the textile stocks have been performing very well, especially the companies who have a strong brand. The company is holding brand Garden Vareli. If I go by the financial performance for first nine months, they have already achieved the turnover what they had done in FY10, to the extent of about more than Rs 2,500 crore. The earnings per share (EPS) has been at about Rs 15 for nine months, profit after tax (PAT) at Rs 55 crore.

Cash EPS for nine months has been at about Rs 31, while the EPS was at Rs 15. So, going by the same financial performance, the company should be able to post an EPS of close to about Rs 22 for FY11 with cash EPS of Rs 44 with top-line of more than Rs 3,600 crore.

If we look at FY12 performance, the synthetic textile makers, the man-made fiber makers have the advantage over the cotton textile makers. They should be able to post a top-line of close to about Rs 4,300-4,400 crore. I won't be surprised to see the EPS coming at about Rs 27-28 for FY12.

So, if you go by the same parameters, if you put a P/E multiple, it is available at a P/E multiple of close to 4 on the forward earnings and maybe 4.5-5 times on the historic earnings with cash P/E multiple of less than 2 for FY12 and 2.5 for FY11. So, I think the downside is very minimal. But if one can hold this stock for six-eight months time, one can see a price of Rs 160.