Stock Review: Shri Lakshmi Cotsyn

 

In the past six months, the stock of technical textile player Shri Lakshmi Cotsyn has fallen by 44% against the drop of 5% in the ET Textile index. But those investors in the company's stock for the long term need not worry since the company's fundamentals and outlook for the coming quarters look promising. Increased focus in high-margin technical textile business and retailing would drive the company's future growth.

The company has undertaken expansion of capacities across its various segments, including technical fabric, denim, fusible interlining fabric and terry towels.

Through this expansion, the company will expand its technical textile capacity from six million meters to 64.5 million metres by September 2011. It plans to expand the terry towels capacity by five times to 15,000 tonne and double its fusible interlining and denim capacity to 12.5 million meters and 40 million meters, respectively.

Technical textile as such is a highmargin business segment of the textile sector. It caters to sectors such as construction, automobile, agriculture and medical. The scope and rate of growth in technical textile is higher than home and apparel textiles. Shri Lakshmi Cotsyn is a market leader in this segment and derives more than 32% of its total revenues from this business segment. Hence, the huge expansion of its technical textile (almost 16 times) stands in good stead for the company.

The company is set to benefit from the doubling of its home furnishing and fabrics segments. The fabrics segment includes denim, bottom weight, blended, quilted and embroidery and home furnishing includes terry towels and bed sheets. Both these segments, in all, contribute more than 28% to the company's total revenues.Shri Lakshmi plans to open 1,500 multi-brands retail outlets on a franchise model in this fiscal. This, along with its rapid capacity expansion in denim and fabric segments, would improve realisations.

In the third quarter ending March 2011 (its fiscal ends in June), the company's net profit increased by around 9% to . 27.7 crore on a year-on-year basis. Also, its net sales jumped by around 14.3% to . 437.8 crore. After witnessing a sharp fall in the past year's June quarter, the company's operating profitability is once again closer to the year-ago level of above 16%.