Stock Review: TT Ltd

 

TT Ltd is one of the vertically integrated textile players. The company is into producing cotton, yarn, fabric and garments. Its flagship brand, TT, is known for undergarments and knitwear products. Besides the innerwear products, the company has diversified into casual wear -- 'Cool' and 'Coco Tree' -- for the entire family. The company's yarn business is a significant contributor to its revenues followed by garments and fabrics. In December 2010 quarter, out of the company's total revenues of Rs 149 crore, around 67% came from yarn business, 13% from garments and 4% from fabrics. At present, the company has a capacity of 70,000 spindles.

GROWTH PLANS:

In coming quarters, the company would embark on a major restructuring exercise, which would entail selling off its ginning and oil verticals -- for Rs 18.75 crore -- and shift its focus on garment business segment. This indicates the company's plans to exit cotton-seed processing commodity-driven business which faces tremendous uncertainty like prices of cotton and cotton seeds. It plans to remain focussed on more stable businesses such as spinning and garmenting. This is a good step, considering the fact that in the textile business, value chain spinning and garmenting are not as capital-intensive as processing. The proceeds of this would be used in expansion of its various businesses.

   The company has chalked out expansion plans across its various business segments. It plans to invest Rs 150 crore -- a substantial part is the TUFT scheme -- in the next two years across its various business segments to augment its capacities. The company would invest Rs 100 crore to increase its spinning capacity at its facility in Gujarat. Post expansion, it plans to increase its spindles capacity by over a lakh.

   Since Gujarat is a major cotton producer, capacity expansion would benefit the company in terms of realisation in exports — its facility is closer to Pipavav port — of cotton and cotton yarn. Around 95% of the company's yarn is exported. Hence, the company stands to benefit after this ramp-up. The company has also signed a $10-billion pact with a Chinese company for supply of yarn and fabric to China. This will also benefit the company in coming quarters.

   It plans to invest Rs 35 crore to increase its garment capacity at its manufacturing unit at Tirupur in Tamil Nadu. It also has plans to raise its capacity of 3 million pieces to 10 million pieces a month after the expansion. For this, the company is lining up Rs 15 crore to invest in Gujarat for generating power through wind for captive use (3 mw). The company has already opened 20 franchises for its branded garments business on a pilot basis in the National Capital Region. In coming quarters, TT Ltd plans is eyeing a network of some 200 franchises starting in Delhi and NCR. These expansion measures augur well for the company, considering the fact that the company is already on a strong growth path.

FINANCIALS:

In the December 2010 quarter, the company had a net profit of Rs 6.2 crore against Rs 2.2 crore a year ago. Its net sales jumped around 60% to Rs 149 crore in the same period on a yearon-year basis. As of FY10, the company had a total debt of Rs 250 crore --including working capital-- on its books. Since a substantial part of the debt is under the Technology Upgradation Fund Scheme, the interest burden for the company is relatively little. The cost of funds for the company is around 8%.

VALUATION:

On the valuation front, the company, at present, is trading at a price-to-earnings multiple of 3.2. This is better than its peer Maxwell Industries, which is trading at a price-to-earnings multiple of 22.