Stock Review: Garden Silk

This is a value play in the textile segment. This is a company which has got good strong brand Garden Vareli. This is a 30 year old company and the brand is well recognised and has got good brand recall. Company's manufacturing facilities are located in Vareli and Jolwa in Surat district.

The company has extensive distribution network comprising of about 65 dealers and about more than 300 outlets in about 60-65 cities. The company has been reporting good performance quarter on quarter and also year on year.

For FY11, the company achieved sales of about Rs 3,400 crore, which is up by about 35% over the same period last year. EBITDA is about Rs 290 crore which is up by about 21%.

The company has made profit after tax of about Rs 84 crore which is up by about 33 to 34% compared to FY10. EPS for the full year is about Rs 22 so at about Rs 100 the stock trades a PE multiple of about less than 4.5.

Important thing to be noted is that this company provided about Rs 70 crore towards depreciation which means the cash profit of the company is about Rs 155 crore.

The cash EPS comes close to Rs 40 which means at Rs 100 the business is available at 2.5 years of its cash flow which I believe is small given the fact that this is not a commodity company but this is a company which has got a brand and a good distribution network.

So from the current levels, that downside looks restricted. At the same time I would like to say that this is a stock which may not move up sharply. This is one of those hedges which may not go down too much in case of market fall but it may give you steady returns over the long-term