Stock Review: SPINNING MILLS COMPANIES

Spinning mills companies would begin to see increased earnings in September quarter, which will continue till the end of this fiscal. Industry experts and analysts believe that these companies, which at present are trading at cheap valuations, would benefit from growth in sales of fabrics and garment manufacturers, whose sales at present are down in the range of 20-30%.

At present, most spinning mills companies are trading at a price to earnings multiple of less than 3 times. This is far better than their immediate counterparts such as fabrics and garment manufacturers, most of which are trading at a price to earnings multiple of over 6 times. Also, these companies, in the past three years, have been making consistent profits. The March 2011 quarter was the alltime high in terms of net profit for most spinning mills companies in the past three years.

In coming quarters, barring the June 2012 quarter, spinning mills companies would benefit from bigger cotton crop size anticipated this year. Besides this optimistic factor, experts believe that spinning mills companies would also benefit from growth in demand, which would pick up in coming months since buyers would not postpone their decision for buying for a long time. Says Sanjay Jain, vice-president, Federation of Hosiery Manufacturer Association of India: "From the end of first half and the full second half of this fiscal, there would increase in sales of fabrics and garments manufacturers as demand would pick up. Spinning mills companies would in turn benefit from this."

Analysts believe that considering the cheap valuations and foreseeable good times in terms of increased earnings in coming quarters, it is the right time to buy into the stocks of spinning mills companies.

There is an all-pervaded anticipation of fall in prices across the value chains of textile business. Also, the buyers' side of the business — fabrics and garment manufacturers — are refraining from fresh orders. This will further bring about fall in cotton prices. Spinning mills companies, which uses cotton yarn as raw material, would understandably benefit from this fall. Companies such as Vardhman Textile, RSWM, Sutlej Textiles, Sangam India, Suryajyoti Mills, and Nahar Spinning Mills are the ones that would benefit from this.