Stock Review: Sutlej Textiles

Sutlej Textiles is a KK Birla Group Company. It's an old company that has five plants, they have 250,000 spindles and the company performance for FY11 has been fabulous. Their topline was Rs 1,600 crore and the company also posted an EPS Rs 105 while the cash EPS was Rs 190 and that's a reason that company has declared a dividend of 75% i.e. Rs 7.50 including the special dividend but the share has already gone ex-dividend. So, one should not play on the dividend strategy.

However, if you see the working of the companies, especially the spinning companies they have been facing many issues. Their results are likely to be bad but that may not be the case purely with Sutlej Textiles because they are an integrated company with 5 plants and hence, they should be able to at least post reasonable results. I won't say that Rs 105 EPS will get repeated but one can expect an EPS of at least close to Rs 45-50 for FY12 so that translates into a PE multiple of about 4, which is slightly lower than the comparable peers of this size and this magnitude.

The company has book value per share of Rs 225, so share is available below its book value and because of this fear, the share has really corrected in these last couple of months. I feel the share has bottomed out and if one can keep a view of about 12 month, the share has the potential to move back to about Rs 275 to Rs 300. However, it's a fundamentally strong company and I don't think that there is much downside risk from hereon.