Tex Thematic Report 2011 PDF

INDIA
InstitutionalResearch
TEXTILEINDUSTRY
Reratingofthesector
ThematicReport
Date:28thFebruary2011
Analyst:
MinalDedhia
minal.dedhia@networthdirect.com
911147399812
Associate:
ShrutiRaut
shruti.raut@networthdirect.com
Keeping in mind the need to continuously evaluate and discover the next set of promising investment themes, we
initiatecoverageontheentiretextilevaluechainwithweightageonintegratedanddiversifiedplayers.
INVESTMENTSUMMARY
AbundantRawmaterialavailability:IndiahasabundantcottonsupplyoverChina,USandPakistan.China'sinternal
consumption and bad climatic conditions for cotton crop has made the country a net importer of cotton. Due to
superior technology (BT cotton) adopted by the farmers and increase in cotton Minimum Support Prices the area
under cultivation and the yield in India has increased. India is likely to takeover China in terms of largest cotton
producer.
Cotton Yarn, fibre and garment exports to increase over 5% CAGR between 20102014 owing to growing appetite in
developing countries and consumption pickup in developed nations.: With increasing demand in developing countries
(China,Bangladesh,PakistanandKorea)andpickupinconsumptionindevelopednations(USandEurope),weexpectIndia
to benefit the most. With most of the capacity expansions at their competition stage coupled with China (the largest
exporter)graduallyconvertingtoanetimporterduetogrowingdomesticdemand,webelieveIndiatoemergeasaleader
yarnexporter.Weexpectdirectcottonyarnexportstoincreaseat4.5%CAGRbetween20102014.
Manmade fibre (MMF) consumption to increase at 7% CAGR between 20102014 due to increase in price
differentialsbetweencottonyarnandMMFyarn:RisingcottonyarnpricesislikelytoleadtosubstitutionbyMMF
Yarn.TheratioofcottonyarnpricetoMMFyarnpriceshasincreasedto1.7xinCY10comparedtotheaveragerange
of1.2x(inthepastdecade).ConsumptionofMMFisexpectedtoincreaseat7%CAGRbetween2010and2014.
Structural change in Indian consumer behavior to stimulate a 9% CAGR for 20102014 for the apparel market :
Coupled with urbanization and increase in lifestyle, the demand for quality and branded apparels is expected to
increaseatarapidrate.Withreducedregulation,fastchangingconsumertastesand,finally,increasingcompetition,
businessisshiftingfromtheunorganizedtotheorganizedsector.Theorganizedsectorwhichhasa17%marketshare
willgrowto40%ofthedomesticmarketby2020aCAGRofover20%inthecomingdecade.
Pricing,infavourofIndia:Indiancottonyarnmanufacturershavebeeninasweetspot,as:1)abumperdomestic
crophaspulledcottonpriceslowerthantheglobalaverage;and2)globalyarnpricesremainfirm,asdemandfrom
developed markets has revived, while global cotton prices have remained firm. While domestic rawcotton prices
increased30%inFY10,globalyarnpricesroseby>50%YoY.Thishasledtoanexpansionincottonspinnersoperating
margins from 1415% to over 20%. MMF which was generally expensive than cotton yarn/fibre has thus become
relativelycheaperandthereforeislikelytosubstitutecottonwhereverpossible.Apparelmanufacturerswhichwere
hitduetotheincreasingcottonpricesarenowpassingontheincreasetotheircustomer.Webelievethatgrowing
demandfromboththedomesticandglobalfrontwillmorethanoffsetanyfurtherincreaseinthecotton/MMFprices.
Upwardshiftinthevaluationcurve:Duetocapitalintensiveinnature,textilesector,(especiallyspinners)reported
lowROCEwhichledtothesectorbeinggrosslyundervalued.However,withstructuralshiftinthemarginsandreturns,
webelievethevaluationcurvefortheCompaniesarelikelytoshiftupwardfromthecurrent35xEV/EBITDAto47x
EV/EBITDAdependingonthesizeandgrowthfactors.
Valuationmatrix
Company
ShriLakshmiCotsynLtd.
VardhamanInd
GardenSilkMills
TTLtd.
SangamIndiaLtd.
AlokIndiaLtd.
RSWMLtd.
AbhishekInd
ArvindLtd.
ShivaTexyarnLtd.
DamodarThreadsLtd.
MudraLifestyleLtd.
ThematicReport
Rating
BUY
BUY
BUY
BUY
BUY
BUY
BUY
BUY
BUY
BUY
BUY
NA
MCAP(Rs.mn)
1700
16530
3580
630
1710
15830
3370
2950
13330
1020
390
2750
CMP(Rs.)
84
257
95
29
44
20
147
14
54
48
47
57.8
Target(Rs.)
Upside(%)
155
440
157
42
62
28
197
18
73
62
59
85
71
65
45
41
38
34
33
33
31
26
EV/EBITDA
FY11E FY12E
4.6
4.2
3.5
3.1
3.8
3.5
5.6
3.8
4.4
3.7
7.3
5.7
6.6
5.2
4
3.5
6.8
5.9
5.3
4.1
4.2
3.4
P/E(X)
FY11E FY12E
1.4
1.2
2.1
1.8
2.4
1.8
3.8
2.1
2.4
1.9
10.1
4.9
10.9
5.2
2.5
1.5
12.9
7.5
4
2.6
3.8
2.3
UNRATED
ROCE(%)
FY11E FY12E
16%
17%
24%
26%
24%
25%
13%
15%
20%
23%
12%
14%
7%
11%
24%
26%
14%
15%
16%
19%
21%
24%
EPS
FY11E FY12E
62
71
125
140
40
52
10
19
19
23
4
7
13
28
5
9
4
7
12
19
12
21

The textile sector in India has over the decades, evolved in ways more than one from the symbolically
transformational handlooms to the ultramodern and technologically higher end plants ushered in, by the cutting
edgeengineeringofthedevelopedWest.Howeverthroughoutitsevolutionasamatureindustry,ithastraditionally
been undervalued due to its capital intensive nature and lower margins. It was also characterized by the
predominanceofafewplayersfromwithinthecapitalintensivespinningsegmentwithArvindMillsandAlokTextiles
beingthesoleintegratedplayers.
However, over the decade, globalization, changing demand dynamics and favorable policy changes has caused a
structural shift in the sector. Globally, the manufacturing base of the textile industry has shifted to Asia due to
significantcostsavingsarisingfromabundantproductionofcottonandthelowcostlaboradvantage.Andthisshift
to the Asian subcontinent has seen the emergence of four main textile players India, China, Bangladesh and
Pakistan. Keeping in mind the rapidly changing demand dynamics from the global markets as well as the strong
positionofIndiaasaglobaltextilesupplier,weinitiatecoverageonthesectorwithanideatocapturethesaliencein
itsearlystage.
WORSTISBEHINDUS
TheglobaltextileindustrysufferedamassivesetbackduringCY0809.Onthewhole,thesectorendedupoperating
at an average of 65% utilization levels and 6% operating margins. However, with the advent of 2010 the demand
scenarioimproveddrastically,breathinglifeintothebeleagueredsector.
Indiatoemergeaspreferredexporter
Collectively,China,India,PakistanandBangladeshdominatedtheglobalcottontextilesmarketduetoavailabilityof
rawmaterials,cheaplaborandyarnconversioncost.HoweverthefocusisnowshiftingtoIndiaduetothefollowing
reasons:
CHINA
Spinners were previously granted a rebate of 1520% which is now

revoked
With the technology upgradation unskilled labourers have to be

replaced with skilled labourers. With Chinese labour being more and
moreindemand,thecostoflabourhasanywaysincreased.Therefore
thishasledtoincreaseincapitalaswellaspersonnelcost
Cotton crop destroyed due to floods which led to import of cotton in

2010.(thisisatemporaryphenomena
Overseas buyers are looking at derisking their sourcing from China,

whosemarketshareintheworldtradeisaround31%(US$157bn)vis
avisIndiasshareof4.5%(US$23bn)inFY10.
ChinaisnotabletogeneratesurplusTextilecapacityforexportsasits
domesticdemandisgrowingtremendously,atabout15%p.a.
BANGLADESH
INDIA
As the second largest employer in India contributing almost 40% to

Indiasexportbasket,textilesectorhasalwaysbeenafavoredsector
whenitcomestoGovernmentpolicies.
Initiatives from the Technology Upgradation Fund Scheme (TUFS)

have helped overcome technological obsolescence and create
economies of scale. It has aided the transition from qualitatively
restricted textiles trade to marketdriven global merchandise.
Planning commission estimates an investment of Rs. 150 bn in the
XIthfiveyearplan.
ThesuccessofBTcottonhasincreasedcropyield,qualityandsoftness
ofthecropwithreducedpesticidecosts.
All the spinning companies have upgraded their technology and

machinery thus ensuring better quality standards to be competitive
globallyaswell
Indiaisselfreliantinthetextilesector,fromgrowingrawmaterialto
spinningandcreatingvalueaddedproductsinthetextilesector
Most of the spinning companies have ventured into the fabric and
garmentmanufacturingbusinessgivingthemacompetitiveedgeover
othernations
PAKISTAN
Powershortagehasledthegovernmenttoreducefocusonthepower
consumingspinningsector
Not able to compete with biggiants like India and China which have
economiesofscaletotheirbenefit.
Abolishmentofinternationalquotasystemislikelytoaffectexportsof
cottonfabricsandgarmentssubstantially.
Mostoftheyarnhasbeenconsumedforinternaluseastheyareabig
garmentexportinghub
ThematicReport
AccordingtoMckinseyreport,globaltextiletradeisexpectedtogrowfromUS$510bninCY09toUS$1000
bnCY20.TheIndianTextileIndustryduringthesameperiodwouldmorethantriplefromthepresentsizeof
US$70bn(aroundUS$47bndomesticandUS$23bnexports)in2009toUSD220bn(aroundUS$140bn
domesticandUS$80bnexports)by2020,atagrowthrateofabout11%p.a.Thus,thiswillincreasethe
marketshareofIndiafromthecurrent4.5%to8%oftheworldtotaltextilestrade.
Exhibit1:Indiasshareinworldtextilesandappareltradetoimproveby2020E
(US$Bn)
WorldGDP
WorldTrade
WorldTextilesandApparelTrade
ChinaTextilesandApparelTrade
IndiaTextilesandApparelTrade
India'sshare(%)
1990
23000
4338
213
16
4.6
2.2
2000
32000
7902
353
52
11.4
3.2
2005
45400
12752
486
104
15.0
3.1
2008
61000
19344
612
175
21.0
3.4
2009
57000
15340
510
157
23.0
4.5
2015E
82000
24600
800
236
45.0
5.6
2020E
111000
33300
1000
350
80.0
8.0
Source:Technopark
COTTONYARN:Buoyantdomesticandexportsdemandandrawmaterialavailabilitytostimulategrowth
India is the 3rd largest/2nd largest producer of cotton and cotton yarn and the acreage under cotton
cultivationhasbeenincreasingsince2007.Ithas20%oftheworldspindlagecapacityand62%oftheworld
loomagecapacity.
Adequaterawmaterialsupply:strategicadvantageoverothernations
Cotton production is limited to only a few countries such as China, India, US and Pakistan accounting for
~74%oftotalworldproduction.
Exhibit2:WorldCottonProduction
Brazil
Pakistan
UnitedStates
India
China
0
10
15
20
25
30
35
Source:USDA
World cotton production was hampered in 2010 due to climatic problems in China and Pakistan. Chinas
growing domestic cotton consumption appetite is turning them from net exporters of cotton to net
importers. Due to removal of subsidies given to US farmers, area under cotton cultivation is consistently
been decreasing since CY2007. World cotton yields have been constant at 750800 kg since the last six
cotton seasons. We do not expect any significant improvement in yields due because of lack of major
technologicaldevelopments.
However,thesituationisdifferentinIndia.Productionhasincreasedandisexpectedtoincreasefurtherdue
toincreaseinareaundercultivation,expandingyields,increaseinMinimumSellingPrice(MSP)ofcotton
anduseoftechnologicallyadvancedBTcottonseeds.
ThematicReport

SuccessofBTcottontochangethefaceofIndiasstandinginworldcottonproduction
IndiamayovertakeChinaastheworld'slargestcottonproducerby2015withtheadvantageofincreased
adoptionofhybridseedsandexpectedlaunchofnewerbiotechnologytraitsincottoninthecomingyears.
China's cotton output is estimated at 45 million bales (170 kg each) in 201011. Production in India, the
world'ssecondbiggestproducer,ispeggedat33.9millionbales.Muchoftheboosttooutputisexpected
tocomefromnewerbiotechnologytraitsincottonlikeincreasedtolerancetoherbicides,someofwhichare
dueforthecommercialreleasethisyear,hesaid.
Forinstance,BollgardIIRoundupReadyFlex(BGIIRRF)isbeingdevelopedbyMahycoforinsectresistance
andherbicidetolerantincotton,isneartocompletionofgovernment'sregulatoryapprovalsandlikelytobe
releasedinthemarketthisyear.TheBGIIRRFwillhelpincreasecottonyieldby15%.Thegrowthinacreage
underBtCottonhasalmostsaturatedandIndia'sBtCottonareawouldvarybetween8090%ofthetotal
cottonarea.
AccordingtotheInternationalServicefortheAcquisitionofAgriBiotechApplications(ISAAA),Indiaplanted
Btcottonin86%ofthetotalcottonarealastyear,whileChinasowedinonly69%ofthetotalarea.
DuetoincreasingworldcottonconsumptionandIndiasstrategicadvantageoverothernations,webelieve,
Indiaislikelytobenefitthemostwithincreaseincottonprices.
Cottonyarndemandtoincrease
Afterdecliningby2.7%in200809,totalcottonyarndemandgrewby7.5%to3073mnkgin200910.We
expectthedemandtogrowatahealthyrateof7.5%over20102014.
Exhibit4:DemandbreakupatFY10
Exhibit3:Demandgrowthofcottonyarn
10
9
3500
3000
%growth
7
6
2500
5
4
2000
3
2
1500
1
1000
0
1
Cottonyarndemand(mnkgs)
Derived
demand
22%
Domestic
demand
59%
500
2
3
200708
200809
200910
201011E 201112E 201213E 201314E
Cottonyarndemand
Source:Company,NetworthResearch
Directyarn
exports
19%
Growth
Preferreddestinationforexportsduetorawmaterialavailability
Bangladesh, Korea and China are the major markets for Indian cotton yarn. However, Bangladeshs textile
industry is currently adopting backward integration and venturing into spinning business. Import demand
from China and Korea has been growing on the back of tight demandsupply situation in the global yarn
market.Besides,Pakistansyarnexportshavebeenlimitedduetogrowingdomesticconsumption.Rebound
in demand from Egypt, Turkey and European Union will boost the exports further. We expect direct yarn
exportstoincreaseat4.5%CAGRbetween20102014.
ThematicReport

Exhibit6:Majorexportdestinationofcottonyarn
Exhibit5:Indiasyarnexportdestinations
100%
Bangladesh
16%
90%
80%
Others
30%
70%
59%
64%
63%
20%
19%
10%
5%
11%
8%
10%
200708
200809
200910
60%
50%
EU27
17%
40%
30%
20%
Turkey
3%
10%
Japan
2%
0%
China
10%
Korea
16%
Egypt
6%
China
Source:MinistryofTextiles,NetworthResearch
Korea
16%
16%
Bangladesh
Others
Domesticdemandtodominatetotalconsumption
Going forward, domestic demand will dominate the cotton yarn market. Derived and export demand
togetherhavebeengrowingat4%CAGR,whiledomesticdemandhasbeengrowingatafasterrateof8%
CAGRduringFY05FY10.Thishasledtoincreaseinshareofdomesticdemandfrom55%inFY08to59%in
FY10.TheuptrendisexpectedtocontinuebetweenFY10FY15.Weexpectthedomesticdemandtoincrease
by8%CAGRandexportsdemandtoincreaseby5%CAGRbetweenFY10FY15E.Consequentlytheshareof
domesticdemandwillfurtherincreaseto62%byFY15E.Thus,thedomesticdemandwillbeamajordriverof
cottonyarndemand.
Exhibit7:Domesticdemandsharetoincrease
Exhibit8:Growthinallthreecategories
3000
120
2500
100
80
60
25
25
22
21
21
22
21
21
18
17
17
17
61
61
62
62
20
19
19
19
55
56
59
60
FY08
FY09
FY10
1500
1000
40
20
2000
500
Domesticdemand
Source:CRISIL,NetworthResearch
FY11E
FY12E
Exportsdemand
FY13E
FY14E
DerivedDemand
FY15E
200708
200809
200910 201011E 201112E 201213E 201314E
Domestic
Exports
Derived
Source:CRISIL,NetworthResearch
Investmentsandupgradationinthespinningsectorenablebetteryarnquality
During200910,operatingratesforspinnerswasat90%afterdroppingto85%in200809,onthebackof
robustdemandforcottonyarnandnosignificantcapacityadditions.Alsotheshiftofmanufacturebaseof
textilestoIndiahasbroughtthedomesticspinningindustryinthelimelight.Theindustryislikelytoattract
aninvestmentofRs.187bnforadditionalcapacityof7.5mnspindlesandRs.94bnforreplacingtheold
spindles.Besides,investmenttothetuneofRs.2lakhscrore(US$18.9bn)underTUFforcapacityexpansion
andmodernizationhasstartedpayingyield.
ThematicReport

Exhibit10:StocktoUseratioata10yearlow
6.5
5.9
5.9
5.9
5.7
5.7
5.5
5.5
5.1
5
4.5
4
2001
Operatingrate
6.4
201415E
201314E
201213E
201112E
201011E
200910
200809
Numberofspindles
(%)
98
96
94
92
90
88
86
84
82
80
78
50
45
40
35
30
25
20
15
10
5
0
200708
MN
Exhibit9:Operatingratesandcapacityexpansion
2002
2003
2004
2005
2006
2007
2008
Source:ICAC,NetworthResearch
Goingforward,industrycapacityisexpectedtoincreaseby44.3mnspindlesby201415ataCAGRof4%
from20102015.Ondemandoutpacingthesupplyweexpecttheoperatingratesimprovingto96%.
Cottonpricesexpectedtoremainfirmatthecurrentlevels
CottonpriceshavebeensoaringsinceApril2010butinthelastfourmonthsithasshotupby~70%atRs.
220/kg(Rs.48,000/bale).Declineintheworldproductionandariseindemandwillleadtofirmingofcotton
pricesevenfurtherorwillsustainthepricesofcottonattheselevels
Exhibit11:Cottonpricemovement
180
155
160
140
127
120
105
100
80
67
72
77
77
80
86
88
90
91
93
90
60
Oct09
Dec09
Feb10
Apr10
Jun10
Aug10
Oct10
Source:CotlookIndex
Yarncottonspreadshavehita10yearhigh
Indian cotton yarn manufacturers have been in a sweet spot, as: 1) a bumper domestic crop has pulled
cotton prices lower than the global average; and 2) global yarn prices remain firm, as demand from
developedmarketshasrevived,whileglobalcottonpriceshaveremainedfirm.Whiledomesticrawcotton
pricesincreased30%inFY10,globalyarnpricesroseby>50%YoY.
ThematicReport

Exhibit13:Increasingspreadsimproveoperatingmarginsforthespinners
Exhibit12:Spreadsat10yearhigh
180
60
160
50
140
120
40
100
FY10
FY09
30
80
60
20
40
FY08
10
20
FY07
Cottonprices
Yarnprices
Spreads
Jun10
Dec09
Jun09
Dec08
Jun08
Dec07
Jun07
Dec06
Jun06
0
FY06
14
15
16
17
18
19
20
Source:Bloomberg,NetworthResearch
Yarnpricestoremainhigh:Globalpricesofyarnrose~45%inFY10,andhavesincerisebyanother15%.We
expectyarnpricestorisefurther,asglobalcottonpricesremainfirm(up11%inthelastsixmonths)owingto
a decline in global supply (floods in Pakistan have weighed severely). Any significant slowdown in global
demandwouldposeadownsiderisktoyarnrealizationsandyarnmanufacturersmargins.
Domesticcottonpricelikelytorise:Indiaisoneofthefewcottonsurpluscountries;inFY10,thecountry
exported8.3mbalesofcotton30%ofitsdomesticproduction.FY11isexpectedtoseebumperproduction
of 32.5m bales, driven mainly by an increase in acreage (7% YoY) and yield growth thanks to higher
penetration of BT cotton (~90%). Such a huge surplus could widen the discount at which cotton trades
domesticallyvsglobalmarkets.Whileglobalcottonpricesareup11%inthelastsixmonths,domesticcotton
pricesarestilluponly5%,evenafterthebanonexportswasliftedafewmonthsago.
MANMADEYARN:substitutingthehighpricecottonyarn
Indiaisthesecondlargestproducerofmanmadefibres(MMF)intheworld(WorldFibreReport2008).In
Indiancontext,outofatotalconsumptionof4.74billionkgsoffibre,includingcottonandmanmade,2.09
billionkgs,i.e44%ismanufacturedbythemanmadefibreandyarnindustry.Textilesmadeofmanmade
fibresconstituteabout16.4%ofIndiastotaltextilesexports.ThedomesticfibreconsumptionratioinIndia
atpresentis41:59(FY09)infavourofcotton,whileitisalmost60:40globally.Theglobalfibreconsumption
trendinfutureislikelytofurthertiltinfavourofmanmadefibresasthereisalimitationtogrowthofcotton
onaccountoflimitedavailabilityoflandforcottoncultivation.
Risingpricesofcottontextilesmayleadtosubstitutionbymanmadetextiles
RisingcottonyarnpricesislikelytoleadtosubstitutionbylPolyesterFilamentYarn.Theratioofcottonyarn
pricetoPFYpricehastraditionallybeenintherangeof11.2xbetween200102and200809i.e.cottonyarn
is1.2xmoreexpensivethanPFY.However,theratiohasincreasedsharplyto1.7xin200910.
ThematicReport

Exhibit14:Ratiochart
1.9
1.8
1.7
1.6
1.5
1.4
1.3
1.2
1.1
1
2002
2003
2004
2005
2006
2007
2008
2009
2010
Source:MinistryofTextiles
Weestimatesmanmadeandblendedfabricstogrowat7%CAGRover20102014.
NationalFibrePolicy:favorableformanmadefibres
Besides,TheimpendingNationalFibrePolicywillalsogoalongwayindrivingthegrowthoftheIndiantextile
industry in the future, both in domestic as well as export markets. In its draft policy the ministry had
expressedconcernsoverthehistoricaldiscriminationofmanmadefibresandtextilesvisviscottonand
cottontextilesintheformofhigherexciseduties.(MMFattracts8%excisedutywhilecottonisexemptfrom
excise)Thedraftsaidalthoughtherehasbeenasubstantialreductioninexcisedutiesonmanmadefibres
(MMF), the levies is still high. Thus any more reduction in excise duties on MMF and MMF textiles would
haveahighlypositiveimpactonthegrowthofMMFconsumption,thedraftargued.
WeexpecttheshareofMMFbasedtextilesinthedomesticmarketislikelytoincreaseto53%in201415E.
Exhibit15:Manmadefibreasa%oftotalyarnconsumption
120
100
80
38
40
41
43
44
48
50
53
60
59
57
56
52
50
47
60
40
62
20
0
200708
200809
200910 201011E 201112E 201213E 201314E 201415E

Cottonyarn
Manmadefibre
Source:Technopark,NetworthResearch
APPARELMARKET:StructuralchangesinIndianconsumerbehavior
Coupledwithurbanizationandincreaseinlifestyle,thedemandforqualityandbrandedapparelsisexpected
to increase at a rapid rate. We expect domestic readymade garment industry to grow at a CAGR of 9%
duringFY10FY14Etherebydrivingdemandfortheentirevaluechainintextilesindustry.
With the strong growth in Indian economy and increase in per capita income, the growth in per capita
expenditure on textiles will increase exponentially. Average household income is expected to grow by 35
40%inFY14EoverFY09whichwillincreasedisposableincomes.
ThematicReport

Exhibit17:Percapitaexpenditureontextiles
Exhibit16:PercapitalIncome
1400
42000
1300
37000
1200
32000
1100
1000
27000
900
22000
800
17000
700
12000
600
200304
200506
200708
200910
201112E
200304
201314E
Source:CMIE,NetworthResearch
200506
200708
200910
201112E
201314E
Source:CMIE,NetworthResearch
Shifttobrandedproductsandqualitytextilestoincreasedomesticconsumptionatstupendousrate
AccordingtoastudybyTechnopak,thedomestictextilesindustryisexpectedtogrowfromRs3,680bnin
FY10toRs10,320bnbyFY20,whichimpliesaCAGRofover10.8%forthesector.Indiantextilesexportsare
expectedtoclockaCAGRof~12%andshouldreachRs3,760bnfromthecurrentRs1,220bn.Theorganized
component, however, is expected to grow much faster. The textiles sector in India has traditionally been
dominatedbysmallplayersbecauseofvariousregulatoryrestrictionsonscaleandalsoincentivesgivento
smallerenterprisesbytheIndiangovernment.Withreducedregulation,fastchangingconsumertastesand,
finally,increasingcompetition,businessisshiftingfromtheunorganizedtotheorganizedsector.According
toTechnopak,theorganizedsectorwhichhasa17%marketsharewillgrowto40%ofthedomesticmarket
by2020aCAGRofover20%inthecomingdecade.
Exhibit18:Organizedapparelmarketgrowth
Exhibit19:YoYsalesgrowthofapparelmanufacturers
90%
3000
77%
80%
2500
70%
60%
2000
50%
%
CAGRof20%
1500
47%
40%
30%
1000
10%
500
21%
18%
13%
20%
12%
10%
Sep09
Dec09
1%
0%
0
FY10
FY20E
Source:Technopark
10% Jun08
Sep08
Dec08
Mar09
Jun09
Mar10
i
id d
l i
l hi
d
il
Note:CompaniesconsideredareKewalKiranClothingLtd.,KoutonsRetailIndiaLtd.,PantaloonRetail(India)Ltd.,Provogue(India)Ltd,ZodiacClothingCo.Ltd.andMadura
ThematicReport
di
StrategicInvestmentIntextileCompanies: hintingatstrongprospects
TextilessectorhasbeengrabbingeyeballsfromeveryspaceincludingForeignanddomestictextileplayers,
unrelated domestic companies, PE and venture capital funds and other investors. The increasing trend in
strategicplacementsandinterestinthesectorishintingatthestrongprospectsandoutlookfortheindustry
asawhole.
Exhibit20:Strategicinvestmentsinlast2yearrs
AnnounceDate
6/24/2008
8/20/2007
4/30/2008
3/24/2009
4/24/2008
3/12/2008
5/27/2008
10/18/2010
9/30/2008
7/14/2008
7/10/2009
9/25/2009
8/12/2008
8/12/2008
TargetName
Reid&TaylorIndiaLtd
GokaldasExportsLtd
KlopmanGroup
BombayRayonFashionsLtd
BrandGuru
NumeroUnoClothingLtd
ThaiBarodaIndustriesLtd
MudraLifestyleLtd
SomaTextilesLtd
IndustexTechnicalTextiles
SupremeTexMartLtd
VardhmanHoldingsLtd
DhanlaxmiFabricsLtd
DhanlaxmiFabricsLtd
AcquirerName
GICSpecialInvestmentsPteLtd
BlackstoneGroupLP
SKumarsNationwideLtd
AAAUnitedBV
BombayRayonFashionsLtd
Multipleacquirers
SRFLtd
ELandWorldLtd
MaviInvestmentFundLtd
SRFLtd
SinochampCorpLtd
PradeepMercantileCoPvtLtd
PromtechImpexPvtLtd
EskayNiryatPvtLtd
AnnouncedTotalValue(Rs.Mn)
210.1
186.2
109.0
65.7
51.7
25.0
23.3
16.2
5.6
4.7
4.1
1.5
1.4
1.4
Source:Bloomberg
GOVERNMENTsFAVOREDSECTOR:inlieuofpolicyexpectations
Textilesindustryplaysapivotalrolethroughitscontributiontoindustrialoutput,employmentgeneration,
andtheexportearningsofthecountry.Currently,itcontributesabout14%ofindustrialproduction,4%to
theGDPand17%tothecountry'sexportearnings.Itprovidesdirectemploymenttoover35millionpeople.
Therapidexpansionovertheyearshasattractedtheattentionoftheforeignfirmsandtheindustrywould
benefitfromtheestimatedforeigndirectinvestment(FDI)ofmorethanUSD7billionbytheyear2015.Thus,
the growth and all round development of this industry has a direct bearing on the improvement of the
economyofthenation.TheGovernmentpoliciesthereforetendtobefavorableforthissector.
TechnologyUpgradationFundScheme
TheTechnologyUpgradationFundScheme(TUFS),theflagshipprogrammeoftheMinistryofTextiles,has
actedasacatalystforattractinginvestmentinthetextilessector.Theschemespansallthesegmentsofthe
textilesindustryandaimstoprovidecheaperandflexiblefundingoptionsformodernizationandexpansion
ofexistingtextileunits.UptoDecember09,Rs.69.6bnhavebeendisbursedagainst1,898applications.Thus
sofarunderthescheme,Rs.731bnhasbeendisbursedagainst27,477applications.DuringCY10,Rs.28bn
wasdisbursedassubsidy,registeringanincreaseof9%ascomparedtopreviousyear.TheTextileMinistry
hasreportedlyaskedforRs200bnfromtheministryoffinanceforCY11CY12andforRs550bnfromtopay
forpastcommitments.
ThematicReport
10

Exhibit21:PercentageshareofmajortextilesectorsunderTUFs
Syntheticfilament
yarntexturisingand
crimping
Weaving
3%
8%
Composite
Upgradation
22%
Spinning
39%
Processingoffibres,
yarn,fabricsand
garments
10%
Cottonginningand
pressing
12%
Garment
manufacturing
6%
NationalFibrePolicy
The domestic fibre consumption ratio in India at present is 41:59 (FY09) in favour of cotton, while it is
almost60:40globally.Theglobalfibreconsumptiontrendinfutureislikelytofurthertiltinfavourofman
madefibres,asthereisalimitationtogrowthofcottononaccountoflimitedavailabilityoflandforcotton
cultivation.Thus,giventhegrowingcompetitioninglobaltextiletradeandtheconcomitantchangesinthe
Indian textile sector, a National Fibre Policy is necessary. A national level Working Group was, therefore,
constitutedtoformulateNationalFibrePolicytoaddresstheissuesofequitableuseofallfibrestoattainself
sufficiencyinthefibrebasetomeetbothdomesticandexportdemands.
Schemeforintegratedtextileparks
TheSchemeforIntegratedTextilePark(SITP)supplementstheeffortsoftheindustrybyprovidingthestate
oftheartinfrastructuralfacilitiesonthebasisofpublicprivatepartnershipmode.TheSchemehasbeena
successfulinsettingupofalready40parks.Theseparkswhenfullyoperationalizedwillattractaninvestment
ofRs.194bn,annuallyproducegoodsworthRs.335bn,and,moreimportantly,willprovideemploymentto
8.19lakhpeople.
Technicaltextiles
Technicaltextilesarematerialsandproductsusedfortheirtechnicalperformanceandfunctionalproperties.
Technical textiles include textiles for automotive applications, medical textiles (e.g., implants), geotextiles
(reinforcement of embankments), agrotextiles (textiles for crop protection), and protective clothing (e.g.,
heatandradiationprotectionforfirefighterclothing,moltenmetalprotectionforwelders,stabprotection
andbulletproofvests,andspacesuits).~32applicationssanctionedunderTUFSataprojectcostofRs.4.9bn
andRs.1.8bnhavebeendisbursed.
FINALVERDICT
WeareBULLISHontheentirevaluechainincludingcottonandmanmadefabrics.
We believe that Indias strategic position in the world cotton market and rising cotton prices will benefit
cottonspinningcompanies.IncreasingyarnspreadscoupledwithstrongoperatingmarginsandsolidROCEs
definitelycallsforastructuralshiftintermsofvaluationsforthissector.
ThematicReport
11

Webelievethatthedemandformanmadefabricsandyarnisexpectedtohittheroofwithincreasinggap
betweencottonyarnpricesandmanmadeyarnprices.
Garmentandapparelmanufacturerswerebleedinginthelasttwoquartersduetohighrawmaterialprices.
However, the Companies are now passing on the increase to their customers. We expect the domestic
apparelmarkettodoexceptionallywellwithincreasingbrandawarenessandchangeinlifestyle.
Wehavethereforeshortlistedalistof12companiescateringtovariouslegsofthetextilevaluechainwith
significantdominanceintheirfieldsandbuoyantgrowthprospectsinthecomingyears.
COTTONYARNANDFIBRE
Increasingcottonpricesandyarn
spreads
have
improved
operational
efficiency
and
profitability
Demand expected to grow at

CAGRof7.5%over20102014
Leading players: Vardhman

Textiles,DamodarThreads,Shiva
Texyarn, TT Ltd.and Abhishek
Industries
APPARELEXPORTS
Increasing share of India in the

worldapparelexportmarket

CAGRof12%over20102014
Leading
players:
Abhishek
Industries, Vardhman Textiles,
Shrilakshmi Cotsyn, Alok India,
ArvindMills
TECHNICALTEXTILES
Niche segment with increasing

demand from the Government
sector

Leading
Cotsyn
players:
Shrilakshmi
MANMADEYARNANDFIBRE
Increasingcottonpriceshaveled
to substitution by manmade
fibre
Domestic readymade garment

industry increasing at a rapid
rate


Leading players: RSWM, Sangam

India,GardenSilkMills
Leading players: Alok Industries,

Abhishek Industries, Garden Silk
Mills,TTLtd,MudraLifestyle
READYMADEGARMENTS
ThematicReport
12

PRODUCT/PROCESSPORTFOLIOANDSPECIALIZATION
Yarn
Fabrics
Garments Homefurnishing Technicaltextiles Otherunrelatedsegments Productdominance
Cotton Manmadefibres Knitted Woven
AbhishekInd
AlokIndiaLtd.
ArvindLtd.
DamodarThreadsLtd.
GardenSilkMills
Oneofthelargest
exporterofterrytowel
acrosstheglobe
Integratedplayerwith
strongbrandsin
garmentbusiness
Integratedplayerwith
strongbrandsin
garmentbusiness
Nicheplayerinvalue
addedyarnmarket
Presenceacrossthe
entirevaluechain
excpethighcapital
intensivespinning
segment
RSWMLtd.
DominanceinPVyarn
SangamIndiaLtd.
ShivaTexyarnLtd.
MudraLifestyleLtd.
SuryalakshmiCotsynLtd.
TTLtd.
VardhamanInd
DominanceinPVyarn
Leaderintechnical
textilessegment
Brandedknitwear
productsunder'TT'
Demergerfrom
unrelatedbusiness
segmentlikesteel
Exhibit22:EXPORTDOMINANCE
VardhamanInd
TTLtd.
ShriLakshmiCotsynLtd.
ShivaTexyarnLtd.
SangamIndiaLtd.
RSWMLtd.
MudraLifestyleLtd.
GardenSilkMills
DamodarThreadsLtd.
ArvindLtd.
AlokIndiaLtd.
AbhishekInd
0%
20%
Exports
40%
60%
80%
100%
Domestic
Source:NetworthResearch
ThematicReport
13
ShriLakshmiCotsyn
Established in 1993, Shri Lakshmi Cotsyn (SLCL) is one of the fastest growing integrated multi
product and multi market player textile company. It is one of the premier manufacturers of
home furnishing products, denim fabric (20 mn meters), terry towels (3000 tons), bed linen,
cottonfusibleinterlining(12.5nmeters),embroideredfabric(0.8mnmeters),technicaltextile
products(6mnmeters)aswellasballisticproducts.
INVESTMENTSUMMARY
Onanexpansionspree
Inthepasttwoyears,SLCLhasbeenonanexpansionspreealmostdoublingitscapacityinallthe
sections.Mostoftheexpansionsarecommissionedorareintheirfinalstageofcompletion.The
expansionswillenableSLCLtotapthehugeopportunitiesinthetextilesindustry.
MarketleaderinTechincalTextiles
Diversifiedbusinessmodel
SLCL has successfully diversified its portfolio to derisk its business model. The company has
strategically increased its focus on high margin business such as technical textile and retailing.
SLCamultiproducttextileplayeranditservesitsdiversesetofcustomersthroughmorethan
1000distributorsanditsfivemanufacturingunits.Someofitscustomersinthetextilesegment
areIKEA,WallMart,Shopco,JCPenny,MRCandKappaamongothers.
Strongbrandsportfolio
Rating
TargetPrice
CMP
Upside
Sensex
BUY
` 156
` 84
86%
17700
KeyData
BloombergCode
ReutersCode
NSECode
CurrentShareo/s(mn)
DilutedShareo/s(mn)
MktCap(`bn/$mn)
52WKH/L(`)
DailyVol.(3MNSEAvg)
FaceValue(`)
Beta
1USD/`
SLCLIN
SHLK.Bo
SHLAKSHMI
20.0
20.0
1.8/39.3
210/81
89255
10
1.19
45.8
ShareholdingPattern
Promoters
FII
Others
(%)
41.5
3.6
54.9
SLCLs expertise in technical textiles and fusible interlining will aide in getting orders from
defence and paramilitary forces. SLCL is having largest product line among all the technical
textilemanufacturersinIndiaandisamarketleaderinthegrowingandhighmargintechnical
textiles.Currently,technicaltextilescontribute~32%ofthetotalrevenuesinSLCL.Weexpect
thistogoupto38%withtherevenuesfromthissegmentgrowingataCAGRof33%.
SLCL sells its products under the brands 'Star Track' for cotton fusible interlining, 'SVL' for
zippers,'Steroid'forreadymadegarments,'Alisha'forembroideryand'Weaves'forvariedhome
furnishing products. WEAVES is available at 950Multi Branded Outlets. Now it is in process of
launching its own garments brand for retail sales in India called DYFI. It is expected to be
launched by October 2010 and it would be sold through franchisee retail outlets throughout
India.. Furthermore the company also plans to open 1500 Multi Branded Retail outlets
throughouttheCompanyby2011basedonFranchiseemodel.
Valuations
SLCL is grossly undervalued and is quoting at 4.1x FY12E EV/EBITDA. With presence across high
margin, high growth and niche segment, we estimate the Company to trade at 4.8x FY12E
EV/EBITDAandderiveatatargetpriceofRs.156/sharewithover86%upsidefromtheCMP.
PricePerformance(%)
1M
6M
SHLAKSHMI 18.7 46.7
NIFTY
11.1 10.9
1yr
35.7
11.3
Source:Bloomberg;*Ason25thFeb2011
ThematicReport
14
CompanyProfile
Establishedin1993,ShriLakshmiCotsyn(SLCL)isoneofthefastestgrowingintegratedmultiproduct
andmultimarketplayertextilecompany.Itisoneofthepremiermanufacturersofhomefurnishing
products, denim fabric (20 mn meters), terry towels (3000 tons), bed linen, cotton fusible interlining
(12.5nmeters),embroideredfabric(0.8mnmeters),technicaltextileproducts(6mnmeters)aswellas
ballisticproducts.
Exhibit23:Revenuebreakup(FY10)
13%
14%
5%
12%
32%
10%
14%
Siting/Shirting
Technialtextilefabric
Denim
Terrytowel
HomeFurnishing
BottonWeight
Others
Source:Company
InvestmentSummary
Onanexpansionspree
Inthepasttwoyears,SLCLhasbeenonanexpansionspreealmostdoublingitscapacityinallthesections.
Most of the expansions are commissioned or are in their final stage of completion. The expansions will
enable SLCL to tap the huge opportunities in the textiles industry. Terry towel facility expansion by 5x to
15000MTwith15MWcaptivepowerplantiscompleteandisexpectedtobeoperationalnextquarter.The
expansionofwiderwidthsheetingcapacityby150%to30mnmtrsperannumandexpansionofthedenim
fabriccapacityby100%to40mnmtrsperannumareonscheduleandareexpectedtobefullyoperational
bySeptember2011.Thetechnicaltextilesprojecttomanufacturefusibleinterlining,flexfabric,IRRfabric,
BlackoutfabricandNuclearBiochemicalfabricisalsoonscheduleandisexpectedtobefullyoperationalby
September2011.Thecapacitywouldbedoubledto25mnmetersperannum.
Exhibit24:Capacityexpansions
Segment
Terrytowel
Fusibleinterliningfabric
Denimfabric
Technicaltextiles
Flexfabric
NBCFabric
Blackoutfabrics
IRR/MSCNfabric
CurrentCapacity
3000tons
12.5mnmtrs
20mnmtrs
6mnmtrs
1.25mnmtrs
ExpandedCapacity
15000tons
25mnmtrs
40mnmtrs
64.5mnmtrs
17mnmtrs
10mnmtrs
20mnmtrs
5mnmtrs
Commissionedby
30.11.2010
30.09.2011
30.09.2011
31.12.2011
31.12.2011
30.09.2011
30.09.2011
31.12.2011
ThematicReport
15
Immenseopportunitiesinthedefensesector
TheMinistryofDefencehasfloatedtendersworthRs.12,000croresundertheDefenceProcurement
Procedure(DPP)plan200910toacquireawiderangeofdefenceproducts.Thedefenceindustryinthe
past was dominated by the government run public sector undertakings. This scenario has changed
significantly with the Ministry of Defence (MOD) providing license to private enterprises to
manufacture selective defence products. Leveraging this policy, SCL has reinforced presence in the
manufacturing of multiple defence solutions, such as air defence systems, armoured vehicles and
bulletproof products. We have tied up with leading defence Government undertaking, BEML, for
armouringof300400nos.,ofarmoredvehiclesperannum.
SLCLcurrentlyhasthelargestproductlineamongallthetextilemanufacturersinIndiaandisamarket
leaderinthegrowingandhighmargintechnicaltextiles.Currently,technicaltextilescontribute~32%
of the total revenues in SLCL. We expect this to go up to 38% with the revenues from this segment
growingataCAGRof33%.
Diversifiedbusinessmodel
SLCL has successfully diversified its portfolio to derisk its business model. The company has
strategically increased its focus on high margin business such as technical textile and retailing. The
company is witnessing a high growth in technical textile segment due to increased security related
threat to our country. SLCL has its strong presence in various segments including textile, defence &
power which promises a healthy business diversification. SLC serves its diverse customers through
more than 1000 distributors and its five manufacturing units are spread across the states of U.P.,
UttarakhandandHaryana.
Strongbrandsportfolio
SLCL possesses various brands for its products. It sells its products under the brands 'Star Track' for
cotton fusible interlining, 'SVL' for zippers, 'Steroid' for readymade garments, 'Alisha' for embroidery
and'Weaves'forvariedhomefurnishingproducts.WEAVESisavailableat950MultiBrandedOutlets.
The company is also planning to launch its DYFI of retail textile by the year end. It will be launched
through franchise retail outlet throughout India. Furthermore the company also plans to open 1500
MultiBrandedRetailoutletsthroughouttheCompanyby2011basedonFranchiseemodel.
Brands
StarTrack
Galaxy
Alisha
SVL
Weaves
DYFI
Launchyear
1997
1997
2000
2008
2008
2010
Specialty
Clothingaccessories
Clothingaccessories
Multipleembroideryrange
180shadesofzippers
Homefurnishing
Garmentsstitchedthroughtechnologydrivenmachines
ForayinPowersector:anaddedinvestmentdivision
IthassignedMOUwithChhattisgarhGovernmenttosetup300MWthermalpowerprojectatcostof
Rs.15bn.Ithasalsoappliedforregistrationof50MWSolarPowerGenerationprojectinRajasthanat
costofRs.9bn.Asofnowwedonotascribeanyvaluetotheseprojectsasthesearelonggestation
projects.
Increaseinpromoterstakethroughwarrantissueshowcasesmanagementconviction
Last year the promoters have converted 3.0 mn warrants into 3.0 mn equity shares@Rs.100 each.
Currentlytheyhaveanother7.0mnwarrantsthatcanbeconvertedintoequalnumberofequityshares
@Rs.150 each. However it is important to note that as against mandatory requirement of 25% the
promotershavealreadybroughtin~55%ofthewarrantamount.Thusweareconfidentthesewouldbe
convertedintoequitysharesinFY11E.Accordinglyweexpectequityofthecompanytoexpandform
Rs.200mntoRs.304mnbyJune2011.
ThematicReport
16

Valuations
SLCLisgrosslyundervaluedandisquotingat4.1xFY12EEV/EBITDA.Withpresenceacrosshighmargin,
highgrowthandnichesegment,weestimatetheCompanytotradeat4.8xFY12EEV/EBITDAandderive
atatargetpriceofRs.156/sharewithover86%upsidefromtheCMP.
TargetFY12EEV/EBITDA(x)
4.80
EV(Rs.Mn)
18210
Less:NetDebt(Rs.Mn.)
13144
Mktcap(Rs.Mn.)
5066
TargetPrice(Rs/share)
156
%upside
86
FINANCIALS
CONSOLIDATEDPROFIT&LOSSACCOUNT
Rs.Inmillion
INCOME
TotalSales
Growth
EXPENDITURE
a.Purchase&ManufacturingExpense
b.Personnelcost
c.AdministrativeCost
EBITDA
EBITDAmargins
Financecosts
Depreciationandamortisation
OtherIncome
EBT
EBTmargins
PROVISIONFORTAXES
a.IncomeTax
b.Deferredtax
EAT
EATmargins
FY08
9,281.31
NA
7,639.37
161.71
222.11
8,023.19
1,258.12
13.56
441.00
224.16
88.55
681.51
7.34
32.75
71.62
104.37
577.15
6.22
FY09
11,579.50
24.76
9,394.88
257.45
301.89
9,954.22
1,625.29
14.04
679.49
251.99
113.55
807.35
6.97
36.19
141.57
177.76
629.59
5.44
FY10
FY11E
FY12E
15,354.80 21,254.26 25,505.11

32.60
38.42
20.00
12,636.21 16,577.58 20,060.29

384.96
461.95
554.34
389.22
956.44
1,096.72
13,410.38 17,995.97 21,711.35
1,944.42
3,258.29
3,793.76
12.66
15.33
14.87
738.03
810.33
843.50
269.97
345.74
380.31
113.37
153.37
167.18
1,049.79
2255.59
2737.12
6.84
10.61
10.73
133.26
312.34
381.55
32.09
43.93
133.26
344.43
425.48
916.53
1,907.72
2310.00
5.97
8.98
9.06
ThematicReport
17

CONSOLIDATEDBALANCESHEET
Rs.inmn
SOURCESOFFUNDS
SHAREHOLDERS'FUNDS
a.Sharecapital
b.ShareWarrant
c.ShareWarrantApplicationMoney
d.Reservesandsurplus
LOANFUNDS
a.SecuredDebt
b.Unsecuredloans
DEFERREDTAXLIABILITY(NET)
APPLICATIONOFFUNDS
FIXEDASSETS
a.Grossblock
b.Less:Depreciation
c.Netblock
d.Capitalworkinprogress
INVESTMENTS
CURRENTASSETS,LOANS&ADVANCES
a.Inventories
b.Sundrydebtors
c.Cashandbankbalances
d.OtherCurrentAssets
e.Loansandadvances
LESS:CURRENTLIABILITIESANDPROVISIONS
a.Currentliabilities
b.Provisions
NETCURRENTASSETS
PROFITANDLOSSACCOUNT(DEBITBALANCE)
FY08
148.00
0.00
0.00
2,175.98
2,323.98
5,654.3
659.29
6,313.58
160.00
8,797.57
4,742.91
555.38
4,187.53
499.68
4,687.21
36.27
2,019.56
2,192.29
13.97
93.24
208.55
4,527.60
397.76
55.76
453.52
4,074.09
8,797.57
FY09
FY10
155.79
22.32
0.00
2,839.18
3,017.28
FY11E
199.63
0.00
485.88
3,994.97
4,680.48
304.70
0.00
437.29
5,727.07
6,469.06
7,291.0
10,904.8
947.78
383.76
8,238.81 11,288.51
301.58
319.38
11,557.67 16,288.37
5,166.91 5,531.85
807.37 1,077.34
4,359.54 4,454.52
796.30 1,708.65
5,155.84 6,163.16
101.30
587.63
2,756.74 3,808.21
3,366.01 4,002.24
403.81
321.55
51.96
91.87
361.20 2,144.99
6,939.73 10,368.85
725.21
558.04
81.16
106.07
639.20
831.28
6,300.53 9,537.58
11,557.66 16,288.37
12,204.75
498.89
12,703.64
459.87
19,651.96
6,914.81
1,423.08
5,491.74
892.34
6,384.08
123.98
5,313.57
5,667.80
223.27
94.62
2,975.60
14,639.23
1,003.67
127.28
1,130.95
13,508.27
19,651.96
FY12E
304.70
0.00
485.88
7,838.60
8,629.18
12,704.75
648.56
13,353.31
537.23
22,548.39
7,606.30
1,803.39
5,802.90
620.12
6,423.02
427.68
6,376.28
6,801.36
209.01
97.46
3,570.72
17,209.92
1,204.41
152.74
1,357.14
15,852.77
22,548.39
ThematicReport
18

Ratios
FY08
FY09
FY10
FY11E
FY12E
EBITDAmargins
13.56
14.04
12.66
15.33
14.87
PBTmargins
7.34
6.97
6.84
10.61
10.73
PATmargins
6.22
5.44
5.97
8.98
9.06
2.5
2.2
2.4
3.8
4.2
CurrentRatio
10.0
10.9
12.5
12.9
12.7
Debt/Equity
2.7
2.7
2.4
2.0
1.5
Debt/Capital
0.73
0.73
0.71
0.66
0.61
AssetTurnover
1.00
0.95
0.90
1.02
1.07
InventoryTurnover
4.6
4.2
4.0
4.0
4.0
InventoryPayable(Days)
79
87
91
91
91
86
106
95
97
97
19.7
16.6
17.7
21.2
21.2
19
22
21
17
17
160
199
227
226
225
39
40
46
63
71
157.03
193.68
234.45
212.95
266.64
Cash/PS
3.39
32.42
45.54
11.40
19.61
Sales/PS
627.12
743.30
769.15
697.55
785.50
ROE
25%
21%
20%
29%
27%
ROCE
14%
14%
12%
17%
17%
Interestcoverage
DebtorsTurnover
DebtorsReceivable(Days)
PayablesTurnover
Payables(Days)
WorkingCapitalCycle(Days)
EPS
BV/PS
ThematicReport
19
VardhmanTextilesLtd.
Vardhman Textiles Ltd. (VTL), with an 870,000spindle capacity, is Indias largest yarn
manufacturer.Thecompanyhasforwardintegratedintoproducingfabricsandsewingthreads,
and plans to commence garment production soon. As a result, revenues from yarn currently
account for less than 60%, while value added products (mainly fabrics and sewing thread)
accountfor~20%and~10%,respectively.
Rating
TargetPrice
CMP
Upside
Sensex
BUY
` 440
` 257
71%
17700
KeyData
BloombergCode
ReutersCode
NSECode
CurrentShareo/s(mn)
DilutedShareo/s(mn)
MktCap(`bn/$mn)
52WKH/L(`)
DailyVol.(3MNSEAvg)
FaceValue(`)
Beta
1USD/`
VTEXIN
VART.BO
VTL
56.6
56.6
16.6/362.6
377/217
34445
10
1.17
45.8
ShareholdingPattern
Promoters
FII
Others
(%)
61.0
3.2
35.8
PricePerformance(%)
1M
6M
VTL
7.3 17.2
NIFTY
11.1 10.9
1yr
19.9
11.3
INVESTMENTSUMMARY
Marginstoexpandduetorisingcottonprices
VTL started as a yarn manufacturer in 1965, with a 12,000spindle yarnspinning capacity, and
currentlyhasan870,000spindleyarnmanufacturingunit.Duetotherecentincreaseincotton
prices, the yarncotton spreads have hit a 10 year high which has enabled VTLs expansion of
margins. We expect the cotton prices to remain firm. Coupled with expansions in the yarn
segmentweexpecttherevenuestogrowby41%CAGRoverFY10FY12E.
Growthinfabricssegment
The company produces fabrics both for tops (shirting) and bottom weights (trousers). With
pricing power and scale economies kicking in, this segment has witnessed a significant
improvementinEBITDAmarginduringFY07FY10(up~300bpsduringthisperiod).
Garmentforayfurthereffortsatforwardintegration
VTLrecentlyenteredintoaJVwithNisshinboTextileInctomanufacturegarments,inastepto
forwardintegrate further. VTL owns 51% of this JV. The company aims to install capacity to
produce1.2mnpiecesofgarmentsbyDecember2010andraiseitto1.8mnpiecesbyFY12.This
shouldcontribute<3%ofitsconsolidatedEBITDAbyFY12.
Demerger of unrelated (steel) business enables focus toward the high growth textile
business
Following the acquisition of a sick textile company, which also had steel assets, the company
came into steelmanufacturing capacities, which have since been integrated into the books of
VTL. The steel division contributed ~6% of VTLs consolidated revenues during FY10 and
registeredEBITDAmarginof~15%inFY10.Asthesteelbusinessisnotapartofthecoretextile
manufacturingbusiness,thecompanyhasdecidedtodemergeit,witheffectfromJanuary2011
onwards.
CapacityadditionlikelytocontinuetotakeadvantageofTUFS
VTL plans to launch a significant capacity addition programme, adding ~20% to its current
capacities (Rs10bn capex on its current gross block of ~Rs40bn). Currently, only a Rs3bn
investmentinyarncapacitieshasbeenfinalised,andtherestwilldependontheextensionofthe
TUFS scheme. We estimate that the company will secure funding for the entire TUFS scheme
duringthenext18months,andthisexpansionplanshouldbecompletedbyFY13.VTLhasraised
moneythroughQIPplacementtotheamountofRs.2000mnforthesame.
Valuations
VTLstandstobenefitthemostwiththeincreasedpricesofcotton.Itiscurrentlytradingat3.1x
FY12EEV/EBITDA.Accordingtoourassumptions,weconservativelyvaluetheCompanyat3.8x
FY12E EV/EBITDA (premium over the peers due to its size) and arrive at a target price of Rs.
440/sharewithapotential71%upside.
ThematicReport
20
COMPANYPROFILE
Vardhman Textiles Ltd. (VTL), with an 870,000spindle capacity, is Indias largest yarn manufacturer.
The company has forwardintegrated into producing fabrics and sewing threads, and plans to
commencegarmentproductionsoon.Asaresult,revenuesfromyarncurrentlyaccountforlessthan
60%, while value added products (mainly fabrics and sewing thread) account for ~20% and ~10%,
respectively.
Exhibit26:RevenueBreakup(FY10)
8%
10%
9%
53%
20%
Yarn
Fabric
ProcessedFabric
Steel
Others
Source:Company
INVESTMENTSUMMARY
Marginstoexpandduetorisingcottonprices
VTL started as a yarn manufacturer in 1965, with a 12,000spindle yarnspinning capacity, and
currentlyhasan870,000spindleyarnmanufacturingunit.Duetotherecentincreaseincottonprices,
the yarncotton spreads have hit a 10 year high which has enabled VTLs expansion of margins. We
expectthecottonpricestoremainfirm.Coupledwithexpansionsintheyarnsegmentweexpectthe
revenuestogrowby41%CAGRoverFY10FY12E.
ThematicReport
21

Exhibit27:VTLsyarnbusinessrevenuestohittheroof
Exhibit28:Betteroperatingmarginsthanthelastcycle
35000
21%
30000
20%
40%CAGR
25000
19%
20000
18%
15000
17%
10000
16%
5000
15%
14%
FY09
FY10
FY11E
FY12E
FY06
FY07
FY08
FY09
FY10
FY11E
FY12E
Growthinfabricssegment
VTLenteredfabricmanufacturingin1992,startingwithgreige(unprocessed)fabric,andsubsequently
entered the processedfabric market in 1999. Thecompany producesfabrics both for tops (shirting)
andbottomweights(trousers).Inthefabricsegmenttoo,thecompanyhasattemptedtomoveaway
fromcommoditisedproducts(unprocessedfabric)tovalueaddedproductssuchasdyedyarn,special
white, and melange fabrics. With pricing power and scale economies kicking in, this segment has
witnessed a significant improvement in EBITDA margin during FY07FY10 (up ~300bps during this
period).
Exhibit29:Revenueandoperatingmarginsofthefabricbusiness
8000
15.50%
7000
15.00%
6000
14.50%
5000
4000
14.00%
3000
13.50%
2000
13.00%
1000
0
12.50%
FY09
FY10
Revenue
FY11E
Margins
FY12E
ThematicReport
22
Garmentforay furthereffortsatforwardintegration
VTL recently entered into a JV with Nisshinbo Textile Inc to manufacture garments, in a step to
forwardintegratefurther.VTLowns51%ofthisJV.Thecompanyaimstoinstallcapacitytoproduce
1.2mpiecesofgarmentsbyDecember2010andraiseitto1.8mpiecesbyFY12.Thisshouldcontribute
<3% of its consolidated EBITDA by FY12. While forwardintegration would certainly support margin
expansion,salesofgarmentswouldimplydevelopingverydifferentskillsetstodelivertocustomers.
Mostofthecompanysrevenuessofarhavecomefromproductsofstandardisedprocesses(yarnand
fabrics);garmentmanufacturing,ontheotherhand,willrequiremuchmorecustomisationineachset
of orders from clients. Furthermore, the company will need to develop at least some basic level of
appareldesignskills.
Demergerofunrelated(steel)businessenablesfocustowardthehighgrowthtextilebusiness
Following the acquisition of a sick textile company, which also had steel assets, the company came
intosteelmanufacturingcapacities,whichhavesincebeenintegratedintothebooksofVTL.Thesteel
divisioncontributed~6%ofVTLsconsolidatedrevenuesduringFY10andregisteredEBITDAmarginof
~15% in FY10. As the steel business is not a part of the core textilemanufacturing business, the
companyhasdecidedtodemergeit,witheffectfromJanuary2011onwards.
CapacityadditionlikelytocontinuetotakeadvantageofTUFS
VTLplanstolaunchasignificantcapacityadditionprogramme,adding~20%toitscurrentcapacities
(Rs10bn capex on its current gross block of ~Rs40bn). Currently, only a Rs3bn investment in yarn
capacities has been finalised, and the rest will depend on the extension of the TUFS scheme. We
estimatethatthecompanywillsecurefundingfortheentireTUFSschemeduringthenext18months,
andthisexpansionplanshouldbecompletedbyFY13.VTLhasraisedmoneythroughQIPplacement
totheamountofRs.2000mnforthesame.
Valuations
VTLstandstobenefitthemostwiththeincreasedpricesofcotton.Itiscurrentlytradingat3.2xFY12E
EV/EBITDA. According to our assumptions, we conservatively value the Company at 3.8x FY12E
EV/EBITDA(premiumoverthepeersduetoitssize)andarriveatatargetpriceofRs.440/sharewitha
potential71%upside
3.8
EV(Rs.Mn)
63518
32394
Mktcap(Rs.Mn.)
31124
%upside
440
71
ThematicReport
23
FINANCIALS
Rs.Inmillion
INCOME
Sales
Less:ExciseDuty
IncomefromAssociates
Growth
EXPENDITURE
a.RawMat.Consumed&PurchaseofFin.Goods
b.ManufacturingExpenses
c.PersonnelExpenses
e.(Increase)/DecreaseinWIP&FinGoods
f.Differenceofexciseduty
EBITDA
EBITDAmargins
Depreciationandamortization
Otherincome
Financecosts
Selling&DistributionExpenses
MiscellaneousEpenditure
PreliminaryExpenses
EBT
EBTmargins
Profitfromcontinuingoperations
PROVISIONFORTAXES
a.IncomeTax
b.MATCreditEntitlement
c.Deferredtax
d.DeferredtaxAdjustment
e.FringeBnefitTax
f.Taxadjustmentforearlieryears
PAT
Profitonsaleofdiscontinuedoperations
PROVISIONFORTAXES
a.CurrentTax
b.DeferredTax
c.MATCreditEntitlement
EATbeforeMI
EATmargins
FY08
24,412.80
535.43
8.02
23,885.39
NA
11,381.16
6,446.36
1,625.03
(427.11)
(1.27)
19,024.16
4,861.23
20.35
1,620.22
224.30
548.06
1,045.38
0.05
0.00
1,871.82
7.84
1,391.21
159.20
(197.35)
438.60
29.66
11.94
0.00
442.05
949.16
480.62
54.61
2.10
(7.49)
431.40
1,380.56
5.78
FY09
30,135.40
481.19
0.49
29,654.70
24.15
14,103.44
7,959.71
2,001.44
(51.88)
(30.67)
23,982.05
5,672.65
19.13
2,433.82
274.11
1,068.43
1,148.48
0.00
0.00
1,296.03
4.37
1,296.04
159.32
(37.66)
435.03
(55.49)
12.01
0.00
513.21
782.83
1,413.94
216.40
66.22
(2.90)
1,134.22
1,917.05
6.46
FY10
33,913.88
407.16
0.53
33,507.26
12.99
15,674.15
8,069.97
2,149.25
(618.94)
(3.96)
25,270.47
8,236.78
24.58
2,566.37
480.63
851.69
1,186.08
0.00
0.03
4,113.25
12.28
4,113.25
892.42
(10.16)
198.14
9.06
0.00
0.00
1,089.46
3,023.79
0.00
0.00
0.00
0.00
0.00
3,023.79
9.02
FY11
49,584.52
743.77
0.55
48,841.30
45.76
22,375.60
10,813.37
2,299.70
(890.00)
0.00
34,598.66
14,242.63
29.16
859.28
221.41
1,350.66
1,728.87
0.00
0.00
10,525.24
21.55
10,525.24
2,105.05
0.00
95.99
0.00
0.00
0.00
2,201.04
8,324.20
109.32
30.61
0.00
0.00
0.00
8,402.91
17.20
FY12
54,461.73
816.93
0.56
53,645.37
9.84
24,371.36
11,867.88
2,460.67
(934.00)
0.00
37,765.92
15,879.45
29.60
903.28
265.70
1,402.92
1,898.93
0.00
0.00
11,940.02
22.26
11,940.02
2,388.00
0.00
148.00
0.00
0.00
0.00
2,536.00
9,404.02
0.00
0.00
0.00
0.00
0.00
9,404.02
17.53
ThematicReport
24

Rs.inmn
FY08
SOURCESOFFUNDS
SHAREHOLDERS'FUNDS
a.Sharecapital
566.35
b.Reservesandsurplus
12063.76
SharePremiumAccount
0.00
MINORITYINTEREST
a.Capital
548.78
226.84
LOANFUNDS
a.Securedloans
21785.46
b.Unsecuredloans
2554.37
1633.76
39379.33
APPLICATIONOFFUNDS
FIXEDASSETS
a.Grossblock
34608.64
b.Less:Depreciation
12416.49
c.Netblock
22192.15
3340.96
25533.11
GOODWILLONCONSOLIDATION
51.13
INVESTMENTS
54.05
DEFERREDTAXASSETS
a.Inventories
9376.63
b.Sundrydebtors
2871.61
719.27
0.02
e.Loans&Advances
3488.75
16456.28
2576.04
b.Provisions
139.20
2715.24
NETCURRENTASSETS
13741.04
39379.33
FY09
FY10
566.36
13265.93
0.00
566.36
15475.48
0.00
827.33
1459.67
39357.47
13743.79
25613.68
694.26
26307.94
50.60
1400.79
42964.03
14603.07
28360.95
521.34
28882.30
0.00
472.34
18153.91
6959.00
2679.35
0.10
5809.25
33601.61
4269.78
582.22
4851.99
20623.45
47478.63
45164.03
15506.35
29657.67
673.45
30331.13
0.00
850.22
13773.48
6335.80
958.57
0.08
4407.51
25475.44
3003.67
290.32
3293.99
20540.96
43530.29
31419.59
3653.44
1821.00
59182.44
12969.94
4758.48
2623.79
0.06
3482.68
23834.95
2733.66
171.35
2905.01
15770.95
850.93
2320.96
30504.45
3262.00
1683.00
49978.09
41764.03
16230.98
25533.05
452.75
25985.80
29.32
922.56
7396.37
3459.02
3729.65
0.06
4090.86
18675.96
635.55
15859.25
2621.74
850.93
2149.03
23464.96
2965.45
2286.72
47478.63
FY12E
635.55
8271.39
2621.74
850.93
1868.73
22326.88
3004.61
2079.52
43530.29
FY11E
4689.76
910.76
5600.52
28001.09
49978.08
59182.44
ThematicReport
25

Ratios
FY08
FY09
FY10
FY11E
FY12E
EBITDAmargins
20.35
19.13
24.58
29.16
29.60
PBTmargins
7.84
4.37
12.28
21.55
22.26
PATmargins
5.78
6.46
9.02
17.20
17.53
Interestcoverage
3.4
1.2
4.8
7.8
8.5
CurrentRatio
6.1
6.4
7.2
5.3
6.0
Debt/Equity
1.8
1.6
1.4
2.3
1.6
Debt/Capital
0.1
0.1
0.1
0.1
0.1
0.61
0.68
0.71
0.98
0.91
InventoryTurnover
2.6
4.1
2.6
3.6
3.0
140
90
140
101
122
AssetTurnover
DebtorsTurnover
44
43
52
47
47
PayablesTurnover
9.3
10.8
11.2
11.4
11.4
Payables(Days)
39
34
33
32
32
EPS
BV/PS
93
55
102
93
95
23.7
30.2
46.2
125.3
140.5
235.19
284.61
331.27
228.60
350.70
Cash/PS
12.62
65.85
46.33
15.08
42.16
Sales/PS
419.04
523.61
591.63
768.49
844.08
58%
53%
58%
66%
74%
ROE
ROCE
EBITDAmargins
13%
18%
19%
24%
26%
20.35
19.13
24.58
29.16
29.60
ThematicReport
26
GardenSilkMillsLtd.
Incorporatedin1979,GardenSilkMillsLtd(GSM)isoneofthelargestverticallyintegratedtextile
companies with particular strengths in polyester filaments based textile and yarns having its
makingfacilitiesinVareliandJolwainGujarat.Thecompanyhasaspinningcapacityofand
themainproductsofthecompanyarePolyesterYarn,GreigeWovenandfinishedfabric(60mn
metersperannum)andPETchips(675000MTperannum).
INVESTMENTSUMMARY
Integratedplayerinpolyesterchain
StrongDealernetworkensurebetterbrandvisibility
TheCompanysellsitsproductswellnetworkedapproximatelythrough70dealers,12company
owneddepotsand290retailoutletinIndiaandinternationallyitexportsitproducttoCanada,
USA, UK, Indonesia, Malaysia, South Africa, the middle east and gulf countries and from this
financialyearitwillbeenteringintocountrieslikeEgypt,Europe,ChinaandLatinAmerica.
Expansionandforwardintegrationtopavewayforfuturegrowth
Diversifincationintopolyfilmmarket
GSM has announced to foray into biaxially oriented polyester (BOPET)polyfilm projectfor the
textile and packaging film manufacturing industry and further enhance the capacity of its
continuouspolymerisation(CP),partiallyorientedyarn(POYU)andfulldrawnyarn(FDY)witha
totalinvestmentofRs6800mn.
KeyData
BloombergCode
ReutersCode
NSECode
CurrentShareo/s(mn)
DilutedShareo/s(mn)
MktCap(`bn/$mn)
52WKH/L(`)
DailyVol.(3MNSEAvg)
FaceValue(`)
Beta
1USD/`
GRDNIN
GARD.BO
GARDENSILK
38.3
38.3
3.7/80.8
154/67
77929
10
1.04
45.8
ShareholdingPattern
Promoters
FII
Others
(%)
57.2
0.0
42.8
PricePerformance(%)
1M
6M
Gardensilk
5.6 13.4
NIFTY
11.1 10.9
1yr
41.4
11.3
Strongfinancialsandcheapvaluations
WithrevenuesexpectedtogrowataCAGRof19%overFY1012E,strongROCEof~25%byFY12E
andlowleverage(currently2.1debt/equity,expected1.5xbyFY12E),GSMistradingatverylow
valuations.WeexpectanEPSofRs.51byFY12Ewhichishalfofthecurrentstockprice.AtFY10,
cashandinvestmentsamountedtoRs.43/share(43%ofthetotalcapitalization).Thestockhas
beentradingataround22%toitscurrentbookvalue.
BUY
` 157
` 95
67%
17700
New capacityscheduledtocome on line this year will help achieve better economies of scale.
Thiscombinedwiththeirentranceintonewsegmentslikepartywearandweddingwearunder
thestrongbrandofVareli,andnewmarketslikeChina,Egypt,Europe,LatinAmericashouldgive
sufficientopportunityforgrowthintopline.
Rating
TargetPrice
CMP
Upside
Sensex
GSM is an integrated player in the polyester chain whose products stem from chips to POY to
processed yarn, preparatory yarn, to finished, dyed and printed fabric. This integration helps
insulate it from the vagaries of the market and gives it leading information on which to base
decisionsacrossthechain.
Valuations
GSM is grossly undervalued and is currently trading at 3.5x FY12E EV/EBITDA. We expect 4x
EV/EBITDAmultipleandthereforederiveatatargetpriceofRs.157/sharewithapotentialupside
of65%.
ThematicReport
27
CompanyProfile
Incorporated in 1979, Garden Silk Mills Ltd (GSM) is one of the largest vertically integrated textile
companieswithparticularstrengthsinpolyesterfilamentsbasedtextileandyarnshavingitsmaking
facilities in Vareli and Jolwa in Gujarat. The company has a spinning capacity of and the main
products of the company are Polyester Yarn, Greige Woven and finished fabric (60 mn meters per
annum)andPETchips(675000MTperannum).
Exhibit30:RevenueBreakup
6%
51%
43%
Chips
Yarn
Fabrics
InvestmentSummary
Integratedplayerinpolyesterchain
GSM is an integrated player in the polyester chain whose products stem from chips to POY to
processedyarn,preparatoryyarn,tofinished,dyedandprintedfabric.Thisintegrationhelpsinsulateit
fromthevagariesofthemarketandgivesitleadinginformationonwhichtobasedecisionsacrossthe
chain.
Exhibit69:Valuechain
PETChips
PFY
Dyedandprintedfabric
Garments
(416000MT)
(162450MT)
(35.2mnmtrs)
(1%of
51%of
43%of
revenues)
6%oftotalrevenues
revenues
revenues
GSMsexpansionprojectsovertheyearsarealignedwiththeobjectiveofmaintainingaboveindustry
averagegrowthandconsolidatetheirpositionasagloballeaderinspecializedpolyesterproducts.The
companyhasalreadydoubleditscapacityinFY09whichincludespolyesterchipsto1600tnsperday,
430 tns of POY and 110 tns of PTY per day, GMS is further increasing the capacity by another 15%,
whichincludedpolyestertextilegradechipby130000tnsperannum.Thechipstobeproducedwillbe
specialtychipsthatwillcatertotheneedsofnotjustthetextileindustrybutalsothefastgrowingfilm
andpackagingindustry.
Theincreasedcapacitiesensureeconomiesofscaleandbetterbargainingpowerintheindustry.The
decreasingmarginsinthePETchipsbusiness(currentlyRs.5/kg)alongwithincreasingcompetitionhas
notaffectedGSMsgrowth.GSMshighvolumeshavemorethanoffsettheaffectoflowmargins.
StrongDealernetworkensurebetterbrandvisibility
TheCompanysellsitsproductswellnetworkedapproximatelythrough70dealers,12companyowned
depots and 290 retail outlet in India and internationally it exports it product to Canada, USA, UK,
Indonesia,Malaysia,SouthAfrica,themiddleeastandgulfcountriesandfromthisfinancialyearitwill
beenteringintocountrieslikeEgypt,Europe,ChinaandLatinAmerica.
ThematicReport
28
Expansionandforwardintegrationtopavewayforfuturegrowth
New capacity scheduled to come on line this year will help achieve better economies of scale. This
combinedwiththeirentranceintonewsegmentslikepartywearandweddingwearunderthestrong
brand of Vareli, and new markets like China, Egypt, Europe, Latin America should give sufficient
opportunityforgrowthintopline.
Exhibit31:RevenueMixatFY12E
Readymade
garments
1%
Fabrics
6%
PolyesterChips
52%
POYandPFY
41%
Diversifincationintopolyfilmmarket
GSMhasannouncedtoforayintobiaxiallyorientedpolyester(BOPET)polyfilmprojectforthetextile
and packaging film manufacturing industry and further enhance the capacity of its continuous
polymerisation(CP),partiallyorientedyarn(POYU)andfulldrawnyarn(FDY)withatotalinvestment
ofRs6800mn.Sincetheprojectwasannouncedduringtheresultsnotmuchinformationisavailable
onthesameandthereforewehavenotincludedtheseprojectsinourassumptions.
Strongfinancialsandcheapvaluations
WithrevenuesexpectedtogrowataCAGRof19%overFY1012E,strongROCEof~25%byFY12Eand
low leverage (currently 2.1 debt/equity, expected 1.5x by FY12E), GSM is trading at very low
valuations.WeexpectanEPSofRs.51byFY12Ewhichishalfofthecurrentstockprice.AtFY10,cash
and investments amounted to Rs. 43/share (43% of the total capitalization). The stock has been
tradingataround22%toitscurrentbookvalue.
Valuations
GSMisgrosslyundervaluedandiscurrentlytradingat3.5xFY12EEV/EBITDA.Weexpect4xEV/EBITDA
multipleandthereforederiveatatargetpriceofRs.157/sharewithapotentialupsideof67%.
4.0
EV(Rs.Mn)
17664
11667
Mktcap(Rs.Mn.)
%upside
5997
157
65
ThematicReport
29
FINANCIALS
Rs.Inmillion
INCOME
Netsales
Growth
EXPENDITURE
a.RawMat.Consumed&PurchaseofFin.
Goods
b.PurchaseofTradedGoods
c.PersonnelExpenses
d.OtherExpenditure
EBITDA
EBITDAmargins
Otherincome
Financecosts
EBT
EBTmargins
PROVISIONFORTAXES
a.CurrentTax
b.DeferredTax
e.FringeBnefitTax
EATbeforeMI
EATmargins
FY08
FY09
16,773.4
NA
13,317.0
(20.61)
12,240.3
5
444.70
457.91
2,299.49
(372.81)
15,069.6
1,703.73
10.16
574.01
127.88
570.20
687.40
4.10
25,149.0
88.85
36,272.0
16.82
22,623.2
3
146.20
688.19
3,974.61
(665.00)
26,767.2
4,281.68
13.79
864.59
55.74
896.98
2,575.85
8.30
159.49
139.36
0.00
298.85
632.04
2.51
FY12E
31,049.0
23.46
19,280.4
9
140.88
573.50
3,429.00
(599.01)
22,824.9
2,324.08
9.24
725.64
64.14
731.70
930.89
3.70
9,303.20
109.96
442.46
1,995.83
82.90
11,934.4
1,382.63
10.38
448.36
69.67
469.82
534.12
4.01
76.22
123.37
4.50
204.09
330.03
2.48
FY11E
76.00
205.85
5.50
287.35
400.05
2.39
FY10
26,256.4
4
150.59
825.83
4,612.90
(780.00)
31,065.8
5,206.29
14.35
1,037.51
57.18
978.41
3,247.55
8.95
850.03
180.00
0.00
1,030.03
1,545.82
4.98
1,071.69
193.00
0.00
1,264.69
1,982.86
5.47
ThematicReport
30

Rs.inmn
FY08
FY09
SOURCESOFFUNDS
Jun'08
Mar'09
12months
9months
SHAREHOLDERS'FUNDS
a.Sharecapital
382.90
382.90
3539.70
3968.30
3922.60
4351.20
PRFERENCESHARECAPITALISSUEDBYSUBSIDIARYCOMPANY
MINORITYINTEREST
a.Capital
LOANFUNDS
a.Securedloans
6798.70
8380.90
b.Unsecuredloans
1222.80
658.80
8021.50
9039.70
11944.10
13390.90
APPLICATIONOFFUNDS
FIXEDASSETS
a.Grossblock
11288.80
13386.40
b.Less:Depreciation
4440.70
4881.80
c.Netblock
6848.10
8504.60
1035.30
1383.80
7883.40
9888.40
INVESTMENTS
781.80
515.80
DEFERREDTAXASSETS
a.Inventories
1857.60
2175.50
b.Sundrydebtors
1079.00
674.70
217.50
125.00
544.10
603.80
e.Loans&Advances
1578.20
2043.70
5276.40
5622.70
1695.40
2250.40
b.Provisions
306.90
387.60
2002.30
2638.00
NETCURRENTASSETS
3274.10
2984.70
MiscellaneousExpenditure
4.60
2.00
11943.90
13390.90
FY10
Mar'10
12months
382.90
4520.00
4902.90
9485.70
793.50
10279.20
15182.10
15036.40
5560.70
9475.70
1950.50
11426.20
766.10
3653.62
1268.69
100.40
247.70
2230.20
7500.61
3951.10
560.30
4511.40
2989.21
0.68
15182.18
FY11E
382.90
6065.82
6448.72
10339.41
872.85
11212.26
17660.98
17291.86
6425.29
10866.57
1084.34
11950.91
929
4670.71
1545.59
395.29
255.13
3269.50
10136.22
4755.63
599.52
5355.16
4781.07
0.00
17660.98
FY12E
382.90
8048.67
8431.57
11269.96
960.14
12230.10
20661.67
20750.23
7462.80
13287.43
845.24
14132.66
953
5420.81
1793.80
563.45
262.78
3794.57
11835.42
5617.93
641.49
6259.42
5576.00
0.00
20661.67
ThematicReport
31

Ratios
EBITDAmargins
PBTmargins
PATmargins
Interestcoverage
CurrentRatio
Debt/Equity
Debt/Capital
AssetTurnover
InventoryTurnover
DebtorsTurnover
PayablesTurnover
Payables(Days)
EPS
BV/PS
Cash/PS
Sales/PS
ROE
ROCE
FY08
10.16
4.10
2.39
2.2
2.6
2.0
0.67
1.20
9.0
40
16
23
7.5
49
71
10
102.44
26.10
438.05
10%
14%
FY09
10.38
4.01
2.48
2.1
2.1
2.1
0.68
0.83
6.1
60
20
18
4.2
87
82
9
113.64
16.74
347.79
8%
10%
FY10
9.24
3.70
2.51
2.3
1.7
2.1
0.68
1.28
6.9
53
20
18
4.9
74
43
17
128.04
22.63
656.79
13%
15%
FY11
13.79
8.30
4.98
3.9
1.9
1.7
0.63
1.35
6.6
55
20
18
4.8
76
56
40
168.42
34.59
810.88
24%
24%
FY12
14.35
8.95
5.47
4.3
1.9
1.5
0.59
1.35
6.7
55
20
18
4.7
78
56
52
220.20
39.60
947.28
24%
25%
ThematicReport
32
TTLtd.
TTLtd(TTL),flagshipcompanyoftheTTGroup,coverstheentirespectrumofthetextilesector
viz.cotton,yarn,fabric,garmentsandaccessories.ThecompanyhasitsmakingfacilitiesinUttar
Pradesh,TamilNadu,GujaratandWestBengal.
INVESTMENTSUMMARY
KeyData
BloombergCode
ReutersCode
NSECode
CurrentShareo/s(mn)
DilutedShareo/s(mn)
MktCap(`bn/$mn)
52WKH/L(`)
DailyVol.(3MNSEAvg)
FaceValue(`)
Beta
1USD/`
TTXKIN
TTL.BO
TTL
21.5
21.5
0.7/13.3
46.8/13.15
60665
10
1.03
45.8
MoUwithChinesecompanyincreasesvisibilityandrevenues
Focusonthehighgrowthinnerwearsegment
ShareholdingPattern
Promoters
FII
Others
(%)
52.9
0.0
47.1
TTLfocusesonknittedlingeriesegmentandsellsvestsandinnerunderthebrandnameofTT.
TheCompanytargetsTierBandTierCtownsforthesame.TheCompanysellsthisproductatan
average Rs. 45/pc whereas Page Industries sells the same products in the premium under the
nameofJockeyatRs.64/pc(40%higher).Webelievewithincreasingbrandawarenessinsemi
urban areas, the realization/pc is expected to increase to Rs. 54/pc by FY12E. We expect the
knitwearsegmenttoregisteraCAGRof66%overFY1012E.Thereisverystrongdemandanditis
basicallyhowmuchTTLcanproduceandhowfast.
Expansioninknitwearandyarnbusinesstoabsorbthedemand
TTLknitwearproductionistotallyabsorbedinthemarketwithdemandformore.Thereforeto
take advantage of the situation the Company is doubling its capacity to 100000 pcs per day
whichshouldcommenceby3QFY12E.Thecompanyisalsoincreasingitsyarncapacityto50000
spindlesandsettingup3.75MWwindpowerplantforcaptivepurpose.Allshouldbeoperational
by3QFY12E.
BUY
` 42
` 29
45%
17700
PresenceintheentirevaluechainofcottongivestheCompanyacompetitiveedge
TTLs US$10 mn MoU with the Chinese company for yarn and fabrics would increase TTLs
visibility.Thedealwouldaddroughly10%tothecompanysrevenuesandwillenableTTLamuch
stronger foothold on the difficult, large but yet very potential Chinese market. However,
InformallyTTLhasagreedtodoaboutUS$20millionbusinessinthecomingyearfromjustone
Chineseplayer,whichwouldmean~Rs100crore,whichisabout25%ofourcurrentturnover.
Rating
TargetPrice
CMP
Upside
Sensex
TTL is a fully integrated in the cotton supply chain with presence in crop production, ginning,
spinning, weaving and readymade garment business. Therefore, despite of increasing cotton
prices,TTLhasbetterefficiencyandenjoyssuperiormarginsthanthepeers.
Valuations
PricePerformance(%)
1M
6M
1yr
TTL
13.2 15.4 125.3
NIFTY
11.1 10.9 11.3
AtCMPofRs.29,TTListradingat4.0xEV/FY12EEBITDAofRs.850mn.Weapplyat4.3xmultiple
duetostrongbrandpresenceandcateringtothehighmarginunderwearsegmentandarriveata
targetpriceofRs.42/share(45%potentialupside)
ThematicReport
33
COMPANYPROFILE
TT Ltd (TTL), flagshipcompany of the TT Group, covers the entire spectrum of the textile sector viz.
cotton,yarn,fabric,garmentsandaccessories.ThecompanyhasitsmakingfacilitiesinUttarPradesh,
TamilNadu,GujaratandWestBengal.
6%
8%
16%
7%
63%
Cotton
Yarn
Fabric
Knitwear&OtherMadeup
Others
Source:Company
INVESTMENTSUMMARY
PresenceintheentirevaluechainofcottongivestheCompanyacompetitiveedge
TTLisafullyintegratedinthecottonsupplychainwithpresenceincropproduction,ginning,spinning,
weavingandreadymadegarmentbusiness.ThismakesTTLlesssensitivetochangesincottonprices
andoffersbettercompetitiveadvantageoveritspeers.
Cotton Production
1.22mnkgs
(fulfills
50%
inhouseneeds)
Yarn (6.81 mn kgs)

60% of total
revenues
Fabric (2.18 mn
mtrs) 10% of
totalrevenues
Garment (12.28
pcs)25%oftotal
revenues
MoUwithChinesecompanyincreasesvisibilityandrevenues
TTLsignedaMoUwithaChineseCompanytoprovideyarnandfabricforUS$10mnwhichisroughly
Rs. 50 crs (12.% of FY10 revenues). The MoU would increase TTLs visibility. The deal would add
roughly10%tothecompanysrevenuesandwillenableTTLamuchstrongerfootholdonthedifficult,
largebutyetverypotentialChinesemarket.However,InformallyTTLhasagreedtodoaboutUS$20
millionbusinessinthecomingyearfromjustoneChineseplayer,whichwouldmeanan~Rs100crore,
whichisabout25%ofourcurrentturnover.WeexpectthefabricsandyarnbusinesstogrowatCAGR
of34%overFY09FY12E.
ThematicReport
34

Exhibit33:MoUwithChineseplayertoboostyarnandfabricsrevenue
4500
4000
3500
3000
2500
2000
1500
1000
500
0
FY09
FY10
FY11E
FY12E
Focusonthehighgrowthinnerwearsegment
TTL focuses on knitted lingerie segment and sells vests and inner under the brand name of TT. The
CompanytargetsTierBandTierCtowns for thesame.TheCompanysells thisproductatanaverageRs.
45/pc whereas Page Industries sells the same products in the premium under the name of Jockey at Rs.
60/pc(33%higher).Webelievewithincreasingbrandawarenessinsemiurbanareas,therealization/pcis
expected to increase to Rs. 60/pc by FY12E. We expect the knitwear segment to register a CAGR of 66%
overFY1012E.ThereisverystrongdemandanditisbasicallyhowmuchTTLcanproduceandhowfast.
Exhibit34:Realizations/pcvisvisPageIndustries
70
60
Exhibit35:IncreaseinRealizations/pc
64
58
FY12E
50
54
45
40
FY11E
30
50
24
20
FY10
46
10
0
FY09
FY09
24
FY10
PageInd
TTL
10
20
30
40
50
60
Expansioninknitwearandyarnbusinesstoabsorbthedemand
TTLknitwearproductionistotallyabsorbedinthemarketwithdemandformore.Thereforetotake
advantageofthesituationtheCompanyisdoublingitscapacityto100000pcsperdaywhichshould
commenceby3QFY12E.Thecompanyisalsoincreasingitsyarncapacityto50000spindlesandsetting
up3.75MWwindpowerplantforcaptivepurpose.Allshouldbeoperationalby3QFY12E.
ThematicReport
35
Valuations
AtCMPofRs.29,TTListradingat4.0xEV/FY12EEBITDAofRs.850mn.Weapplyat4.3xmultipledue
tostrongbrandpresenceandcateringtothehighmarginunderwearsegmentandarriveatatarget
priceofRs.42/share(45%potentialupside)
4.3
EV(Rs.Mn)
3805
2348
Mktcap(Rs.Mn.)
1457
42
%upside
45
ThematicReport
36
FINANCIALS
PROFIT&LOSSACCOUNT
Rs.Inmillion
INCOME
Sales
Less:InterdivisionalSales
Less:ExciseDuty
Growth
EXPENDITURE
a.Material
b.Manf,Personnel,Admin&Selling
c.(Increase)/DecreaseinStock
d.Lossonforeignexchangefluctuation
EBITDA
EBITDAmargins
Otherincome
Financecosts
EBT
EBTmargins
PROVISIONFORTAXES
a.IncomeTax
b.MATcreditentitlement
c.Fringebenefittax
d.Deferredtax
e.IncomeTaxfortheearlieryear
EAT
EATmargins
FY08
6,522.73
18.93
0.40
6,503.40
NA
5,507.35
769.98
3.01
0.00
6,280.34
223.06
3.43
64.31
27.82
153.20
33.38
0.51
3.70
(3.70)
0.69
1.14
0.10
1.94
31.44
0.48
FY09
2,466.75
25.68
0.00
2,441.07
(62.46)
1,958.67
530.87
(22.77)
117.43
2,584.19
(143.13)
(5.86)
77.74
37.11
178.68
(362.43)
(14.85)
0.00
0.00
0.68
0.00
(0.23)
0.45
(362.89)
(14.87)
FY10
3,562.31
26.28
0.00
3,536.03
44.86
2,668.23
633.60
(105.96)
0.00
3,195.87
340.16
9.62
95.56
6.61
190.39
60.82
1.72
1.34
(1.34)
0.00
(44.41)
0.00
(44.41)
105.23
2.98
FY11
5,142.02
49.35
0.00
5,092.67
44.02
4,001.94
580.65
(78.00)
0.00
4,504.59
588.08
11.55
104.01
2.10
201.15
285.02
5.60
57.00
0.00
0.00
3.90
0.00
60.90
224.11
4.40
FY12
6,270.01
59.38
0.00
6,210.63
21.95
4,769.91
660.16
(65.00)
0.00
5,365.07
845.57
13.61
108.81
3.50
210.09
530.17
8.54
106.03
0.00
0.00
10.30
0.00
116.33
413.84
6.66
ThematicReport
37

BALANCESHEET
Rs.Inmillion
SOURCESOFFUNDS
SHAREHOLDERS'FUNDS
a.Sharecapital
LOANFUNDS
a.Securedloans
b.Unsecuredloans
APPLICATIONOFFUNDS
FIXEDASSETS
a.Grossblock
b.Less:Depreciation
c.Netblock
INVESTMENTS
DEFERREDTAXASSETS
CASH
NETCURRENTASSETS
MISCELLANEOUSEXPENDITURE
FY08
FY09
214.98
399.64
214.98
530.51
1,692.45
20.02
83.10
2,410.20
2,234.24
169.88
0.00
3,137.41
2,062.77
394.52
1,668.25
309.78
1,978.03
2.49
0.00
794.49
10.57
125.42
679.63
0.00
130.18
2,790.33
FY11
214.98
518.31
1,972.12
72.72
0.00
2,790.33
1,583.44
339.92
1,243.51
107.42
1,350.94
3.45
0.00
1,239.44
0.00
188.79
1,050.65
5.17
0.00
2,410.20
FY10
2,565.23
501.34
2,063.89
17.70
2,081.59
1.57
44.41
1,211.42
16.58
243.61
984.39
0.00
25.46
3,137.42
FY12
214.98
742.43
2,329.24
185.17
91.90
3,563.72
2,600.23
605.34
1,994.89
4.50
1,999.39
1.50
0.00
1,714.01
105.92
257.10
1,562.82
0.00
0.00
3,563.71
214.98
1,156.26
2,424.24
201.83
98.97
4,096.29
2,720.23
714.15
2,006.08
52.00
2,058.08
1.50
0.00
2,090.00
277.63
330.92
2,036.72
0.00
0.00
4,096.29
ThematicReport
38

RATIOS
FY08
FY09
FY10
FY11E
FY12E
EBITDAmargins
3.43
(5.86)
9.62
11.55
13.61
PBTmargins
0.51
(14.85)
1.72
5.60
8.54
PATmargins
0.48
(14.87)
2.98
4.40
6.66
Debt/Equity
2.8
2.7
3.3
2.6
1.9
Debt/Capital
0.57
0.58
0.62
0.56
0.48
AssetTurnover
2.15
0.69
0.91
1.13
1.14
5.2
3.1
2.9
3.0
3.0
34.4
19.5
14.5
19.8
18.8
1.5
16.9
4.9
10.4
19.2
CurrentAssetTurnover
CurrentLiabilitiesTurnover
EPS
28.59
34.68
34.11
44.53
63.78
Cash/PS
BV/PS
0.00
0.49
0.77
4.93
12.91
Sales/PS
302.51
113.55
164.48
236.89
288.89
ROE
11%
31%
3%
21%
45%
ROCE
7%
4%
9%
13%
15%
ThematicReport
39
SangamIndiaLtd.
BhilwarabasedSangamIndia(Sangam)isthelargestplayerintheIndianpolyviscose(PV)yarn
market. The Company has strong presence in Indian synthetic blended fabric segment with
brands like Anmol and Sangam. Its clients base comprise of Reid & Taylor, Banswara Syntex,
Donear,SiyaramSilkMills,Grasim.
INVESTMENTSUMMARY
ChangingdemanddynamicsandsupplyconstraintsinthePVmarket
Changeinproductmixtoyieldbetterrealizationsandmargins
Sangam Indias presence is in the coarser counts of PV yarn and therefore it earned lower
realizationsthanitspeers.However,thecompanyisgoingtofocusonimprovingitsproductmix
and value addition to the existing products. We expect the average realizations in yarn to
increasebyRs.150/kginFY12EfromthecurrentRs.140/kginFY10.TheROCEsaretherefore
expectedtoimprovefromthecurrent8%to16%inFY12E.
Forayingintoreadymadegarmentbusiness
KeyData
BloombergCode
ReutersCode
NSECode
CurrentShareo/s(mn)
DilutedShareo/s(mn)
MktCap(`bn/$mn)
52WKH/L(`)
DailyVol.(3MNSEAvg)
FaceValue(`)
Beta
1USD/`
ShareholdingPattern
Promoters
FII
Others
(%)
36.0
0.0
64.0
PricePerformance(%)
1M
6M
SANGAMIND
9.2 20.6
NIFTY
11.1 10.9
1yr
52.3
11.3
SNGMIN
SANG.BO
SANGAMIND
39.4
39.4
1.7/37.1
63/27.35
136041
10
1.12
45.8
The company has undertaken forward integration and forayed in readymade apparel segment
under the brand name of Sangam and Anmol. The company has signed Virat Kohli and Suneil
Shetty to endorse and promote the brands. The Company also launched an exclusive wedding
collectionofPVblendedfabricsunderthebrandLinovita.Weexpectthereadymadegarment
divisiontostartcontributingfromFY13E.
BUY
` 53
` 43
41%
17700
Reductionofdebttoincreasefinancialflexibility
TheCompanyisconsciouslystrivingtoreduceitsdebtburden.Thedebt/equityratioatFY10was
around2.07:1.Weexpectthedebt/equityratiotocomedownto1.7:1byFY12E,thusenabling
financialflexibility.
Rating
TargetPrice
CMP
Upside
Sensex
With increasing cotton prices, manmade fibre has become relatively cheaper source option.
Since major capacity expansions are commissioned in this segment the sector is likely to
experience a major boost. Sangam accounts for ~25% of the total PV yarn market giving it an
addedadvantage.WeexpectthesalesfromPVyarnmarkettoincreaseby15%CAGRbetween
FY10FY12E.
Tolldivisiontoaddtotherevenues
SangamwasawardedabidbyNHAItocollectatollfromfourcentersnearitsplantinBhilwara,
Rajasthan.Thetollcontractisforaperiodof12monthswithgrossrevenueofRs.382.8mn.
Valuations
Sangam is grossly undervalued and is currently trading at 3.7x FY12E EV/EBITDA. We estimate
thecompanytobetradingat4xFY12EEBITDA(discounttootherduetoliquidityconcerns,thus
derivingtoatargetpriceofRs.61withapotentialupsideof41%.
ThematicReport
40
CompanyProfile
Bhilwara based Sangam India (Sangam) is the largest player in the Indian poly viscose (PV) yarn
market.TheCompanyhasstrongpresenceinIndiansyntheticblendedfabricsegmentwithbrandslike
AnmolandSangam.ItsclientsbasecompriseofReid&Taylor,BanswaraSyntex,Donear,SiyaramSilk
Mills,Grasim.
3%
4%
9%
24%
60%
P/VYarn
Fabric
CottonYarn
SyntheticFabric
FlockFabric
Source:Company
InvestmentSummary
ThepricedifferentialbetweenPVyarnandcottonyarnhaschangedinfavorofPVyarn.Weexpectthe
price competitiveness to improve going forward, boosting the demand for PV yarn. While prices of
polyesterwoulddeclineduetothedecreasingfeedstockprices,cottonpriceswouldremainfirmdue
tohigherMinimumSupportPrices.
Exhibit37:PercentageshareofmajortextilesectorsunderTUFs
145
140
135
130
125
120
FY08
FY09
FY10
Cottonyarn
FY11E
PVyarn
FY12E
FY13E
Source:Ministryoftextiles
Onthesupplyfront,mostofthelargecompanieshavecompletedtheirCapexcycleduringFY00608.
ThefreshcapacitiesarealsounderutilizedduetoglobalrecessioninFY09.Withincreaseindemand
andpricefavorabilityofPVyarnsvisviscotton,utilizationsareexpectedtoneararound100%and
fresh capacities will start pouring in. However, in order to build new capacities by any players a
minimum of 20 months of gestation period would be required. Therefore, no further capacity
expansionsexpectedinthenexttwoyears.
ThematicReport
41

Sangamcommands25%shareinthePVyarnmarketwhichwillenabletheCompanytoreapbenefits
fromthegrowingopportunityinthemarket.
Changeinproductmixtoyieldbetterrealizationsandmargins
Sangamisamarketleaderof2/15sand2/18scountsinthePVyarnmarketwhereitisapricesetter.
However, Sangams realizations (Rs. 132/kg) are lower than RSWMs (Rs. 143/kg) as most of the
revenues come from coarser counts while RSWM sells finer counts and higher proportion of cotton
yarn. Going forward we expect the realizations and margins in PV yarn business to improve due to
betterproductmix.
Exhibit38:PVyarnRealizations(Rs./kg)visvisRSWM
160
155
150
145
140
135
130
FY09
FY10
RSWM
FY11E
FY12E
Sangam
Source:Company
Sincemajoroftheexpansioniscommissioned,theCompanyisusingitsexcesscashtoreduceitsdebt
burdenascomparedtootherswhoareexpandingfurther.Thedebt/equityratioatFY10wasaround
2.07:1. We expect the debt/equity ratio to come down to 1.7:1 by FY12E, thus enabling financial
flexibility.
ThematicReport
42

Exhibit40:Debt/Equitycomparisonsamongstpeers
Exhibit39:Reductionofdebt/equityratio
4.5
8,000
5.2
4.0
7,000
4.7
3.5
6,000
4.2
5,000
3.7
4,000
3.2
3,000
2.7
1.0
2,000
2.2
0.5
1,000
1.7
1.2
3.0
2.5
2.0
1.5
0.0
1
3
Debt
FY07
Debt/Equity
FY08
SangamIndia
FY09
FY10
FY11E
BanswaraSyntex
FY12E
RSWM
Forayingintohighmarginbrandedfabricandreadymadegarmentbusiness
Thecompanyplanstoundertakeforwardintegrationandforayintoreadymadegarmentmarketunder
the brand name of Sangam and Anmol. The company has signed Virat Kohli and Suneil Shetty to
endorse and promote the brands. Sangam will also extensively use its dealer network and try to
convert them into franchisee in order to push their product into the market. The brand building
exerciseshouldbecompletedin2yearsandweexpectthegarmentdivisiontostartcontributingfrom
FY13E.
Tolldivisiontoaddtotherevenues
Sangam was awarded a bid by NHAI to collect a toll from four centers near its plant in Bhilwara,
Rajasthan.Thetollcontractisforaperiodof12monthswithgrossrevenueofRs.382.8mn.
FinancialOutlook
WeexpecttheCompanytoremainfocusedonthePVyarnbusiness.WeexpecttheCompanysoverall
revenues to grow at 21% CAGR from FY10FY12E. Margins are expected to improve as the prices of
rawmaterialsareexpectedtoremainlowandbetterrealizationsareexpectedtopickupintheIndian
PVyarnmarket.TheabovewithasignificantreductionindebtwillboosttheROCEoftheCompanyto
23%byFY12E
Valuations
Sangam is grossly undervalued and is currently trading at 3.7x FY12E EV/EBITDA. We estimate the
companytobetradingat4xFY12EEBITDA(discounttootherduetoliquidityconcerns,thusderiving
toatargetpriceofRs.61withapotentialupsideof41%.
4.0
EV(Rs.Mn)
9442
7009
Mktcap(Rs.Mn.)
2434
62
%upside
41
ThematicReport
43
FINANCIALS
PROFIT&LOSSACCOUNT
Rs.Inmillion
INCOME
a.Incomefromoperations
Less:Exciseduty
Growth
EXPENDITURE
a.RawMaterial
b.Personnelcost
c.OperationsandOtherExpenses
d.(Increase)/Decreaseinstock
EBITDA
EBITDAmargins
Otherincome
ProvisionforDoubtfulDebts/Advances
FinancialCharges
EBT
EBTmargins
PROVISIONFORTAXES
a.IncomeTax
b.Deferretax
c.FringeBenefittax
d.TaxofearlierYears
EAT
EATmargins
FY08
FY09
6,950.52
7,495.94
16.70
13.24
6,933.82
7,482.70
NA
7.92
4,481.93
4,603.66
446.59
488.01
1,287.04
1,580.65
(218.02)
91.52
5,997.54
6,763.84
936.28
718.86
13.50
9.61
491.03
590.50
16.89
5.75
2.00
1.00
392.63
454.71
67.51
(321.60)
0.97
(4.30)
2.60
0.00
9.00
(163.56)
2.17
1.80
0.00
0.00
13.76
(161.76)
53.75
(159.84)
0.78
(2.14)
FY10
FY11E
8,549.83
27.35
8,522.48
13.90
11,298.16
45.19
11,252.97
32.04
4,976.59
575.08
1,683.91
(11.28)
7,224.30
1,298.18
15.23
630.75
7.98
3.00
410.06
262.36
3.08
13,281.49
53.13
13,228.37
17.55
6,541.24
690.10
1,887.36
80.00
9,198.70
2,054.27
18.26
687.00
0.00
3.50
436.16
1,363.77
12.12
0.00
90.53
0.00
0.30
90.83
171.52
2.01
FY12E
7,683.26
897.12
2,167.38
120.00
10,867.76
2,360.61
17.85
699.37
0.00
4.12
406.09
1,657.12
12.53
477.32
120.00
0.00
32.00
629.32
734.45
6.53
579.99
131.20
0.00
32.00
743.19
913.93
6.91
ThematicReport
44

BALANCESHEET
Rs.Inmillion
SOURCESOFFUNDS
SHAREHOLDERS'FUNDS
a.Sharecapital
LOANFUNDS
a.Securedloans
b.Unsecuredloans
FY08
FY09
394.22
1,538.72
APPLICATIONOFFUNDS
FIXEDASSETS
a.Grossblock
b.Less:Depreciation
c.Netblock
INVESTMENTS
a.Inventories
b.Sundrydebtors
d.Loansandadvances
b.Provisions
NETCURRENTASSETS
394.22
1,378.88
6,775.43
520.85
416.93
7,051.14
2,094.08
4,957.06
1,498.90
6,455.96
60.00
508.49
0.00
2,724.63
5.86
8,954.55
9,159.97
3,957.14
5,202.83
78.10
5,280.93
80.04
1,770.02
1,305.60
69.16
689.35
3,834.13
9,324.97
4,656.51
4,668.46
42.50
4,710.96
81.64
2,188.08
1,750.46
84.41
853.35
4,876.30
467.99
45.97
3,320.17
2,645.67
2,057.75
175.85
1,031.81
5,911.08
687.68
40.00
4,148.62
9,168.47
5,893.86
259.08
595.11
9,855.28
9,509.60
8,914.23
3,270.14
5,644.09
125.74
5,769.83
78.47
1,428.65
1,185.94
84.48
534.04
3,233.12
394.22
2,713.03
6,370.86
237.69
463.91
9,168.47
8,768.76
2,658.12
6,110.64
53.01
6,163.65
60.41
1,687.27
1,359.41
88.82
563.86
3,699.37
FY12
394.22
2,042.93
6,707.86
218.06
343.91
8,954.55
FY11
394.22
1,504.43
6,661.66
266.43
253.37
9,646.15
580.31
0.00
3,119.06
11.13
9,646.15
FY10
808.40
40.00
5,062.68
9,509.59
9,855.29
ThematicReport
45

RATIOS
FY08
FY09
FY10
FY11E
FY12E
EBITDAmargins
13.50
9.61
15.23
18.26
17.85
PBTmargins
0.97
(4.30)
3.08
12.12
12.53
PATmargins
0.78
(2.14)
2.01
4.14
3.89
Interestcoverage
1.2
0.3
1.6
4.1
5.1
CurrentRatio
6.4
6.4
7.5
6.7
7.0
Debt/Equity
3.7
3.9
3.6
2.7
1.9
Debt/Capital
0.79
0.80
0.78
0.73
0.66
AssetTurnover
0.68
0.79
0.88
1.10
1.24
4.1
5.2
4.8
5.1
5.0
InventoryTurnover
89
70
76
71
73
DebtorsTurnover
5.1
6.3
6.5
6.4
6.4
72
58
56
57
57
PayablesTurnover
7.7
9.1
10.6
9.5
9.5
47
40
34
38
38
Payables(Days)
113
87
97
89
91
EPS
1.36
4.05
4.35
18.63
23.18
49.03
44.98
48.16
61.82
78.82
BV/PS
Cash/PS
3.78
3.68
3.75
4.17
6.53
ROE
26%
19%
27%
45%
55%
ROCE
5%
2%
8%
20%
23%
ThematicReport
46
AlokIndustries
Incorporatedin1986,AlokIndustries(Alok)isoneoftheleadingtextilegroupandamongstthe
fastest growing vertically integrated textile companies in India offering world class integrated
textile solutions. The company is engaged in manufacturing of home textiles, apparel fabrics,
garments and polyester yarns selling directly to manufacturers, exporters, importers, retailers
andbrandstheworldover.Besides,itisalsoengagedinRetailandRealtythroughtheirwholly
owned subsidiary company. Alok has its manufacturing facilities at Silvassa in Dadra & Nagar
Haveli,ThaneandNaviMumbaiinMaharashtraandValsadandVapiinGujarat.
Rating
TargetPrice
CMP
Upside
Sensex
KeyData
BloombergCode
ReutersCode
NSECode
CurrentShareo/s(mn)
DilutedShareo/s(mn)
MktCap(`bn/$mn)
52WKH/L(`)
DailyVol.(3MNSEAvg)
FaceValue(`)
Beta
1USD/`
ALOKIN
ALOK.BO
ALOKTEXT
787.8
787.8
16.6/362.6
35/17.75
17602060
10
1.35
45.8
ShareholdingPattern
Promoters
FII
Others
(%)
28.4
16.9
54.7
INVESTMENTSUMMARY
Changeinrevenuemixtoreducesensitivitytocottonprices
AloksrevenuemixwillchangefavoringtheSynthetic/Manmadefibrebusinesspostexpansion
in POY segment. Cotton yarn and fibers will constitute of 51% in FY21E (63% in FY10) while
Syntheticfibrewillmakefor43%(29%inFY10).Withmoreorlessequalweightageinboththe
divisionstheCompanywillreduceitsdependencyoncottonorcrudeprices
Integrationfromyarntogarmenthelps2628%EBITDAmargin(highestintheindustry)
Integrationisthekeytorobustmarginsintextilebusinessandthecompanyisalreadypresent
fromthefibretofabricstage.Toensurequalityandcostefficiencieshaveintegratedbackward
into cotton spinning and manufacturing partially oriented yarn through the continuous
polymerisation route. The company also provides embroidered products through its associate
groupcompany Grabal AlokImpex Ltd. The complete integration model helps the company to
garnerEBITDAmarginintherangeof2628%whichishighestintheindustry.
Thoughahighlyleveragedcompany,wedontforseethistobeamajorconcerngoingforwardas
thesaiddebtwastakenforcapacityexpansion.AlokhasaconsolidateddebtofRs96.7bn,which
can be justified given its aggressive Capex of Rs60bn in the last five years. We believe that
company has well positioned itself to capture or exploit the growth in the sector. Hence,
completion ofexpansion will fetch increased revenues, higher marginsandbetterprofitability.
Webelievethatwiththehelpofincreasedcashflowthecompanywillabletoserviceitshighcost
debtfaster,whichinturnwillhelpinreducinginterestoutgointhenearfuture.
Exiting from unrelated businesses will enable Alok to channel its resourced to the fast
pacedtextilesindustry
Alok plans to divest its real estate business in order to focus only on the textiles division. By
BUY
` 37
` 20
37%
17700
PricePerformance(%)
1M
6M
19.0 24.4
ALOKTEXT
NIFTY
11.1 10.9
1yr
10.2
11.3
FY12EtheCompanyshouldexittherealestatebusinesswithdecentprofits.Theseproceedscan
beusedinfurtherexpansioninthetextilesbusinessorreductionofdebt.
Valuations
Alok is currently trading at 5.7x FY12E EV/EBITDA and 3x FY12E Earnings. We estimate the
company to be trading at 6x FY12E EBITDA (premium to the players due its size and integrated
model),thusderivingtoatargetpriceofRs.28withapotentialupsideof37%.
ThematicReport
47
COMPANYPROFILE
Incorporatedin1986,AlokIndustries(Alok)isoneoftheleadingtextilegroupandamongstthefastest
growing vertically integrated textile companies in India offering world class integrated textile
solutions.Thecompanyisengagedinmanufacturingofhometextiles,apparelfabrics,garmentsand
polyesteryarnssellingdirectlytomanufacturers,exporters,importers,retailersandbrandstheworld
over.Besides,itisalsoengagedinRetailandRealtythroughtheirwhollyownedsubsidiarycompany.
Alok has its manufacturing facilities at Silvassa in Dadra & Nagar Haveli, Thane and Navi Mumbai in
MaharashtraandValsadandVapiinGujarat.
8%
29%
63%
Cotton
Synthetic
Trading
Source:Company
INVESTMENTSUMMARY
Changeinrevenuemixtoreducesensitivitytocottonprices
AloksrevenuemixwillchangefavoringtheSynthetic/ManmadefibrebusinesspostexpansioninPOY
segment.Cottonyarnandfiberswillconstituteof51%inFY21E(63%inFY10)whileSyntheticfibrewill
makefor43%(29%inFY10).WithmoreorlessequalweightageinboththedivisionstheCompany
willreduceitsdependencyoncottonorcrudeprices
Exhibit42:Reducingdependencyoncotton
FY12E
51%
FY11E
43%
58%
FY10
35%
63%
0%
20%
29%
40%
Cotton
5%
Synthetic
60%
Trading
80%
7%
8%
100%
ThematicReport
48
Integrationfromyarntogarmenthelps2628%EBITDAmargin(highestintheindustry)
Alok Industries is Indias largest integrated textile company. They have over the years forayed into
weaving,knitting,processing,hometextilesandgarments.Andtoensurequalityandcostefficiencies
haveintegratedbackwardintocottonspinningandmanufacturingpartiallyorientedyarnthroughthe
continuous polymerisation route. The company also provides embroidered products through its
associategroupcompanyGrabalAlokImpexLtd.Thecompleteintegrationmodelhelpsthecompany
togarnerEBITDAmarginintherangeof2628%whichishighestintheindustry.
Exhibit43:RevenueandEBITDAmargins
100000.00
27.00
90000.00
26.50
80000.00
26.00
70000.00
60000.00
25.50
50000.00
25.00
40000.00
24.50
30000.00
24.00
20000.00
23.50
10000.00
0.00
23.00
FY09
FY10
NetIncome
FY11E
EBITDA
FY12E
EBITDA(%)
Thoughahighlyleveragedcompany,wedontforseethistobeamajorconcerngoingforwardasthe
saiddebtwastakenforcapacityexpansion.AlokhasaconsolidateddebtofRs96.7bn,whichcanbe
justifiedgivenitsaggressiveCapexofRs60bninthelastfiveyears.Webelievethatcompanyhaswell
positioneditselftocaptureorexploitthegrowthinthesector.Hence,completionofexpansionwill
fetch increased revenues, higher margins and better profitability. We believe that with the help of
increasedcashflowthecompanywillabletoserviceitshighcostdebtfaster,whichinturnwillhelpin
reducinginterestoutgointhenearfuture.
Exhibit44:ReductionofriskwithincreaseinROCE
4.50
16%
4.00
14%
3.50
12%
3.00
10%
2.50
8%
2.00
6%
1.50
1.00
4%
0.50
2%
0%
0.00
FY08
FY09
FY10
FY11E
Debt/Equity
ROCE
FY12E
ThematicReport
49

ExitingfromunrelatedbusinesseswillenableAloktochannelitsresourcedtothefastpacedtextiles
industry
Alokplanstodivestitsrealestatebusinessinordertofocusonlyonthetextilesdivision.ByFY12Ethe
Company should exit the real estate business with decent profits. These proceeds can be used in
furtherexpansioninthetextilesbusinessorreductionofdebt.
Valuations
Alokiscurrentlytradingat5.7xFY12EEV/EBITDAand3xFY12EEarnings.Weestimatethecompanyto
be trading at 6x FY12E EBITDA (premium to the players due its size and integrated model), thus
derivingtoatargetpriceofRs.28withapotentialupsideof37%.
EV(Rs.Mn)
6.00
113385
91477
Mktcap(Rs.Mn.)
21909
28
%upside
37
ThematicReport
50
FINANCIALS
Rs.Inmillion
INCOME
a.Incomefromoperations
Less:ExciseDuty
JobWorkCharges(TDS0.10c;PY0.07cr)
Growth
EXPENDITURE
a.PurchaseofTradedgoods
b.Manufacturing&OtherExpenses
c.(Increase)/Decreaseinstock
EBITDA
EBITDAmargins
Interest(net)
Otherincome
EBT
EBTmargins
PROVISIONFORTAXES
a.IncomeTax
b.MATcreditentitlement
c.Deferredtax
d.Fringebenefittax
(Short)provisionforI.Taxforearlieryears
EAT
EATmargins
FY08
23,308.70
632.90
22,675.80
144.30
22,820.10
NA
2,986.20
15,705.10
(1,038.30)
17,653.00
5,167.10
22.64
1,331.30
1,661.90
690.80
2,864.70
12.55
(347.60)
41.20
(675.00)
(12.60)
0.00
(994.00)
1,870.70
8.20
FY09
31,135.90
347.70
30,788.20
119.60
30,907.80
35.44
1,216.80
26,275.30
(4,269.30)
23,222.80
7,685.00
24.86
3,410.30
2,401.50
459.60
2,332.70
7.55
(343.80)
286.50
(884.80)
(17.90)
(7.40)
(967.40)
1,365.30
4.42
FY10
44,843.60
716.40
44,127.20
116.20
44,243.40
43.15
5,218.60
30,430.50
(3,057.30)
32,591.80
11,651.60
26.34
5,789.00
3,669.20
666.30
2,859.70
6.46
(659.40)
342.60
(969.60)
0.20
4.60
(1,281.60)
1,578.10
3.57
FY11E
55,600.53
0.00
55,600.53
0.00
55,600.53
25.67
5,427.34
39,960.46
(4,900.00)
40,487.81
15,112.73
27.18
6,287.17
4,359.47
700.32
5,166.41
9.29
(1,239.94)
376.86
(1,027.00)
0.00
0.00
(1,890.08)
3,276.33
5.89
FY12E
69,429.21
0.00
69,429.21
0.00
69,429.21
24.87
5,644.44
50,187.26
(5,300.00)
50,531.70
18,897.51
27.22
6,770.80
4,624.67
840.39
8,342.43
12.02
(2,002.18)
414.55
(1,394.00)
0.00
0.00
(2,981.64)
5,360.80
7.72
ThematicReport
51

Rs.inmn
FY08
SOURCESOFFUNDS
SHAREHOLDERS'FUNDS
a.Sharecapital
1,871.70
b.ShareApplicationMoney
0.00
c.ShareWarrants
1,101.60
d.Reservesandsurplus
11,331.80
14,305.10
MINORITYINTEREST
237.50
LOANFUNDS
a.Securedloans
48,852.80
b.Unsecuredloans
9,486.80
58,339.60
2,153.30
74,798.00
APPLICATIONOFFUNDS
FIXEDASSETS
a.Grossblock
35,077.70
b.Less:Depreciation
5,631.70
c.Netblock
29,446.00
10,251.80
39,697.80
INVESTMENTS
3,452.80
0.00
FOREIGNCURRENCYTRANSLATION
MONETARYACCOUNT
0.00
DEFERREDTAXASSETS
51.00
a.Inventories
7,712.50
b.Sundrydebtors
6,382.40
17,051.40
d.Loansandadvances
6,522.20
37,668.50
5,458.80
b.Provisions
375.80
5,834.60
NETCURRENTASSETS
31,833.90
MiscellaneousExpenses
0.00
75,035.50
FY09
FY10
FY11E
7,877.90
2,275.70
0.00
17,696.20
27,849.80
36.20
FY12E
1,969.70
3,290.60
102.00
13,944.00
19,306.30
55.70
65,399.30
4,165.40
69,564.70
3,081.20
91,952.20
47,051.00
7,974.60
39,076.40
23,770.00
62,846.40
4,639.40
492.20
87,981.50
8,744.20
96,725.70
4,071.50
128,647.00
75,835.90
11,572.00
64,263.90
16,914.20
81,178.10
4,168.60
492.20
87,981.50
8,744.20
96,725.70
5,098.50
129,584.09
83,835.90
15,931.47
67,904.43
19,000.00
86,904.43
5,002.32
492.20
87,981.50
8,744.20
96,725.70
6,492.50
131,680.39
88,935.90
20,556.13
68,379.77
8,000.00
76,379.77
6,002.78
492.20
112.00
17.20
1.70
41.90
0.00
0.00
0.00
0.00
10,686.90
9,137.70
4,274.30
6,653.20
30,752.10
7,877.90
1,592.99
0.00
18,289.00
27,759.89
0.00
15,678.20
11,264.60
14,106.70
9,105.10
50,154.60
7,877.90
1,115.09
0.00
19,469.20
28,462.19
0.00
19,460.19
14,672.36
2,368.97
11,286.91
47,788.43
24,107.37
18,321.60
5,249.18
13,982.27
61,660.41
6,533.30
7,299.00
9,884.54
11,957.25
318.10
579.70
718.76
897.52
6,851.40
7,878.70 10,603.30
12,854.78
23,900.70 42,275.90 37,185.13 48,805.64
0.00
524.80
0.00
0.00
92,007.90 128,158.40 129,584.09 131,680.39
ThematicReport
52

Ratios
EBITDAmargins
PBTmargins
PATmargins
Interestcoverage
CurrentRatio
Debt/Equity
Debt/Capital
AssetTurnover
InventoryTurnover
DebtorsTurnover
PayablesTurnover
Payables(Days)
EPS
BV/PS
Cash/PS
Sales/PS
ROE
ROCE
FY08
22.64
12.55
8.20
3.15
6.46
4.08
0.80
0.28
2.94
124.14
3.55
102.73
0.55
667.22
509.17
9.99
76.43
109.55
121.92
28%
7%
FY09
24.86
7.55
4.42
1.68
4.49
3.60
0.78
0.31
2.88
126.70
3.37
108.33
0.19
1959.78
282.25
6.93
98.01
45.25
156.91
19%
8%
FY10
26.34
6.46
3.57
1.49
6.37
3.47
0.78
0.32
2.81
129.68
3.92
93.18
0.71
510.51
348.77
2.00
35.35
23.20
56.16
10%
9%
FY11
27.18
9.29
5.89
1.82
4.51
3.48
0.78
0.40
2.86
127.75
3.79
96.32
0.55
664.76
244.11
4.16
35.24
9.36
70.58
9%
12%
FY12
27.22
12.02
7.72
2.23
4.80
3.40
0.77
0.48
2.88
126.74
3.79
96.32
0.47
773.22
256.58
6.80
36.13
14.28
88.13
14%
14%
ThematicReport
53
RSWMLtd.
Incorporated in 1960 as Rajasthan Spinning & Weaving Mills, RSWM, the flagship of the LNJ
BhilwaraGroupandoneofthelargesttextilegroupsformanmadefibres,yarnsandfabricswith
totalspindlescapacityis3,60,000andproductionof1,00,000TPAofyarnannually.
INVESTMENTSUMMARY
Lowcostoperationsincreasecompetitivestrength:
Captive power plant, integrated operations and advanced raw material sourcing techniques
provides significant cost advantage and enables superior EBITDA margins of over 11.5% as
comparedtothepeeraverage(9.25%).WeexpecttheEBITDAtofurtherexpandtoover13%by
FY12E.
Turnaroundinfabricsdivisionaddingtothebottomline
Withincreasingcapacities,focusonhighendqualitydenimfabricanddomesticsalespickingup
for its suiting and shirting business we believe going forward; revenue from this segment will
increaseby26%CAGRoverFY10FY12E.WeexpectthissegmenttoproduceprofitsfromFY11E
onwards.
Brand equity and forward integration will enable RSWM to capture a share of Indias
consumerism
RSWMisplanningtocashinonMayursbrandequitybyintroducingreadymadegarmentsunder
this brand. With increased consumerism and preference for branded products, we believe the
garmentbusinessforRSWMisslatedtogrowat26%CAGRoverFY1012E.
Valuations
Rating
TargetPrice
CMP
Upside
Sensex
BUY
` 197
` 147
34%
17700
KeyData
BloombergCode
ReutersCode
NSECode
CurrentShareo/s(mn)
DilutedShareo/s(mn)
MktCap(`bn/$mn)
52WKH/L(`)
DailyVol.(3MNSEAvg)
FaceValue(`)
Beta
1USD/`
RJSIN
RSWM.BO
RSWM
23.1
23.1
3.5/76.4
204/97
43410
10
1.02
45.8
ShareholdingPattern
Promoters
FII
Others
(%)
49.4
0.2
50.4
PricePerformance(%)
1M
6M
RSWM
11.5 11.2
NIFTY
11.1 10.9
1yr
51.9
11.3
The demand for PV yarn has increased tremendously. It is now been used in manufacturing
suiting (summer suits), knits, ladies dress material, institutional and corporate uniforms and
carpets.Alsowithincreasingcottonprices,manmadefibrehasbecomerelativelycheapersource
option.Sincemajorcapacityexpansionsarecommissionedinthissegmentthesectorislikelyto
experience a major boost. RSWM accounts for ~35% of the total PV yarn market giving it an
addedadvantage.WeexpectthesalesfromPVyarnmarkettoincreaseby16%CAGRbetween
FY10FY12E.
High contribution of export, installation of thermal power plant, higher economies of scale,
advanced productivity, technological up gradation and superior operational efficiencies will
continue to be thekey driver of companys growth strategy.At CMP of 147, RSWM is currently
tradingat5.2xFY12EEV/EBITDA.Weassigna5.6xEV/EBITDAandarriveatatargetpriceofRs.
197/share(34%upsidefromCMP).
ThematicReport
54
COMPANYPROFILE
Incorporatedin1960asRajasthanSpinning&WeavingMills,RSWM,theflagshipoftheLNJBhilwaraGroup
andoneofthelargesttextilegroupsformanmadefibres,yarnsandfabricswithtotalspindlescapacityis
3,60,000andproductionof1,00,000TPAofyarnannually.
44%
56%
Yarn
Fabric
INVESTMENTSUMMARY
Lowcostoperationsincreasecompetitivestrength:
TheCompanyenjoyssuperiormarginsvisaviapeersduetointegratedoperations.Rawmaterialand
energyaccountforasignificantpartoftheCompany'scostofproduction.
Rawmaterialprocurement:
Given the large size of its operations, RSWM has a centralised purchase team to source its raw
material, stores, spares and consumables, and is therefore able to leverage sizebased benefits. In
addition, the Company uses the reverse auctions on an esourcing platform to procure packaging
materials, stores and consumables, courier, logistics and ocean freight. These initiatives have
improvedtransparencyinthesourcingprocessandresultedinconsiderablesavings.
Captiveenergy:
RSWM has installed 46 MW captive thermal plant which supplies power to RSWM's manufacturing
locations across the state of Rajasthan. This has enabled a massive reduction in energy cost. The
electricitycosthasreducedtoRs.3.94/unitasagainstRs.4.6/unitifpurchased.Thecoallinkagefor
receiving dedicated supply of coal from Coal India Limited's subsidiary, South Eastern Coalfields
Limited(SECL),isnowfullyoperational.Usinginhouseexpertise,theCompanyhasinstalledadditional
bunkerforcoalinboththeboilerstofacilitatefiringpetcokewithoutpossibilityofclinkerformation,
thusresultinginseparatefeedingofIndiancoalandpetcoke.
ThematicReport
55

Exhibit46:PeergroupanalysisofOperatingmargins
14
11.51
12
10.12
10.09
10
7.49
8
6
4
2
0
RSWM
IndoRama Textiles
SangamIndia
BirlaCostyn
Turnaroundinfabricbusiness
RSWMhasitspresenceinsuitingandshirtingfabricscategorywiththebrandnameofMayurandin
denim fabricbusiness. This segment is currently making a loss of Rs. 35 mn at theEBIT levels. With
increasing capacities, focus on high end quality denim fabric and domestic sales picking up for its
suiting and shirting business we believe going forward; revenue from this segment will increase by
26%CAGRoverFY10FY12E.WeexpectthissegmenttoproduceprofitsfromFY11Eonwards.
Exhibit47:Fabricbusinessturnaround
150
5000
4500
100
4000
3500
50
3000
2500
2000
50
1500
100
1000
150
500
0
200
FY08
FY09
FY10
Revenue
FY11E
EBIT
FY12E
BrandequityandforwardintegrationwillenableRSWMtocaptureashareofIndiasconsumerism
MayurSuitingsandShirtingsisawellestablishedbrandwithcelebritieslikeShahrukhKhan,Salmaan
KhanandVirenedarSinghSehwagendorsingit.MayursellsitsproductspredominantlyinTierBand
TierCtown.TheCompanyhasexpandeditsnetworkofMayurCompanyOutlets,whereMayurfabrics
arebeingexclusivelysoldonthecounters.
With increase of domestic consumption, rising aspirational levels and increasing pre capita
expenditure,weexpectRSWMsgarmentbusinesstogrowataCAGRof26%overFY1012E.
ThematicReport
56

Exhibit48:Garmentbusinesstowitnessrobustgrowth
0.07
0.06
0.05
CAGRof26%
0.04
0.03
0.02
0.01
0
FY10
FY11E
FY12E
BhilwaraEnergyLtd:Akeyvalueunlocking
LNJBhilwaraGroupplansanIPOofBhilwaraEnergyLtd.atvaluationofRs.13.8bn.RSWMholdsover
19%stakeinthecompany.Attheabovevaluations,theInvestmentswillbevaluedataroundRs.2.7
bn.Applyinga30%holdingdiscounttheinvestmentsamountforRs.81/share(45%ofthetotalmarket
capitalization). The management expects to file the draft red herring prospectus in the next 23
quarters.CurrentlytheyaretryingtoraisesomemoneyinapreIPOPEissuethroughMorganStanley
andKotakSecurities.However,duetouncertainityovertimelineorvaluation,wehavenotincluded
thisinourvaluation.
FinancialPerformance
Weexpecttherevenuetoincreaseby18%CAGRoverFY10FY12EandtheEBITDAmarginstoexpand
to12.4%fromthecurrent11.5%.WithincreasedRevenue
Exhibit49:Robustfinancialperformance
25000
15%
20000
10%
15000
5%
10000
0%
5000
5%
10%
0
FY08
FY09
Revenue
FY10
FY11e
EBITDAmargins
FY12e
ROCE
ThematicReport
57
Valuations
High contribution of export, installation of thermal power plant, higher economies of scale, advanced
productivity, technological up gradation and superior operational efficiencies will continue to be the key
driverofcompanysgrowthstrategy.AtCMPof147,RSWMiscurrentlytradingat5.3xFY12EEV/EBITDA.
Weassigna5.6xEV/EBITDAandarriveatatargetpriceofRs.197/share(34%upsidefromCMP).
TargetFY12EEV/EBITDA (x)
5.6
EV(Rs.Mn)
16649
12087
Mktcap(Rs.Mn.)
%upside
4561
197
34
ThematicReport
58
FINANCIALS
Rs.Inmillion
INCOME
Sales
Less:ExciseDuty
Growth
EXPENDITURE
a.Materialsothercosts
b.Operating&OtherExpense
c.(Increase)/DecreaseinStock
EBITDA
EBITDAmargins
Financecosts
Otherincome
EBT
EBTmargins
EXCEPTIONALITEMS
Profit/(Loss)onsaleofinvestment
ForeignExchangeFluctuations
PROVISIONFORTAXES
a.Forcontinuingoperations
EBTfromcontinuingoperations
CurrentTax&FringeBenefitTax
Earlieryears
DeferredTax
PATforContinuingoperations
b.ForDiscontinuedOperations
CurrentTax&FringeBenefitTax
Earlieryears
DeferredTax
PATfromDiscontinuedoperations
EATbeforeMinorityInterest
EATmargins
MinorityInterest
ShareofResultofAssociates
EAT
FY08
FY09
12,706.03
60.03
12,646.01
NA
7,465.65
4,594.62
(427.44)
11,632.83
1,013.18
8.01
478.72
721.85
240.90
53.52
0.42
(103.00)
11.31
(38.16)
158.43
34.60
(16.80)
17.70
122.92
(196.59)
FY10
14,557.42
96.94
14,460.48
14.35
16,708.74
77.29
16,631.44
15.01
8,599.33
5,073.39
197.16
13,869.88
590.60
4.08
795.53
822.62
110.46
(917.10)
(6.34)
10,769.37
5,649.65
52.00
16,471.02
2,321.08
12.35
767.74
998.38
132.00
686.96
3.66
0.00
0.08
456.44
(1,363.59)
0.00
0.00
(305.26)
(1,058.33)
18,924.58
132.47
18,792.11
12.99
9,390.93
5,279.66
43.61
14,714.21
1,917.24
11.53
676.31
966.87
182.30
456.36
2.74
0.00
(446.48)
(1,363.59)
FY11E
0.00
(100.00)
586.96
456.44
100.24
4.09
24.60
327.51
586.96
240.44
4.09
43.80
298.63
0.00
0.00
0.00
(21.92)
0.00
0.00
0.00
0.00
0.00
0.00
0.00
(44.50)
(130.16)
(7.25)
(0.06)
1.74
182.82
177.30
0.00
0.00
(1,058.33)
(7.32)
114.59
159.10
(784.64)
0.00
0.00
327.51
1.97
10.89
0.00
338.40
0.00
0.00
298.63
1.59
13.07
0.00
311.70
ThematicReport
59

Rs.inmn
SOURCESOFFUNDS
FY08
FY09
SHAREHOLDERS'FUNDS
a.Sharecapital
606.49
b.PreferenceShareCapital
FY10
231.49
281.50
0.00
249.99
0.00
3,412.98
2,301.16
1748.29
c.Warrants
30.45
30.45
0.00
d.Govt.CapitalGrant
40.56
37.48
34.32
4,090.47
2,850.57
2,064.11
192.61
78.02
67.14
MINORITYINTEREST
LOANFUNDS
a.Securedloans
b.Unsecuredloans
11,677.63
0.61
9.46
17.93
11,801.81
11,411.18
469.40
154.61
179.21
16430.73
14885.02
13721.63
a.Grossblock
11393.25
11,678.24
APPLICATIONOFFUNDS
FIXEDASSETS
11,792.36
15453.31
16291.90
16289.74
b.Less:Depreciation
5876.97
6635.03
7363.17
c.Netblock
9576.34
9656.87
8926.58
63.33
52.35
9720.21
8978.93
INVESTMENTS
DEFERREDTAXASSETS
648.28
10224.62
1270.93
1062.53
395.44
a.Inventories
2447.00
2116.48
2751.81
b.Sundrydebtors
1640.02
1662.72
1619.53
102.37
53.25
70.10
d.ExportIncentivesReceivable
422.27
139.20
239.72
e.OtherCurrentAssets
832.06
608.67
582.76
f.Loansandadvances
302.96
754.03
484.18
5746.68
5334.35
b.Provisions
NETCURRENTASSETS
5748.09
767.76
1158.15
1004.07
63.43
83.14
401.71
831.18
1241.28
1405.79
4915.50
4093.06
4342.30
19.68
9.22
4.96
16430.73
14885.02
13721.63
ThematicReport
60

Ratios
FY08
FY09
FY10
EBITDAmargins
8.01
4.08
11.53
PBTmargins
0.42
(6.34)
2.74
PATmargins
(0.06)
(7.32)
1.97
Interestcoverage
1.1
0.2
1.7
CurrentRatio
6.9
4.3
4.1
Debt/Equity
2.9
4.1
5.5
Debt/Capital
0.74
0.81
0.85
AssetTurnover
0.73
0.90
1.10
InventoryTurnover
5.2
6.8
6.0
71
53
60
10
47
42
36
PayablesTurnover
9.7
7.4
9.4
Payables(Days)
38
49
39
142
103
95
71
34
15
BV/PS
1636.19
123.14
89.17
Cash/PS
6896.89
696.24
653.27
Sales/PS
5058.40
624.68
718.46
ROE
36%
26%
18%
ROCE
2%
6%
5%
DebtorsTurnover
EPS
ThematicReport
61
AbhishekIndustries
AbhishekIndustriesLimited(AIL)wasfoundedin1990andisheadquarteredinLudhiana,India.
AIL manufactures and sells yarn, terry towel, paper, and chemical products in India and
internationally.
INVESTMENTSUMMARY
Increasedcapacitiesreflectintoplineandbottomlinegrowth
Reputedsupplieroftowelstotopbrandsacrosstheglobe
AILsisoneoftheworldslargestterrytowelmanufacturersandIndiaslargestexporterofterry
towel products. It has been awarded Gold Trophy by Texprocil for the highest terry towel
exports. The division manufactures towels of every grade and quality and exports them to
around32countries.AIListheglobal.
BUY
` 18
` 13
35%
17700
KeyData
BloombergCode
ReutersCode
NSECode
CurrentShareo/s(mn)
DilutedShareo/s(mn)
MktCap(`bn/$mn)
52WKH/L(`)
DailyVol.(3MNSEAvg)
FaceValue(`)
Beta
1USD/`
ABININ
ABHP.BO
ABSHEKINDS
222.2
222.2
3/65.5
22.8/12.5
193065
10
1.12
45.8
ShareholdingPattern
Promoters
FII
Others
(%)
63.5
0.1
36.4
PricePerformance(%)
1M
6M
ABSHEKINDS
4.2 18.7
NIFTY
11.1 10.9
1yr
1.4
11.3
Onanexpansionspreetocapturethegrowingexportsanddomesticconsumption
Increasedcapacitiesareexpectedtotranslateintohigherrevenuesfromyarnandterrytowels
business.WeexpecttheyarnbusinesstogrowataCAGRof35%overFY1012Eonaccountof
increasingincottonyarnpricesandterrytowelsdivisionstogrowataCAGRof12%overFY10
12E
Rating
TargetPrice
CMP
Upside
Sensex
In FY10, AIL undertook an expansion of Rs. 360 mn across its yarn and towel business. The
Board has approved a further expansion of Rs. 11.2 bn to set up 275,904 spindles and 2,040
rotors.TheCompanyhasalsoapprovedaRs.550mnforexpandingitsterrytowelbusiness.It
planstoinstall14newloomsandothermachineriesinprocessing,finishinghouseandspinning
sections.
Exposureinunrelatedbusinesseslikepaperandchemicalslikelytoslowdownthegrowth
We believe that the overall growth is been burdened down by AILs paper and chemicals
division.Thepaperdivisionwhichcomprisesofover27%oftotalrevenuesisexpectedtogrow
at a CAGR of 5% over FY1013 while chemicals division which is ~1% of total revenues is
expectedtogrowataCAGRof3%.ThesetwodragtheoverallCAGRofthefirmdownto10%
overFY1012E.
Valuations
AILiscurrentlytradingat3.5xFY12EEV/EBITDA.Withincreasingexpansionandgrowthfromthe
yarn and towel business we expect the Company to trade at a EV/EBITDA multiple of 3.6x
(discounttoitspeersasthestockisinTtoTcategory)derivingtoatargetpriceofRs.18/share
witha35%potentialupside
ThematicReport
62
COMPANYBACKGROUND
AbhishekIndustriesLimited(AIL)wasfoundedin1990andisheadquarteredinLudhiana,India.AIL
manufacturesandsellsyarn,terrytowel,paper,andchemicalproductsinIndiaandinternationally.
49%
51%
Yarn
Paper
Source:Company
INVESTMENTSUMMARY
Onanexpansionspreetocapturethegrowingexportsanddomesticconsumption
InFY10,AILundertookanexpansionofRs.360mnacrossitsyarnandtowelbusiness.TheBoard
hasapprovedafurtherexpansionofRs.11.2bntosetup275,904spindlesand2,040rotors.The
CompanyhasalsoapprovedaRs.550mnforexpandingitsterrytowelbusiness.Itplanstoinstall14
newloomsandothermachineriesinprocessing,finishinghouseandspinningsections.
Exhibit46:AILscapacityandproduction
Capacity
Production(tns)
Loomage
Spindleage
Towels
Yarn
FY08
282
125,952
24,616
42,244
FY09
350
125,952
28,311
40,072
FY10
374
176,952
29,152
48,115
FY11E
374
224,448
32,185
53,000
FY13E
400
275,904
36,800
58,000
Increasedcapacitiesreflectintoplinegrowth
Increased capacities are expected to translate into higher revenues from yarn and terry towels
business.WeexpecttheyarnbusinesstogrowataCAGRof37%overFY1012Eandterrytowels
divisionstogrowataCAGRof12%overFY1012E.
ThematicReport
63

Exhibit51:Growthinyarnandterrytowelsdivision
FY12E
FY11E
FY10
FY09
2000
4000
6000
Towel
8000
10000
12000
Yarn
Reputedsupplieroftowelstotopbrandsacrosstheglobe
AILs is one of the worlds largest terry towel manufacturers and Indias largest exporter of terry
towelproducts.IthasbeenawardedGoldTrophybyTexprocilforthehighestterrytowelexports.
The division manufactures towels of every grade and quality and exports them to around 32
countries.
TheCompanyhasbeenconferredwith'Sustainability(TradingAreaSouthAsia)Awardfortheyear
2010' by IKEA. The award was conferred on the Company on occasion of IKEA's Annual Suppliers
Day.
Exposureinunrelatedbusinesseslikepaperandchemicalslikelytoslowdownthegrowth
WebelievethattheoverallgrowthisbeenburdeneddownbyAILspaperandchemicalsdivision.
Exposures in unrelated segment did provide a cushion during FY09 when there was a massive
recession in the global textile business. However, during the current boom they mar the overall
growth.
Thepaperdivisionwhichcomprisesofover27%oftotalrevenuesisexpectedtogrowataCAGRof
3%overFY1013draggingtheoverallCAGRofthefirmdownto27%overFY1012E.
Exhibit52:Revenuegrowthofvariousdivisionvisvistotalsalesgrowth
80
72
70
60
50
40
37
28
30
20
28
20
11
19
21
18
17
FY11E
FY12E
10
0
FY10
Yarn
Towel
Paper
TotalSales
ThematicReport
64
Valuations
AIL is currently trading at 3.5x FY12E EV/EBITDA. With increasing expansion and growth from the
yarnandtowelbusinessweexpecttheCompanytotradeataEV/EBITDAmultipleof3.6x(discount
toitspeersasthestockisinTtoTcategory)derivingtoatargetpriceofRs.18/sharewitha35%
potentialupside
3.60
EV(Rs.Mn)
25862
21817
Mktcap(Rs.Mn.)
4045
18
%upside
35
ThematicReport
65
FINANCIALS
Rs.Inmillion
INCOME
GrossSales
10,682.20
14,229.90 18,219.50
Less:ExciseDuty
FY08
195.50
10,877.70
Growth
EXPENDITURE
FY09
249.30
FY11E
FY12E
24,309.93
29,572.44
318.46
384.44
185.90
13,980.60 18,033.60 23,991.47 29,188.00
NA
FY10
28.53
28.99
33.04
21.66
a.RawMaterialsConsumed
5,314.30
7,105.60
9,113.20
12,154.96
14,786.22
Otheroperatingincome
1,895.30
1,908.90
2,811.80
3,441.18
4,249.28
c.Personnelcost
1,230.30
1,286.00
1,856.20
2,413.06
3,088.72
e.(Increase)/DecreaseinWIPandFinGoods
(7.30)
81.90
(139.40)
99.00
(120.00)
10,382.40 13,641.80
18,108.20
22,004.22
5,883.27
7,183.78
8,432.60
EBITDA
2,445.10
EBITDAmargins
3,598.20
4,391.80
22.48
25.74
24.35
24.52
24.61
863.90
1,159.40
1,744.50
1,832.49
2,043.29
Otherincome
149.80
82.10
157.50
134.40
154.00
Financecosts
473.20
833.20
1,046.10
1,158.22
1,209.77
SellingExpenses
ForeignExchangeGain/(Loss)
675.20
EBT
EBTmargins
716.70
1,467.47
2,213.44
5.36
6.95
5.17
6.12
7.58
278.10 (1,440.70)
c.FringeBenefittax
MATcreditentitlement
ProvisionforI.Taxforearlieryears
EAT
EATmargins
120.00
932.70
860.70
b.Deferredtax
1,751.28
120.00
971.00
EBTafterextraordinaryexpenses
a.CurrentTax
1,439.49
582.60
ForeignExchangeGain/(Loss)
PROVISIONFORTAXES
986.90
(160.90)
(469.70)
0.00
0.00
0.00
932.70
1,467.47
2,213.44
52.30
0.00
60.40
146.75
221.34
(23.60)
(315.60)
336.40
136.78
8.59
12.00
11.50
0.00
0.00
0.00
(12.60)
0.00
(60.40)
0.00
0.00
53.50
6.60
29.40
0.00
0.00
81.60
(297.50)
365.80
283.53
229.93
779.10
(172.20)
566.90
1,183.94
1,983.50
7.16
(1.23)
3.14
4.93
6.80
ThematicReport
66

Rs.inmn
SOURCESOFFUNDS
SHAREHOLDERS'FUNDS
a.Sharecapital
MINORITYINTEREST
LOANFUNDS
a.Securedloans
b.Unsecuredloans
APPLICATIONOFFUNDS
FIXEDASSETS
a.Grossblock
b.Less:Depreciation
c.Netblock
INVESTMENTS
DEFERREDTAXASSETS
a.Inventories
b.Sundrydebtors
d.Loansandadvances
b.Provisions
NETCURRENTASSETS
FY08
FY09
1941.90
2437.70
4379.60
FY10
2221.90
2225.90
4447.80
FY11E
2221.90
2789.10
5011.00
2221.90
3973.04
6194.94
0.00
0.00
20.00
13074.30
27.80
13102.10
644.60
18126.30
13525.20
5201.40
8323.80
6341.10
14664.90
753.20
2252.00
386.60
401.90
1543.10
4583.60
1709.40
106.00
1815.40
2768.20
0.10
18186.40
15537.00
32.10
15569.10
329.00
20345.90
21284.90
6315.50
14969.40
2096.40
17065.80
1182.80
2110.00
602.10
204.00
1799.70
4715.80
2526.00
92.50
2618.50
2097.30
0.10
20346.00
17000.10
110.50
17110.60
683.90
22825.50
23648.40
7967.00
15681.40
1759.50
17440.90
353.30
3990.40
927.40
266.30
1960.70
7144.80
1998.00
115.60
2113.60
5031.20
0.10
22825.50
FY12E
2221.90
5956.55
8178.45
0.00
0.00
17675.10
143.65
17818.75
820.68
24834.37
18425.10
186.75
18611.85
829.27
27619.56
26948.40
9799.49
17148.91
1100.00
18248.91
30048.40
11842.78
18205.62
1300.00
19505.62
480.00
550.00
4997.04
1215.50
1.14
2748.37
8962.05
6078.78
1478.62
138.20
3343.33
11038.93
2701.10
155.58
2856.69
6105.36
3285.83
189.26
3475.09
7563.84
0.10
24834.37
0.10
27619.56
ThematicReport
67

Ratios
FY08
FY09
FY10
FY11E
FY12E
EBITDAmargins
22.48
25.74
24.35
24.52
24.61
PBTmargins
5.36
6.95
5.17
6.12
7.58
PATmargins
7.16
(1.23)
3.14
4.93
6.80
Interestcoverage
2.2
2.2
1.9
2.3
2.8
CurrentRatio
2.5
1.8
3.4
3.1
3.2
Debt/Equity
3.0
3.5
3.4
2.9
2.3
Debt/Capital
0.75
0.78
0.77
0.74
0.69
AssetTurnover
0.54
0.61
0.72
0.87
0.94
4.8
6.6
4.5
4.8
4.8
InventoryTurnover
76
55
81
76
76
DebtorsTurnover
28
23
19
20
20
13
16
19
18
18
PayablesTurnover
3.1
2.8
4.6
4.5
4.5
Payables(Days)
117
130
80
81
81
93
55
102
93
95
EPS
4.0
0.8
2.6
5.3
8.9
22.55
20.02
22.55
27.88
36.81
BV/PS
Cash/PS
2.07
0.92
1.20
0.01
0.62
Sales/PS
56.01
62.92
81.16
107.97
131.36
ROE
58%
53%
58%
66%
74%
ROCE
13%
18%
19%
24%
26%
ThematicReport
68
ArvindMills
Incorporated in 1931, Arvind Mills (Arvind) is the largest is the largest cotton manufacturer,
Largest exported and largest player in branded garments. Besides, it is also engaged in the
manufactureofDenimfabric(capacityof100mnmeters),shirtingfabric(70mnmeters),and
knittedfabric(1000tons).IthasitsmakingfacilitiesinGujarat,MaharashtraandBangalore.
INVESTMENTSUMMARY
Rating
TargetPrice
CMP
Upside
Sensex
Brandequitybetterthananyothertextileplayer
Shifttomorecustomerfocusmodeltogaininthelongerrun
ArvindisactivelychangingitsbusinessmodelfromB2BtoB2C.Inarisingcostenvironment
theB2CbusinesswillgiveArvindbetterpricingpowercomparedtoaB2Bbusiness.B2Cmodel
will be a faster driver of growth compared to a B2B model as it will increase penetration in
untappedmarketsandalsoincreasebrandrecognitionandpresence.
Monteizationoflandbanktoincreasecashandreducedebtburden
KeyData
BloombergCode
ReutersCode
NSECode
CurrentShareo/s(mn)
DilutedShareo/s(mn)
MktCap(`bn/$mn)
52WKH/L(`)
DailyVol.(3MNSEAvg)
FaceValue(`)
Beta
1USD/`
ARVVNDIN
ARVN.BO
ARVIND
232.0
232.0
14.1/308
74.85/30
3294581
10
1.54
45.8
ShareholdingPattern
Promoters
FII
Others
(%)
43.6
6.5
49.9
PricePerformance(%)
1M
6M
ARVIND
13.8
2.7
NIFTY
11.1 10.9
1yr
61.3
11.3
Arvindhasalandbankof16mnsqft.(PresentValueRs.43/share).Lookingatthehighcapital
intensivenatureoftheindustry,Arvinddespiteofitscapexplanswillbeabletorepaydebt
becauseofthelandmonetisation.Thus,significantlystrengtheningitsbalancesheet.Timely
monetisationofthelandbankremainsakeytrigger.
HighgrowthexpectedinArvindRetailLtd.(ARL)andArvindLifestyleBrandsLtd(ALBL).
ARLsbrandMegamarthasadifferentstrategytocapturethemarket.Megamart,isentirely
differentfromotherplayersinthesegmentsuchasBrandFactoryandTheLoot.Asagainst
itscompetitors,Arvinddoesnothavetosolelyrelyonothercompaniesforitsmerchandise.
Thisservesasakeyadvantageasthecompanyusesasolderbutpopulardesignsfromitsown
premiumbrandstoattractcustomers.
ALBLwhichwaslaunchedlastyear,hasbeenahugesuccessforthecompanyandisalready
makingdoubledigitmarginsattheEBITDAlevel.Arvindplanstolaunchacouplemorebrands
especially targeting youth and women and also extend established brands to related
segments.
Valuations
Arvind is currently trading at 6x FY12E EV/EBITDA. We value the Company at 6.6x FY12E
EV/EBITDA(premiumtootherplayersduetosizeandstrongbrandportfolio)andderiveatthe
targetpriceofRs.73withapotentialupsideof33%.
BUY
` 73
` 21
33%
17700
Arvinds investments in design, sales & distribution and branding, has yielded strong
distributionnetworkandanimpressivebouquetofestablishedbrandsdevelopedoverthelast
couple of years. These brands will also boost Arvinds retail escapade Megamart, a strong
competitiveadvantageoverotherretailersinthesegment.
ThematicReport
69
COMPANYPROFILE
Incorporatedin1931,ArvindMills(Arvind)isthelargestisthelargestcottonmanufacturer,Largest
exportedandlargestplayerinbrandedgarments.Besides,itisalsoengagedinthemanufactureof
Denim fabric (capacity of 100 mn meters), shirting fabric (70 mn meters), and knitted fabric (1000
tons).IthasitsmakingfacilitiesinGujarat,MaharashtraandBangalore.
1%
3%
96%
Textiles
BrandedGarments
Others
Source:Company
INVESTMENTSUMMARY
Brandequitybetterthananyothertextileplayer
Arvinds investments in design, sales & distribution and branding, has yielded strong distribution
networkandanimpressivebouquetofestablishedbrandsdevelopedoverthelastcoupleofyears.
ThesebrandswillalsoboostArvindsretailescapadeMegamart,astrongcompetitiveadvantageover
otherretailersinthesegment.
Exhibit54:Bouquetofestablishedbrands
ThematicReport
70

While each of the above brands enjoys high brand equity, we are bullish on the competitive
advantageofhavingabouquetofsuchsuccessfulbrandsgoingahead.Arvind,whichhavemultiple
strong and established brands in their bouquet, will continue to enjoy strong shelf space for their
products. Single brand companies or players with multiple mediocre brands will find it extremely
difficulttonegotiatefavourabletermswithMultiBrandOperators.
Shifttomorecustomerfocusmodeltogaininthelongerrun
ArvindisactivelychangingitsbusinessmodelfromB2BtoB2C.InarisingcostenvironmenttheB2C
businesswillgiveArvindbetterpricingpowercomparedtoaB2Bbusiness.B2Cmodelwillbeafaster
driverofgrowthcomparedtoaB2Bmodelasitwillincreasepenetrationinuntappedmarketsand
alsoincreasebrandrecognitionandpresence.
Exhibit55:Shifttocustomerfocusmodel
FY13
59%
FY10
41%
72%
0%
20%
28%
40%
B2B
60%
80%
100%
B2C
Arvindadoptsadifferentiatingstrategyandhasbrandscateringtoallthethreesegmentsaccording
topricingviz.luxury,premiumbrandsandvalueretail.
Exhibit56:Differentiationstrategy
Engineering,10 Others,4%
%
Brandsand
Retail,31%
Textiles,55%
ThematicReport
71
Monteizationoflandbanktoincreasecashandreducedebtburden
Arvindhasalandbankof16.14millionsquarefeetwhichitdoesnotrequireforitscorebusiness.
The current market value of the land bank is around Rs.7 bn. Instead of directly monetizing the
currentlandbankArvindplanstogetnecessaryapprovalstoconvertthelandfromindustriallandto
non industrial land. This strategy will not only add significant value but also make it easy to find
suitablebuyersattherightprice. LandmonetizationisexpectedtogeneratearoundRs.1350crin
thenext5years.ArvindHasalreadyenteredinaJointventurewithB.Safalgroup,oneoftheleading
real estate developers of Gujarat to develop 1 mn square feet of land and is expected to receive
Rs.1000mn.eachinFY10andFY11.Arvindalsohasgotatownshipapprovalfora5mnsquarefeet
pieceoflandandisinadvancetalkswithnationaldevelopersfora50%JV.Thecompanyisexpecting
togenerate~Rs.4000mn.fromthislandoverthenext4years.ThiswillhelpbringingdowntheD/E
ratiofrom1.71inFY10to0.54inFY13.
Exhibit57:MonetizationtoreducedebtburdenandincreaseROCEconsiderably
2.5
18%
16%
2.0
14%
12%
1.5
10%
8%
1.0
6%
4%
0.5
2%
0.0
0%
FY08
FY09
FY10
Debt/Equity
FY11E
ROCE
FY12E
HighgrowthexpectedinArvindRetailLtd.(ARL)andArvindLifestyleBrandsLtd(ALBL).
ARLs brand Megamart has a different strategy to capture the market. Megamart, is entirely
different from other players in the segment such as Brand Factory and The Loot. As against its
competitors,Arvinddoesnothavetosolelyrelyonothercompaniesforitsmerchandise.Thisserves
asakeyadvantageasthecompanyusesasolderbutpopulardesignsfromitsownpremiumbrandsto
attractcustomers.
ALBLwhichwaslaunchedlastyear,hasbeenahugesuccessforthecompanyandisalreadymaking
doubledigit margins at the EBITDA level. Arvind plans to launch a couple more brands especially
targetingyouthandwomenandalsoextendestablishedbrandstorelatedsegments.
Exhibit58:Increasingshareoflifestylebrandsandretailinrevenueduetotheirhighgrowth
Engineering,10 Others,4%
%
Brandsand
Retail,31%
Textiles,55%
ThematicReport
72
Valuations
Arvindiscurrentlytradingat6xFY12EEV/EBITDA.WevaluetheCompanyat6.6xFY12EEV/EBITDA
(premiumtootherplayersduetosizeandstrongbrandportfolio)andderiveatthetargetpriceofRs.
73withapotentialupsideof33%.
6.60
EV(Rs.Mn)
42504
25588
Mktcap(Rs.Mn.)
16916
73
%upside
33
ThematicReport
73
FINANCIALS
Rs.Inmillion
INCOME
FY08
FY09
FY10
FY11E
Sales&OperatingIncome
Growth
EXPENDITURE
a.RawMaterialConsumedandothercosts
b.PurchaseofFinishedGoodsandOthers
c.EmployeesEmoluments
d.Others
e.(Increase)/DecreaseinStocks
EBITDA
EBITDAmargins
Interest&Financecost
ExceptionalItems
Otherincome
EBT
EBTmargins
PROVISIONFORTAXES
a.IncomeTax
b.DeferredTex
c.Fringebenefittax
d.MATcreditentitlement
EAT
EATmargins
26,740.20
NA
7,524.20
3,014.10
2,874.20
10,049.70
(203.00)
23,259.20
3,481.00
13.02
1,566.00
1,754.00
95.10
200.10
266.00
0.99
77.30
0.30
27.60
(31.00)
74.20
191.80
0.72
27,366.60
2.34
8,462.10
2,587.10
3,064.20
10,717.40
(478.70)
24,352.10
3,014.50
11.02
2,823.40
1,605.50
115.30
490.70
(1,039.00)
(3.80)
41.20
6.80
24.50
0.00
72.50
(1,111.50)
(4.06)
32,795.10 38,698.22 45,276.92

19.84
18.00
17.00
12,028.60
14,318
16,752
2,896.70
3,289.35
3,848.54
3,416.70
3,929.21
4,518.59
10,386.60 11,996.45 13,583.07
(34.30)
(42.38)
134.29
28,694.30 33,490.96 38,836.94
4,100.80 5,207.26 6,439.97
12.50
13.46
14.22
2,116.90 2,247.00 2,634.00
1,727.00
1,867.00
2,020.00
0.00
0.00
0.00
214.60
214.60
214.60
471.50 1,307.86 2,000.57
1.44
3.38
4.42
149.90
196.18
300.09
(121.90)
128.47 .92.47
0.10
0.00
0.00
(87.70)
0.00
0.00
(59.60)
324.65
300.09
531.10
983.21 1,700.49
1.62
2.54
3.76
FY12E
ThematicReport
74

Rs.inmn
SOURCESOFFUNDS
SHAREHOLDERS'FUNDS
a.Sharecapital
PreferenceShareCapital
MINORITYINTEREST
LOANFUNDS
a.Securedloans
b.Unsecuredloans
APPLICATIONOFFUNDS
FIXEDASSETS
a.Grossblock
b.Less:Depreciation
c.Netblock
INVESTMENTS
ForeignCurrencyMonetaryItem
TranslationDifferenceAccount
a.Inventory
b.SundryDebtors
e.Loansandadvances
b.Provisions
NETCURRENTASSETS
FY08
FY09
2403.00
11130.10
330.00
13863.10
219.70
20354.60
1792.80
22147.40
255.20
36485.40
35094.70
11363.20
23731.50
1325.00
25056.50
2403.00
8064.40
198.00
10665.40
109.60
21578.10
1518.30
23096.40
256.30
34127.70
36674.30
12793.30
23881.00
855.10
24736.10
168.80
82.50
0.00
FY10
FY12E
2395.50
10430.80
0.00
12826.30
140.70
20197.70
1827.20
22024.90
134.40
35126.30
38360.10
14048.00
24312.10
578.80
24890.90
437.30
2395.50
11260.00
0.00
13655.50
153.36
21234.00
1882.02
23116.02
93.55
37018.43
41234.32
15915.00
25319.32
324.35
25643.67
481.03
2395.50
13037.21
0.00
15432.71
167.17
24548.23
1938.48
26486.71
74.24
42160.82
43986.43
17935.00
26051.43
214.44
26265.87
553.18
0.00
0.00
11023.42
6234.23
898.76
1823.53
3892.45
23872.40
8423.43
107.20
8530.63
15341.77
0.00
42160.83
67.70
FY11E
(10.60)
7281.10
7337.40 8012.30
9423.98
2838.90
2816.50 4259.20
4984.24
234.10
396.60
596.50
512.47
830.60
536.30 1038.80
1080.35
4202.60
3785.70 2859.90
2934.12
15387.30 14872.50 16766.70 18935.16
3971.70
4364.70 6850.80
7934.23
250.50
1368.20
107.20
107.20
4222.20
5732.90 6958.00
8041.43
11165.10 9139.60 9808.70 10893.73
95.00
101.80
0.00
0.00
36485.40 34127.70 35126.30 37018.43
ThematicReport
75

Ratios
EBITDAmargins
PBTmargins
PATmargins
Interestcoverage
CurrentRatio
Debt/Equity
Debt/Capital
AssetTurnover
InventoryTurnover
DebtorsTurnover
PayablesTurnover
Payables(Days)
EPS
BV/PS
Cash/PS
Sales/PS
ROE
ROCE
FY08
13.02
0.99
0.72
1.2
3.6
1.6
0.62
0.66
3.7
99
9
39
1.9
193
152
1
61.80
1.84
122.11
20%
10%
FY09
11.02
(3.80)
(4.06)
0.6
2.6
2.2
0.68
0.69
3.7
98
10
38
1.9
188
122
5
47.80
2.19
124.97
25%
9%
FY10
12.50
1.44
1.62
1.2
2.4
1.7
0.63
0.78
4.1
89
8
47
1.8
208
109
2
55.29
4.46
141.37
4%
12%
FY11
13.46
3.38
2.54
1.6
2.4
1.7
0.63
0.86
4.1
89
8
47
1.8
202
103
4
58.87
4.28
166.82
6%
14%
FY12
14.22
4.42
3.76
1.8
2.8
1.7
0.63
0.89
4.1
89
7
50
2.0
184
124
7
66.53
6.26
195.18
12%
15%
ThematicReport
76
ShivaTexyarnLtd.
Belonging to reputed Bannari Amman Sugar group, Shiva Texyarn (STYL) formerly known as
Annamallai Finance was incorporated in 1989 and is engaged in production of Cotton Yarn
having presence in domestic as well as export markets. Bannari Amman Group is one of the
largest Industrial Conglomerates in South India with wide spectrum of manufacturing, trading,
distribution and financing activities. Manufacturing and trading include sugar, alcohol, liquor,
granite,cottonyarn.
INVESTMENTSUMMARY
Increasedyarncapacitytoenjoyfullbenefitsofthehighcottonyarnprices
STYLisincreaseditscottonspinningcapacitiesby50,400spindleswhichwerefullyoperational
byQ4FY10.Thecapacitiesareoperatingatfullutilizationsandthereforethecompanystandsa
chancetogainmaximumfromtheincreasedyarnprices.Weexpecttheyarnsalestogoupby
65%CAGRoverFY1012Eonaccountofmorethandoublecapacitiesandincreaseincottonyarn
prices.
Diversificationtohedgethecottonpricerisk
STYL is diversifying into knitted fabrics and garment division. The expansion plans were
commissionedin4QFY10andfullbenefitsofthiswillbereflectedinFY11EandFY12E.STYLhas
entered into a JV with M/s. Bannari Amman Apparel Pvt. Ltd. in which SYTL along with its
associateswillhold50%interest.
Captivepowertoenhancemargins
STYL has an installed capacity of 16.795 MW of wind energy plant. The Company has further
installed5.75MWwindmillcapacitywhichwasoperationalin1QFY11predominantlyforcaptive
use.WeexpecttheCompanytosaveRs.235mnandincreasethemarginsby200bps
StrongFinancialperformance
Rating
TargetPrice
CMP
Upside
Sensex
BUY
` 61
` 48
26%
17700
KeyData
BloombergCode
ReutersCode
NSECode
CurrentShareo/s(mn)
DilutedShareo/s(mn)
MktCap(`bn/$mn)
52WKH/L(`)
DailyVol.(3MNSEAvg)
FaceValue(`)
Beta
1USD/`
SVTYIN
SHTE.BO
SHIVTEX
21.6
21.6
1/21.8
75.9/23.5
33449
10
0.72
45.8
ShareholdingPattern
Promoters
FII
Others
(%)
74.9
0.0
25.1
PricePerformance(%)
1M
6M
SHIVTEX
7.2 13.1
NIFTY
11.1 10.9
1yr
89.2
11.3
We expect STYLs revenues to increase by 90% CAGR over FY10FY12E translating to EBITDA
marginsof21.7%inFY12Ecomparedto19.3%currently.TheEPSisexpectedtoincreasefrom
Rs.2.4currentlytoRs.7byFY12EwithanincreaseinROCEfromthecurrent8%to19%inFY12E.
Valuations
STYLiscurrentlyat4.1xFY12EEV/EBITDA.Weestimatea4.4xFY12EEV/EBITDAandderiveata
targetpriceofRs.61/sharewith26%upside.
ThematicReport
77
COMPANYPROFILE
Belonging to reputed Bannari Amman Sugar group, Shiva Texyarn (STYL) formerly known as
AnnamallaiFinancewasincorporatedin1989andisengagedinproductionofCottonYarnhaving
presence in domestic as well as export markets. Bannari Amman Group is one of the largest
IndustrialConglomeratesinSouthIndiawithwidespectrumofmanufacturing,trading,distribution
and financing activities. Manufacturing and trading include sugar, alcohol, liquor, granite, cotton
yarn.
2% 4%
11%
6%
77%
Yarn
CottonWaste
Fabric
Garments
WindElectricity
Source:Company
INVESTMENTSUMMARY
Increasedyarncapacitytoenjoyfullbenefitsofthehighcottonyarnprices
STYL is predominantly a cotton spinning company with yarn accounting for 86% of the total
revenues. STYL is increased its cotton spinning capacities by 50,400 spindles which were fully
operationalbyQ4FY10.Thecapacitiesareoperatingatfullutilizationsandthereforethecompany
stands achance togain maximum from the increasedyarn prices. The current increase in cotton
priceshavebenefitedtheCompanyandincreasedtheEBITDAmarginsoftheyarnbusinessby100
150 bps to 15%. STYL is in a position to reflect the entire increase in its books as the Companys
operationsinFabricsandGarmentbusinessareminimal.Weexpecttheyarnsalestogoupby65%
CAGRoverFY1012Eonaccountofmorethandoublecapacitiesandincreaseincottonyarnprices.
Diversificationtohedgethecottonpricerisk
STYL is diversifying into knitted fabrics and garment division. The expansion plans were
commissioned in 4QFY10 and full benefits of this will be reflected in FY11E and FY12E. STYL has
enteredintoaJVwithM/s.BannariAmmanApparelPvt.Ltd.inwhichSYTLalongwithitsassociates
willhold50%interest.
ThematicReport
78

Exhibit60:RevenueMixtoalterbyFY12E
Garment
4%
Wind
2%
Fabric
15%
Yarn
79%
Captivepowertoenhancemargins
STYL has an installed capacity of 16.795 MW of wind energy plant. The Company has further
installed 5.75 MW windmill capacity which was operational in 1QFY11 predominantly for captive
use.WeexpecttheCompanytosaveRs.235mnandincreasethemarginsby200bps.
Exhibit61:ReducingpowerexpenseandincreasingEBITDAmargins
10.0
23.0
9.0
22.0
8.0
7.0
21.0
6.0
5.0
20.0
4.0
19.0
3.0
2.0
18.0
1.0
17.0
0.0
FY09
FY10
EBITDAmargins(%)
FY11E
FY12E
%powerintotal operatingexpns
StrongFinancialperformance
We expect STYLs revenues to increase by 90% CAGR over FY10FY12E translating to EBITDA
marginsof21.7%inFY12Ecomparedto19.3%currently.TheEPSisexpectedtoincreasefromRs.
2.4currentlytoRs.7byFY12EwithanincreaseinROCEfromthecurrent8%to19%inFY12E.
Valuations
STYL is currently at 4.1x FY12E EV/EBITDA. We estimate a 4.4x FY12E EV/EBITDA and derive at a
targetpriceofRs.61/sharewith26%upside.
EV(Rs.Mn)
Mktcap(Rs.Mn.)
%upside
4.4
4521
3189
1332
612
26
ThematicReport
79
FINANCIALS
PROFIT&LOSSACCOUNT
Rs.Inmillion
INCOME
Sales&IncidentalReceipts
IncomefromWindmills
IncomefromOtheroperations
Growth
EXPENDITURE
RawMaterialsConsumed
PurchaseofYarn
Knitting&ProcessingCharges
Power&Fuel
Salaries,Wages&OtherBenefits
Others
EBITDA
EBITDAmargins
Financecosts
Otherincome
EBT
EBTmargins
EXTRAORDINARYITEMS
PriorPeriod(Expenses)/Income
ProvisionforTaxoncaptivepower
consumptionwrittenback
PROVISIONFORTAXES
a.IncomeTax
b.Fringebenefittax
c.Wealthtax
d.Deferredtax
e.MATcreditentitlement
f.PriorYearIncomeTax
g.PriorYearWealthTax
h.PriorYearFringeBenefitTax
EAT
EATmargins
FY08
(0.08)
0.22
FY10
1,895.63
39.18
10.47
1,945.28
96.75
1,230.05
13.87
22.15
139.50
69.91
94.71
1,570.19
375.09
19.28
127.11
40.96
135.03
12.85
84.83
4.36
(2.00)
7.53
111.92
0.00
60.16
0.00
82.83
FY09
885.04
50.84
24.15
960.03
NA
930.57
14.84
43.32
988.73
2.99
558.49
0.00
0.00
44.78
42.44
93.76
739.47
220.56
22.97
46.94
26.02
74.34
31.20
104.46
10.88
538.00
111.26
0.00
34.57
39.34
62.79
785.95
202.78
20.51
46.58
21.32
83.25
8.30
59.93
6.06
33.04
0.60
0.02
16.45
0.00
(0.30)
0.01
0.08
49.90
62.02
6.46
6.53
0.60
0.05
1.87
(6.53)
10.16
2.47
0.00
15.16
45.00
4.55
FY11
3,372.75
83.44
0.00
3,456.19
77.67
2,256.53
29.87
34.96
100.56
83.90
172.81
2,678.62
777.57
22.50
130.68
72.87
144.65
10.83
440.19
12.74
0.00
FY12
4,685.50
83.44
0.00
4,768.94
37.98
3,098.03
37.33
41.30
223.86
102.35
238.45
3,741.32
1,027.62
21.55
135.56
101.24
147.57
9.74
652.99
13.69
0.00
0.00
440.19
0.00
652.99
14.23
0.00
0.03
25.65
(14.01)
5.05
0.04
0.00
30.98
51.85
2.67
88.04
0.00
0.00
84.14
0.00
0.00
0.00
0.00
172.18
268.01
7.75
130.60
0.00
0.00
117.80
0.00
0.00
0.00
0.00
248.40
404.59
8.48
ThematicReport
80

BALANCESHEET
Rs.Inmillion
FY08
SOURCESOFFUNDS
SHAREHOLDERS'FUNDS
a.Sharecapital
216.05
775.36
991.40
LOANFUNDS
a.Securedloans
735.47
b.Unsecuredloans
81.44
816.91
182.83
1,991.14
APPLICATIONOFFUNDS
FIXEDASSETS
a.Grossblock
1,744.31
b.Less:Depreciation
612.85
c.Netblock
1,131.47
20.55
1,152.02
INVESTMENTS
75.26
a.Inventories
246.19
b.SundryDebtors
139.25
142.64
40.23
e.Loansandadvances
327.32
895.63
61.73
b.Provisions
71.70
133.43
NETCURRENTASSETS
762.19
miscellaneousExpenditure
1.67
1,991.14
FY09
FY10
216.05
797.61
1,013.65
216.05
825.44
1,041.49
1,909.00
52.10
1,961.10
184.70
3,159.46
2,808.00
689.86
2,118.14
91.14
2,209.27
95.24
3,689.37
1,116.35
2,573.02
13.00
2,586.02
43.12
936.87
412.22
234.93
137.01
936.87
2,657.91
174.59
89.98
264.57
1,525.26
0.00
4,426.69
3,359.39
29.71
3,389.09
412.29
5,392.29
3,616.37
968.78
2,647.60
11.00
2,658.60
72.37
612.34
229.74
272.24
97.65
577.87
1,789.83
237.10
73.86
310.96
854.95
0.00
3,159.46
216.05
1,374.86
1,590.91
3,239.39
27.51
3,266.89
294.49
4,850.31
3,560.37
824.12
2,736.25
23.67
2,759.92
141.52
256.51
150.91
299.20
55.71
403.59
1,165.91
FY12
216.05
1,072.88
1,288.93
3,149.39
25.47
3,174.86
210.35
4,426.69
FY11
1,288.51
546.64
200.06
177.17
1,288.51
3,500.90
421.59
116.97
538.56
2,119.35
0.00
4,850.32
585.69
152.06
737.75
2,763.15
0.00
5,392.29
ThematicReport
81

Ratio
FY08
FY09
FY10
FY11E
FY12E
EBITDAmargins
22.97
20.51
19.28
22.50
21.55
PBTmargins
10.88
6.06
4.36
12.74
13.69
PATmargins
6.46
4.55
2.67
7.75
8.48
Interestcoverage
3.2
2.3
1.7
4.4
5.8
CurrentRatio
6.7
3.7
6.8
4.9
4.7
Debt/Equity
0.8
1.9
3.0
2.5
2.1
Debt/Capital
0.45
0.66
0.75
0.72
0.68
AssetTurnover
0.45
0.28
0.41
0.64
0.78
InventoryTurnover
3.9
3.9
3.2
3.7
3.7
94
95
115
99
99
53
56
43
44
42
PayablesTurnover
9.0
2.3
7.0
5.4
5.3
DebtorsTurnover
Payables(Days)
EPS
BV/PS
40
161
52
68
69
290
316
286
224
211
12
19
45.89
46.92
48.21
59.66
73.64
Cash/PS
10.09
18.26
19.15
46.71
61.64
Sales/PS
44.44
45.76
90.04
159.98
220.74
ROE
6%
4%
5%
21%
40%
ROCE
11%
6%
8%
16%
19%
ThematicReport
82
DamodarThreadsLtd.
Damodar Threads Ltd. (DTL) is one of leading manufacturer and exporter of cotton, Polyester
and Polyester Blended Value Added Yarns. The group is specialized in manufacturing of Linen
LikeYarns,SilkLikeYarns,SlubYarns,NepsYarnsin100%Cotton,100%Polyester,Poly/Viscose
andotherspecialblends.
INVESTMENTSUMMARY
Leaderinthenichevalueaddedyarnmarket
DTLspresenceanddominanceinnichevalueaddedyarnmarket,distinguishesitselffromother
competitors. DTL is the only player that provides customized solutions to its customers. With
Heavy investments in Research and Development and completely integrated and advance
production line the Company is set to become one of the largest fancy yarns manufacturing
Company in India. The Company has developed a large design studio for fabric to boost the
exportsalesofvalueaddedyarnsbyintroducingnewconcepts.
Capacityexpansionstodrivegrowth
Aggressivemarketingandexpansionprogramincreasesexposuretoothermarkets.
RobustFinancialPerformance
KeyData
BloombergCode
ReutersCode
NSECode
CurrentShareo/s(mn)
DilutedShareo/s(mn)
MktCap(`bn/$mn)
52WKH/L(`)
DailyVol.(3MNSEAvg)
FaceValue(`)
Beta
1USD/`
DMTIN
DAMD.BO
7.8
7.8
0.4/8.7
90.85/24
1620
10
0.87
45.8
ShareholdingPattern
Promoters
FII
Others
(%)
66.2
0.0
33.8
PricePerformance(%)
1M
6M
DAMD
13.8 17.9
NIFTY
11.1 10.9
1yr
53.4
11.3
WeexpectthesalestoincreaseatanacceleratedCAGRof35%overFY10FY12EtoRs.4452mn.
Withincreasedsalesoffancyyarnsovernormalyarns,weexpecttheEBITDAmarginstoexpand
byover250bpsto12.5inFY12E.
BUY
` 58
` 44
25%
17700
DTL's performance on export front has improved tremendously from FY08. The Companys
exportsrevenueincreasedconsiderablyby26%YoYinFY10.DTLiscurrentlyexportingtoover40
countriesacrossEurope,SouthAfrica,SouthAmerica,Australia,Korea,Belgium,Singapore,Italy,
EgyptandtheGulfcountries.TheCompanyhasattractednewcustomersofinternationalrepute
during the year and plans to penetrate into new markets, including Brazil, Turkey, Egypt, and
Chinaetc.
Rating
TargetPrice
CMP
Upside
Sensex
During FY10, DTL incurred a capex of Rs. 120 mn to expanding its capacities for value added
processes.Thesemachinesarealreadyoperatingatfullcapacity.Duetotheincreaseindemand
DTLexpectstofurtherincuraCAPEXof~Rs.2000mninFY11EandfurtherRs.1200mninFY12E.
DTLisplanningtofundthisequitywithamixofequity,debtandinternalaccruals.DTLhasraised
equityof~Rs.66mninSeptemberFY10forthesame.
Private placement to reduce promoter holding and increase free float, thereby enabling
liquidity
The recent private placement reduced DTLs promoter holding from 74.6% in June 2010 to
67.31%inSeptember2010,therebyincreasingthefreefloattoRs.170mnfromRs.154mn.
Valuations
Capacityexpansions,increasedexportsexposureandgainingmarketshareinfancyyarnbusiness
arethekeydriversforDTLsgrowth.Thecompanyiscurrentlytradingat3.4xFY12EEV/EBITDA.
Weassigna3.6xmultiple(discounttothepeersduetolowliquidity)andarriveatatargetpriceof
Rs.58(~25%upsidefromtheCMP)
ThematicReport
83
COMPANYBACKGROUND
Damodar Threads Ltd. (DTL) is one of leading manufacturer and exporter of Cotton , Polyester and
PolyesterBlendedValueAddedYarns.ThegroupisspecializedinmanufacturingofLinenLikeYarns,
SilkLikeYarns,SlubYarns,NepsYarnsin100%Cotton,100%Polyester,Poly/Viscoseandotherspecial
blends.
Exhibit62:RevenuebreakupFY10
1%
39%
60%
Yarn
YarnTrading
Others
Source:Company
INVESTMENTSUMMARY
Leaderinthenichevalueaddedyarnmarket
DTLs presence and dominance in niche value added yarn market, distinguishes itself from other
competitors.DTListheonlyplayerthatprovidescustomizedsolutionstoitscustomers.TheCompany
has introduced many new products with different blends and new looks. DTL has installed post
spinningmachineslikeTFO,FancyDoubling,HollowDoubling,YarnDyeing,MultiColourSpaceDyeing.
With Heavy investments in Research and Development and completely integrated and advance
productionlinetheCompanyissettobecomeoneofthelargestfancyyarnmanufacturingcompanyin
India.TheCompanyhasdevelopedalargedesignstudioforfabrictoboosttheexportsalesofvalue
addedyarnsbyintroducingnewconcepts.
Capacityexpansionstodrivevolumegrowth
DuringFY10,DTLincurredacapexofRs.120mntoexpandingitscapacitiesforvalueaddedprocesses.
Thesemachinesarealreadyoperatingatfullcapacity.DuetotheincreaseindemandDTLexpectsto
furtherincuraCAPEXof~Rs.2000mninFY11EandfurtherRs.1200mninFY12E.DTLisplanningto
fundthisequitywithamixofequity,debtandinternalaccruals.DTLhasraisedequityof~Rs.66mnin
SeptemberFY10forthesame.Weexpecttheyarnproductionvolumetoincrease52%andutilizations
toremainover90%.
ThematicReport
84
Exhibit63:Increaseinproductionandhighutilizaitionlevels
102%
16.00
14.00
100%
12.00
98%
96%
10.00
94%
8.00
92%
6.00
90%
4.00
88%
2.00
86%
0.00
84%
FY09E
FY10E
FY11E
Yarnproductionvolume(Mnkgs.)
FY12E
Capacityutilizations
Aggressivemarketingandexpansionprogramincreasesexposuretoexports.
DTL's performance on export front has improved tremendously from FY08. The Companys exports
revenue increased considerably by 26% YoY in FY10. DTL is currently exporting to over 40 countries
acrossEurope,SouthAfrica,SouthAmerica,Australia,Korea,Belgium,Singapore,Italy,Egyptandthe
Gulfcountries.TheCompanyhasattractednewcustomersofinternationalreputeduringtheyear.and
plans to penetrate into new markets, including Brazil, Turkey, Egypt, and China etc. Exports are
expectedtogrowataCAGRof44%overFY0912E.
Exhibit64:Exportsasa%oftotalturnover
FY12E
FY11E
FY10
30.00
70.00
34.00
66.00
37.74
62.26
FY09
40.25
59.75
FY08
41.57
58.43
0.00
20.00
40.00
Domestic
60.00
80.00
100.00
Exports
Reductionindebt/equityincreasesfinancialflexibility
IncreaseofequitythroughprivateplacementbyRs.66mnandinfusionofcashprofits,willenablethe
Companysdebt/equityratiotocomedownto2.3:1thereforeenablinghigherfinancialflexibilityand
increaseinROCE.
ThematicReport
85
Exhibit65:ReductionindebtequityandexpansioninROCE
5.0
30.0%
4.5
25.0%
4.0
3.5
20.0%
3.0
2.5
15.0%
2.0
10.0%
1.5
1.0
5.0%
0.5
0.0%
0.0
FY08
FY09
FY10
FY11E
Debt/Equity
FY12E
ROCE
RobustFinancialPerformance
WeexpectthesalestoincreaseatanacceleratedCAGRof32%overFY10FY12EtoRs.4452mn.With
increasedsalesoffancyyarnsovernormalyarns,weexpecttheEBITDAmarginstoexpandbyover250
bpsto12.5inFY12E.
Exhibit66:Robustfinancialperformance
Exhibit67:increaseinassetutilizations
14.0
12.0
5000
2.00
4500
1.90
4000
1.80
10.0
3500
8.0
3000
2500
1.60
2000
1.50
4.0
1500
1.40
1000
1.30
500
1.20
0.0
FY08
FY09
FY10
Sales
FY11E
FY12E
EBITDAmargins
1.79
1.70
6.0
2.0
1.90
1.53
1.40
1.34
1.10
1.00
FY08
FY09
FY10
FY11E
FY12E
Valuations
Capacityexpansions,increasedexportsexposureandgainingmarketshareinfancyyarnbusinessare
thekeydriversforDTLsgrowth.Thecompanyiscurrentlytradingat3.4xFY12EEV/EBITDA.Weassign
a3.6xmultiple(discounttothepeersduetolowliquidity)andarriveatatargetpriceofRs.58(~25%
upsidefromtheCMP)
EV(Rs.Mn)
Mktcap(Rs.Mn.)
%upside
3.6
1742
1216
526
58
25
ThematicReport
86
FINANCIALS
PROFIT&LOSSACCOUNT
Rs.Inmillion
INCOME
DomesticSales
ExportSales&incentives
Growth
EXPENDITURE
a.MaterialCost
b.Manufacturingcost
c.PersonnelCost
EBITDA
EBITDAmargins
Interest
Otherincome
EBT
EBTmargins
PROVISIONFORTAXES
a.IncomeTax
b.Fringebenefittax
c.Deferredtax
d.PriorPeriodTaxAdjustments
EAT
EATmargins
FY08
FY09
FY10
728.59
816.27
1,024.21
1,211.57
1,752.80
2,027.83
NA
15.69
1,400.35
1,510.33
192.27
251.88
32.05
54.62
1,624.67
1,816.83
128.13
211.00
7.31
10.41
54.54
92.46
39.69
72.86
15.66
1.81
49.55
47.48
2.83
2.34
5.62
5.38
0.25
0.50
16.94
16.07
0.00
1.05
22.80
23.00
26.75
24.48
1.53
1.21
FY11E
915.51
1,510.31
2,425.82
19.63
1,221.28
2,370.72
3,592.00
48.07
1,833.43
282.83
75.08
2,191.34
234.48
9.67
95.91
79.21
1.56
60.92
2.51
1,258.72
2,937.02
4,195.75
16.81
2,757.71
383.23
81.08
3,222.03
369.97
10.30
109.61
95.83
2.20
166.73
4.64
10.40
0.00
20.71
0.08
31.19
29.73
1.23
FY12E
3,201.61
422.68
87.57
3,711.87
483.88
11.53
119.96
110.08
2.90
256.74
6.12
46.69
0.00
23.90
0.00
70.59
96.15
2.68
71.89
0.00
24.80
0.00
96.69
160.06
3.81
ThematicReport
87
BALANCESHEET
Rs.Inmillion
FY08
SOURCESOFFUNDS
SHAREHOLDERS'FUNDS
a.Sharecapital
103.79
98.67
c.SharePremiumA/c
0.00
202.46
LOANFUNDS
a.Securedloans
835.11
b.Unsecuredloans
132.76
967.87
27.12
1,197.45
APPLICATIONOFFUNDS
FIXEDASSETS
a.Grossblock
864.36
b.Less:Depreciation
58.62
c.Netblock
805.74
2.90
808.64
INVESTMENTS
0.11
a.Inventories
178.84
b.Sundrydebtors
208.52
14.27
d.Loansandadvances
100.23
501.87
109.83
b.Provisions
5.43
115.26
NETCURRENTASSETS
386.61
2.10
1,197.45
FY09
FY10
77.96
235.17
0.00
313.13
77.96
255.79
0.00
333.75
849.67
153.64
1,003.31
43.19
1,359.63
974.39
131.14
843.24
33.04
876.29
0.11
1,467.67
415.99
1,051.68
41.00
1,092.68
2.30
518.84
289.36
69.26
119.33
996.79
79.53
12.42
91.95
621.35
1.51
1,490.55
1,164.78
168.12
1,332.90
112.61
2,035.79
1,277.67
305.91
971.76
32.00
1,003.76
2.00
378.16
226.58
20.08
88.48
713.30
90.18
5.47
95.65
480.35
2.89
1,359.63
90.01
446.05
54.23
590.28
1,049.78
168.12
1,217.90
87.81
1,777.13
1,077.67
210.08
867.58
0.00
867.58
0.11
265.14
143.89
19.30
147.67
576.00
FY12E
90.01
327.19
54.23
471.43
924.78
168.12
1,092.90
63.91
1,490.55
FY11E
606.05
337.99
117.07
139.39
1,200.50
139.69
91.53
231.22
765.57
5.80
1,777.13
163.17
103.53
266.70
933.81
7.00
2,035.79
ThematicReport
88
Ratios
FY08
FY09
FY10
FY11E
FY12E
EBITDAmargins
7.31
10.41
9.67
10.30
11.53
PBTmargins
1.53
1.21
1.23
2.68
3.81
PATmargins
1.53
1.21
1.23
2.68
3.81
Interestcoverage
1.9
1.5
1.6
2.5
3.1
CurrentRatio
4.4
6.0
7.8
4.3
4.5
Debt/Equity
4.8
3.2
3.3
2.6
2.3
Debt/Capital
0.83
0.76
0.77
0.72
0.69
AssetTurnover
1.34
1.40
1.53
1.79
1.83
InventoryTurnover
9.8
7.6
6.4
6.9
6.9
37
48
57
53
53
14
11
12
12
DebtorsTurnover
43
26
34
29
29
12.8
16.7
23.1
19.7
19.6
Payables(Days)
29
22
16
18
19
81
86
93
78
81
PayablesTurnover
EPS
12
21
65.40
40.17
42.81
60.47
75.72
Cash/PS
4.65
2.49
2.59
9.14
15.31
Sales/PS
566.20
260.12
311.18
460.77
538.22
ROE
36%
28%
32%
40%
54%
ROCE
11%
16%
16%
21%
24%
BV/PS
ThematicReport
89
MudraLifestyleLtd.
Mudra Lifestyle Ltd. (MLL)is a multi product, multi fiber and multi market player covering the
entire textile value chain viz. yarn dyeing, fabric weaving, processing and garment
manufacturing. It has its manufacturing facilities in Bhiwandi, Daman, Tarapur, Bangalore and
Navi Mumbai. It has an installed capacity of 416 looms weaving 78200 meters per day, 1200
stitching machines manufacturing 18000 pieces of garments per day and units processing
100000metersoffabricperday.
Rating
TargetPrice
CMP
Upside
Sensex
KeyData
BloombergCode
ReutersCode
NSECode
CurrentShareo/s(mn)
DilutedShareo/s(mn)
MktCap(`bn/$mn)
52WKH/L(`)
DailyVol.(3MNSEAvg)
FaceValue(`)
Beta
1USD/`
MDRAIN
MUDR.BO
MUDRA
36.0
36.0
2.8/61.2
62.8/32.8
217793
10
1.07
45.8
ShareholdingPattern
Promoters
FII
Others
(%)
40.9
2.5
56.7
PricePerformance(%)
1M
6M
MUDRA
0.3
8.0
NIFTY
11.1 10.9
1yr
74.8
11.3
INVESTMENTSUMMARY
Uniquebusinessmodel
MLL has its presence across the entire value chain of textiles except for high capital intensive
spinningindustry.Thus,italienatesMLLfromthecyclicalyarnbusinessandfocusesonthehigh
growth/high margin fabrics and garment business. Moreover, MLL has its presence in woven
fabricswhichfacesrelativelylesscompetitionfromtheunorganizedbrandascomparedtothe
knittedsegment.
Reputedclientele
The company supplies garments and fabrics to countries like United States, United Kingdom,
Brazil, Mexico, Canada, Middle East and EU. However, their focus is on the huge domestic
marketpiewithonly10%oftheirtotalproductscomprisingofexports.MLLs30%ofrevenues
aredirectlysoldtothelargeCompaniesthusensuringbrandcredibility.
Eland Fashion China Holdings, Ltd. acquisition of 25% post equity stake to boost brand
equity
Eland Fashion China Holdings Ltd. (Eland) acquired 25% stake in MLL. Eland is one of the
largestplayerintheretailofwomensapparelinChina.Elandwantstolaunchinhighgrowth
Indiamarketwiththisacquisition.WithElandsexperienceandexpertise,weexpectMudrato
gainasignificantmarketshareinbrandedgarmentsin5yearstime.However,thereisnoclarity
astowhatbrandwilltheylaunchinIndiaanddetailsofexpansionorstrategyarenotavailable
sofar.
Valuations
Due to nonclarity of the recent acquisition, we have not rated this Company. Following more
claritywewillreleaseourestimates.Nonetheless,wefeelthatthisacquisitionisvalueaccretive
andwillenhanceMLLsvalueinthelongerterm.
NA
NA
` 57
NA
17700
ThematicReport
90
COMPANYPROFILE
MudraLifestyleLtd.(MLL)isamultiproduct,multifiberandmultimarketplayercoveringtheentire
textilevaluechainviz.yarndyeing,fabricweaving,processingandgarmentmanufacturing.Ithasits
manufacturingfacilitiesinBhiwandi,Daman,Tarapur,BangaloreandNaviMumbai.Ithasaninstalled
capacityof416loomsweaving78200metersperday,1200stitchingmachinesmanufacturing18000
piecesofgarmentsperdayandunitsprocessing100000metersoffabricperday.
INVESTMENTSUMMARY
Uniquebusinessmodel
MLLhasitspresenceacrosstheentirevaluechainoftextilesexceptforhighcapitalintensivespinning
industry. Thus, it alienates MLL from the cyclical yarn business and focuses on thehigh growth/high
margin fabrics and garment business. Moreover, MLL has its presence in woven fabrics which faces
relativelylesscompetitionfromtheunorganizedbrandascomparedtotheknittedsegment.
Exhibit68:Businessmodel
Reputedclientele
The company supplies garments and fabrics to countries like United States, United Kingdom, Brazil,
Mexico,Canada,MiddleEastandEU.However,theirfocusisonthehugedomesticmarketpiewith
only10%oftheirtotalproductscomprisingofexports.MLLs30%ofrevenuesaredirectlysoldtothe
largeCompaniesthusensuringbrandcredibility.
ThematicReport
91

Exhibit69:Majorclientele
MAJORCLIENTS
INTERNATIONALPRESENCE
ElandFashionChinaHoldings,Ltd.acquisitionof25%postequitystaketoboostbrandequity
Eland Fashion China Holdings Ltd. (Eland) acquired 25% stake in MLL. Eland is one of the largest
playerintheretailofwomensapparelinChina.ElandwantstolaunchinhighgrowthIndiamarket
with this acquisition. With Elands experience and expertise, we expect Mudra to gain a significant
marketshareinbrandedgarmentsin5yearstime.However,thereisnoclarityastowhatbrandwill
theylaunchinIndiaanddetailsofexpansionorstrategyarenotavailablesofar.
Valuations
Duetononclarityoftherecentacquisition,wehavenotratedthisCompany.Followingmoreclarity
we will release our estimates. Nonetheless, we feel that this acquisition is value accretive and will
enhanceMLLsvalueinthelongerterm.
ThematicReport
92
FINANCIALS
PROFIT&LOSSACCOUNT
Rs.Inmillion
INCOME
FY08
FY09
FY10
2,640.59
3,044.81
3,629.89
Less:ExciseDuty
0.00
0.00
0.00
OtherOperatingIncome
0.00
0.00
25.55
2,640.59
3,044.81
3,655.44
NA
15.31
20.05
2,192.05
2,135.49
2,836.91
153.79
175.07
229.52
35.78
(415.33)
Sales
Growth
EXPENDITURE
a.RawMat.Consumed&PurchaseofFin.Goods
b.ManufacturingExpenses
c.PersonnelExpenses
d.Power&Fuelcosts
f.OtherExpenditure
(388.07)
305.33
383.55
433.29
2,263.10
2,729.89
3,084.39
377.49
314.92
571.05
EBITDAmargins
14.30
10.34
15.62
57.61
79.77
172.92
Otherincome
84.95
52.65
14.79
Financecosts
87.52
129.05
222.52
MiscellaneousEpenditure
PreliminaryExpenses
(46.85)
(5.46)
317.31
205.60
195.86
12.02
6.75
5.36
38.75
18.78
62.14
41.84
43.41
4.57
1.61
EBITDA
ExtraordinaryItems
EBT
EBTmargins
PROVISIONFORTAXES
a.IncomeTax
b.MATCreditEntitlement
c.Deferredtax
d.(Short)Provisionfortax
e.FringeBnefitTax
f.Taxadjustmentforearlieryears
EATbeforeMI
EATmargins
1.90
0.17
82.66
68.37
62.14
234.65
137.23
133.72
8.89
4.51
3.66
ThematicReport
93

BALANCESHEET
Rs.inmn
SOURCESOFFUNDS
SHAREHOLDERS'FUNDS
a.Sharecapital
b.ShareApplicationMoney
c.Reservesandsurplus
MINORITYINTEREST
FY08
FY09
FY10
359.90
359.90
359.90
36.00
36.00
0.00
1299.60
1406.50
1523.40
a.Capital
LOANFUNDS
a.Securedloans
b.Unsecuredloans
1553.40
2476.60
3560.60
0.30
20.60
22.30
3249.20
4299.60
5466.20
APPLICATIONOFFUNDS
FIXEDASSETS
a.Grossblock
831.40
2561.00
3404.40
b.Less:Depreciation
126.50
206.30
367.70
c.Netblock
704.90
2354.70
3036.70
385.60
281.50
459.30
1090.50
2636.20
3496.00
INVESTMENTS
12.00
9.70
2.40
DEFERREDTAXASSETS
1071.80
1080.10
1715.70
661.90
909.90
850.00
34.70
22.10
243.00
738.60
198.00
100.40
e.Loans&Advances
163.10
230.60
272.70
2670.10
2440.70
3181.80
a.Inventories
b.Sundrydebtors
b.Provisions
NETCURRENTASSETS
461.60
745.10
1179.70
61.90
41.80
34.30
523.50
786.90
1214.00
2146.60
1653.80
1967.80
3249.10
4299.70
5466.20
ThematicReport
94

Ratios
FY08
FY09
FY10
EBITDAmargins
14.30
10.34
15.62
PBTmargins
12.02
6.75
5.36
PATmargins
8.89
4.51
3.66
492.4
463.7
640.9
CurrentRatio
5.1
3.1
2.6
Debt/Equity
0.9
1.4
1.9
Debt/Capital
0.48
0.58
0.66
AssetTurnover
0.70
0.60
0.54
InventoryTurnover
2.5
2.8
2.1
148
129
171
91
109
85
PayablesTurnover
4.7
2.9
2.4
Payables(Days)
77
127
152
297
198
198
47.11
50.08
52.33
Cash/PS
1.30
0.88
6.82
Sales/PS
73.37
84.60
101.57
ROE
14%
8%
7%
ROCE
10%
5%
4%
Interestcoverage
DebtorsTurnover
EPS
BV/PS
ThematicReport
95
NetworthResearch:Emailresearch@networthdirect.com
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INDIA

Spinners were previously granted a rebate of 1520% which is now

With the technology upgradation unskilled labourers have to be

Cotton crop destroyed due to floods which led to import of cotton in

Overseas buyers are looking at derisking their sourcing from China,

As the second largest employer in India contributing almost 40% to

Initiatives from the Technology Upgradation Fund Scheme (TUFS)

All the spinning companies have upgraded their technology and

201011E 201112E 201213E 201314E

200910 201011E 201112E 201213E 201314E

200910 201011E 201112E 201213E 201314E 201415E

Demand expected to grow at

Leading players: Vardhman

Increasing share of India in the

Demand expected to grow at

Niche segment with increasing

Demand expected to grow at

Domestic readymade garment

Demand expected to grow at

Demand expected to grow at

Leading players: RSWM, Sangam

Leading players: Alok Industries,

Garments Homefurnishing Technicaltextiles Otherunrelatedsegments Productdominance

Cotton Manmadefibres Knitted Woven

15,354.80 21,254.26 25,505.11

12,636.21 16,577.58 20,060.29

Yarn (6.81 mn kgs)

completion ofexpansion will fetch increased revenues, higher marginsandbetterprofitability.

13,980.60 18,033.60 23,991.47 29,188.00

32,795.10 38,698.22 45,276.92

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