Our very own Board for Industrial and Financial Reconstruction (BIFR) has proved to be a boon for many sick industrial units. While analyzing various companies, I come across many which were earlier sick units with huge accumulated losses and negative net-worth, but have now turned into well run units with positive net-worth. It is always a great sight because it helps many small investors recover losses and even experience capital appreciation once the company starts functioning well.
In the metals, textiles sector, it is a common sight as both these sectors are cyclical and thus during rough times many smaller and sometimes even larger companies start becoming sick. However with the help of BIFR, many do come out of the clumsy situation. One such company that I am going to discuss today is from textiles sector and that is Surat Textiles Mills ltd.
Surat Textiles Mills was incorporated in 1945 and was known as Garden Cottons & Yarns. The company is engaged in the manufacture and sale of polyester filament yarn, polyester chips and spun yarns. It has three manufacturing facilities in Surat and one at Silvassa, about 140 km from Surat. The company got registered with BIFR in 2003 and the Industrial Development Bank of India (IDBI) was appointed as the operating agency (OA). The agency suggested a five-point Rs.4.45 billion rehabilitation scheme for the company.
Like most of the other rehabilitation schemes, it involved one-time settlement of the secured debts of the company amounting to Rs.77.41 crore by a payment of Rs.40.83 crore with secured creditors in turn waiving off the balance of principal, interest, and penal interest. The cost of the scheme was met with the promoters of the company contributing an aggregate amount of Rs.44.50 crores comprising of a soft loan of Rs.29 crores to the company and by subscribing fresh equity shares at par on a preferential basis for an amount aggregating to Rs.15.50 crores.
The effect of rehabilitation is clearly visible with the company registering good numbers for the FY 2008-09. As per the management, they could record higher chips sale as the company discontinued its conversion and processing activity on third party job work basis, and utilized its capacities for own production. The company achieved gross sales of Rs 175.22 crores in FY 2008-09 as compared to Rs.95.47 crores in the previous year, registering a growth of over 83%. The bottom-line stood at Rs 6.2 crore.
On the back of fresh infusion of equity and sufficient working capital, the company has continued its good performance into the first two quarters of FY 2009-10 as well, with the company having already recorded a bottom-line of Rs 3.5 crore. Having said all this and considering an annualized EPS of Rs 0.32 per share and with no further capacity expansion visible across the line, I find the current price of Rs 5 as a good selling point. This is because I do not see any trigger for the stock price to move much further and the valuations also look on the higher side for the company into textile manufacturing.
In the metals, textiles sector, it is a common sight as both these sectors are cyclical and thus during rough times many smaller and sometimes even larger companies start becoming sick. However with the help of BIFR, many do come out of the clumsy situation. One such company that I am going to discuss today is from textiles sector and that is Surat Textiles Mills ltd.
Surat Textiles Mills was incorporated in 1945 and was known as Garden Cottons & Yarns. The company is engaged in the manufacture and sale of polyester filament yarn, polyester chips and spun yarns. It has three manufacturing facilities in Surat and one at Silvassa, about 140 km from Surat. The company got registered with BIFR in 2003 and the Industrial Development Bank of India (IDBI) was appointed as the operating agency (OA). The agency suggested a five-point Rs.4.45 billion rehabilitation scheme for the company.
Like most of the other rehabilitation schemes, it involved one-time settlement of the secured debts of the company amounting to Rs.77.41 crore by a payment of Rs.40.83 crore with secured creditors in turn waiving off the balance of principal, interest, and penal interest. The cost of the scheme was met with the promoters of the company contributing an aggregate amount of Rs.44.50 crores comprising of a soft loan of Rs.29 crores to the company and by subscribing fresh equity shares at par on a preferential basis for an amount aggregating to Rs.15.50 crores.
The effect of rehabilitation is clearly visible with the company registering good numbers for the FY 2008-09. As per the management, they could record higher chips sale as the company discontinued its conversion and processing activity on third party job work basis, and utilized its capacities for own production. The company achieved gross sales of Rs 175.22 crores in FY 2008-09 as compared to Rs.95.47 crores in the previous year, registering a growth of over 83%. The bottom-line stood at Rs 6.2 crore.
On the back of fresh infusion of equity and sufficient working capital, the company has continued its good performance into the first two quarters of FY 2009-10 as well, with the company having already recorded a bottom-line of Rs 3.5 crore. Having said all this and considering an annualized EPS of Rs 0.32 per share and with no further capacity expansion visible across the line, I find the current price of Rs 5 as a good selling point. This is because I do not see any trigger for the stock price to move much further and the valuations also look on the higher side for the company into textile manufacturing.
Note: The stocks discussed at MPS thru blog postings are neither a part of “Business Insights” issue nor a “Penny Stocks” which we reco/publish for paid subscribers. These are just stock specific views by MPS team; one MUST do the due diligence before doing any investment based on our reco.
To contact the Lead associate on this story: Ekansh Mittal in Noida (New Delhi) at Ekansh@hbjcapital.com
0 comments:
Post a Comment