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Saturday, July 18, 2009

Small Cap Stock To Buy - Banswara Syntex Ltd

Banswara Syntex Limited has been in spinning, historically. Over time, it has stepped across the textiles value chain. Value-added businesses fetch high margins and Banswara is looking to increase its share from such products.

Small Cap Stock To Buy - Banswara Syntex Ltd
It started with weaving and later diversified into cotton spinning and readymade garment manufacturing.A separate unit was set up at Daman to manufacture trousers under the brand name of ‘Integration’. The production is exported to more than 50 countries including US, UK, Canada and Spain. With its plan of positioning itself as an integrated textiles company, it has taken several steps.

Recently, it installed 10 jacquard looms to make upholstery fabric and set up a new plant for readymade garments at Surat. This plant also has the capacity of producing 11,250 jackets per month. Its foray into jackets will ensure another revenue source. The share of fabric and garments in its total revenue is rising and is expected to reach 60% by 2010. While integration is the goal, its focus on the yarn business will remain unchanged. This is clear from the increase in its spinning capacity. As competition for cotton yarn business has intensified, it has converted spindles for cotton yarn spinning into blended yarn production.

The company enjoys a strong customer base. It includes Levi’s Strauss (Dockers), Marks & Spencer, Next, Perry Ellis,Liz Clairborne and domestic players like Raymond and Pantaloon. It has set up an 18MW thermal power plant in Banswara which meets 90% of its power requirements. Changing over to coal has also helped to save on fuel costs.

Market Cap 53.67
* EPS (TTM) 7.12
* P/E 5.75
* P/C 1.38
* Book Value 70.09
* Price/Book 0.58
Div(%) 12.00
Div Yield(%) 2.93
Market Lot 1.00
Face Value 10.00
Industry P/E 145.04

The March quarter has been good for the company. Sales and operating profit have grown 18% and 135%,respectively.The five-quarter average sales and operating profit growth are 27% and 42%,respectively. It operates with a margin of 13%. The most compelling reason to buy this stock are its valuations. At the current levels of Rs 40, it's market-capitalisation is 0.1 times its sales and 0.9 times its operating profit. We can’t get too many stocks at cheaper valuations than this.

A great stock to buy on declines.

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