Sutlej Textiles and Industries Limited

sutlej textiles multibaggerSutlej Textiles and Industries Limited (STIL) is one of India’s largest spun dyed yarn manufacturer. Under the leadership of Mr. C S Nopany, Executive Chairman of STIL, the Company has primarily focused on value added yarns and home textiles. Over the years, STIL has also successfully carved out a niche for itself and is holding leadership position in the dyed yarn and cotton mélange yarn segment. The total spinning capacity of the Company presently stands at 377,688 spindles.

Why Invest?

  • STIL has a strong global clientele and exports to more than 55 countries. It has presence across major developed and emerging economies like Australia, Argentina, Bangladesh, Bahrain, Belgium, Brazil, Canada, China, Chile, Cuba, Egypt, France, Germany, Hong Kong, Italy, Morocco, New Zealand, Peru, Philippines, Poland, Portugal, Russia, Saudi Arabia, Sri Lanka, Turkey, United States of America, the United Arab Emirates (UAE), and The United Kingdom, among others.
  • Most of its capacity expansion is over, the benefit of which will be seen in the near future. Currently, in case of yarn division, work on the expansion project for adding 35,280 spindles at Bhawanimandi, Rajasthan facility at a project cost of Rs. 270 crores is progressing as per schedule. The project is likely to commence commercial production in Q4 FY 2017. Process of Trial run on first 9,000 spindles has already commenced on August 05, 2016. This will be dedicated capacity focused towards producing value added cotton blended dyed and Mélange Yarn with better margins. In case of home textiles division, expansion project to increase installed capacity to 9.6 million metres p.a. is progressing as per schedule and is likely to complete by Q4 FY2017. Yarn division currently provides 95% of the overall sales while the home textiles division provides the rest 5%.
  • STIL invested around Rs. 17 crore during the quarter Q1, FY2017, towards technology up-gradation and debottlenecking, etc. This will result in improvement of efficiency and sustaining plant utilization. The company also acquired 13 acres of Freehold land near Birla Textile Mills, Baddi at a cost of around Rs 14 crore and intend to deploy a further amount of ~Rs. 67 crore during FY2017 towards technology upgradation and debottlenecking, etc.
  • In the last three years, their sales have grown at a CAGR of around 11% and their profit at a CAGR of around 22%. This has been as a result of operational leverage kicking in and lowering of debt on a consistent basis.
  • In the last four years their D/E Ratio has reduced from 2.90 to 1.10. Consequently, the interest coverage improved from 1.57 to 4.78.
  • Their inventory turnover ratio, debtors turnover ratio and asset turnover ratio has improved over the years indicating better management of inventory, receivables and improved efficiency/ productivity of assets.
  • Their operating profit margins have a scope of improvement as compared to the peers. With most of the capacity expansion complete, this will be the management’s next focus.

Price?

At a current market price of Rs. 745, it trades at a PE of approx. 7.79. With more operating as well as financial leverage benefits yet to kick in, I believe this stock offers great value at current levels and has the potential to be the next multibagger. This opportunity is not be missed for sure!

Resources:

Q1, FY2017 Press Release

3 thoughts on “Sutlej Textiles and Industries Limited

  1. Thank you so much for the very informative article. I have personally entered Sutlej Textiles recently. My query is – How will the recent run up in cotton price affect Sutlej Textiles? Two major questions arise:
    1. Does Sutlej usually maintain a good inventory (9-12 months) of raw cotton in its warehouses?
    2. Is Sutlej placed strongly to pass on the hike in raw material to its customers?

    Favorable combinations of the above two can result in bumper results next quarter v/s bad quarter in case of negatives on both the questions.

    If you have insights on this, kindly share your thoughts.

    • Hi Kamal. As per my understanding, while in general one would assume that higher cotton prices will benefit STIL but given the stiff competition in the industry, it may not be possible for them to transfer all the increase to their customers. So, I think it is a good thing that that cotton prices have now fallen by around 10% after the recent run up. Too much increase can be a problem here.

      Regarding how many months stock they keep at a time, as far as I can remember, they have reduced the same now to less than six months from earlier higher levels, mainly to aid better working capital management.

  2. From Rs 988 it dropped already to 838. What is the reason? I entered at Rs 700. To hold or book profit. Pl advjse

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