Sutlej 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.
- 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.
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!