The whole textile sector has witnessed a strong performance in last 1 year and the last quarter numbers were exceptional. Yet most of the stocks are languishing and available at low PE multiples. Yes, it could be a value trap if the textile cycle turns towards bad but there are several long term positives going on for the sector and the medium term looks bright, for eg: Appreciation of Yuan is making Indian Textile much more competitive than before.
Ideal way to bet on this sector is to choose few stocks which offer decent margin of safety and invest for medium term. Few ideas which we like are:
Nitin Spinners (BSE Code: 532698) – We had mentioned about the stock recently at our blog. Established in 1993 and based out of Bhilwara, Rajasthan, this company has been growing aggressively. Last 5 year CAGR topline growth is 32% and last 10 year CAGR is 27.50%!.
The company had come out with an IPO at Rs 21 in Jan, 2006. Since then the turnover of the company has increased by more than 3.5 times from 98 Cr to 375 Cr (Expected for FY 2011), yet the stock is available at around Rs 12.
For this year the company is expected to do a turnover of 375 Cr+ and post a Net Profit of about 16-18 Cr thus resulting in an EPS of 3.5 to 4. For FY 2011, the Book Value of the stock would be close to 20-21 and at CMP of about 12, the stock is avilable at a 40% discount to Book Value.
Welspun Syntex (BSE Code: 508933) – We wrote in detail about this company at our blog about 1 year back at Rs 15. The stock did very well and had gone to Rs 25 levels.
Now the stock has come down to Rs 15 levels in this midcap correction and looks good again.
Salona Cotspin (BSE Code: 590056) – This is a micro-cap company doing consistently well in this space. At CMP of about 31, the company is available at a Market Capitalization of just about 15 Crore while this year’s turnover would be around 80 Crore+ with a Net Profit of 6-7 Crore. The stock is trading at a TTM PE of just 3. Salona is also a dividend paying company – Last year dividend was 10%.