The top-line of the company remains robust with a growth of 25.6% YoY to Rs 269.47cr as against Rs 214.56cr.

The net profit surged 158% YoY to Rs 9.18cr as against Rs 3.56cr, while EBITDA margins expanded by 73bps to 15.36% against 14.63%, largely on account of higher realization witnessed for the Poly-viscose yarn.

Key Investment Rationale:

Favourable Shift Towards PV-Yarn as the Cotton prices rise:-
Increased cotton yarn prices, coupled with evolving dressing sense in the country is the growth driver for the PV-Yarn. During the last 5-6 years, the PV-yarn as a segment grew by 8-9% as against the 5-6% growth wittnesed in Textile sector as a whole.

Market Leader- Drives Pricing Power :

Sangam India Ltd, is the market leader with over 25% share in PV-Yarn, thereby enjoying the bargaining power. The Polyester prices have risen by around 25%, viscose, prices have increased by around 30% in the past one year. The company has been able to raise yarn prices by 30-35%.

Improved Product Mix will lead to margins expansion:

Earlier, Sangam was mainly concentrated on coarser counts (realisation are lower than finer counts). Its per kg. realisation of yarn was Rs 130/kg. for FY09 and Rs 142/kg. for FY10. This is expected to improve to Rs 155/kg. in FY11 as the Company plans to focus more on value added products

Integrated Textile Player
The Company emerged as an integrated player in the textiles industry with a value chain extending from yarn and fabrics to garments and home textiles, enabling it to make its presence in every segment.

At the current price of 50, the stock is trading at 7.51 and 5.34x times of our estimated FY11E & FY12E earnings. We thus recommend a ‘BUY’ with a Price target of Rs 68.

During the quarter ended 30th Sept, 2010, the net sales of the company reported an increment of 25.59% on y-o-y basis to Rs 269.47cr as against Rs 214.56cr during the corresponding quarter last year. On sequential basis the company’s performance was modest, and the net sales saw an expansion of 5.6% from Rs 255.1cr.

On operating front, the EBIDTA registered a growth of 31.87% to Rs 41.38cr from Rs 31.38cr as against the corresponding period last year, while on sequential basis EBIDTA registered a marginal growth of 8% from Rs 38.42cr. However, the company has been able to maintain its margins over 15% a rise of 73bps on y-o-y basis while it grew marginally by 30bps on sequential
basis, largely on account of higher realization from PV-yarn segment.

The net profit of the company saw an increment of 157.87% YoY to Rs 9.18cr as against Rs 3.56cr during the corresponding quarter, while on Q-o-Q basis the net profit increases by 20% from Rs 7.65cr. The better-than-expected bottom-line performance of the company was mainly contributed by higher Top line of the company and stable interest cost.

Company Profile

A Textile Conglomerate, the Bhilwara (Rajasthan) based Sangam Group of Companies (SGC) is today a name synonymous with excellence in textiles. It is a "Complete Textile House" that is diversified into spinning, weaving, knitting, flock fabric and processing. It is a prominent and leading manufacturer, exporter and supplier of world-class Suitings, Denim fabric, Flock Fabrics and Cotton and synthetic yarns from India

Based in textile city, Bhilwara, it has one of the largest unit in India to produce dyed yarn using state-of-the-art machinery. The company exports its premium product range to Turkey, Belgium, Spain , MiddleEast, and various other countries.

INDUSTRY OVER-VIEW:

Textile Sector Contribution:
According to the Annual Report 2009-10 of the Ministry of Textiles, the Indian textile industry contributes about 14 per cent to industrial production, 4 per cent to the country's gross domestic product (GDP) and 17 per cent to the country’s export earnings. It provides direct employment to over 35 million people and is the second largest provider of employment after agriculture.
According to the Ministry of Textiles, the cumulative production of cloth during April’09-March’10 increased by 8.3 per cent as compared to the corresponding period of the previous year.
Total textile exports increased to US$ 18.6 billion during April’09- January’10, from US$ 17.7 billion during the corresponding period of the previous year, registering an increase of 4.95 per cent in rupee terms. Further, the share of textile exports in total exports has increased to 12.36 per cent during April’09-January’10, according to the Ministry of Textiles. As per the Index of
Industrial Production (IIP) data released by the Central Statistical Organisation (CSO), cotton textiles have registered a growth of 5.5 per cent during April-March 2009-10, wool, silk and man-made fibre textiles have registered a growth of 8.2 per cent and textile products including wearing apparel have registered a growth of 8.5 per cent.

Technical Textile Segment:
According to the Ministry of Textiles, technical textiles are an important part of the textile industry. The Working Group for the Eleventh Five Year Plan has estimated the market size of technical textiles to increase from US$ 5.29 billion in 2006-07 to US$ 10.6 billion in 2011-12, without any regulatory framework and to US$ 15.16 billion with regulatory framework. The Scheme for
Growth and Development of Technical Textiles aims to promote indigenous manufacture of technical textile to leverage global opportunities and cater to the domestic demand.

Government Initiative for Textile Industry:
According to the Ministry of Textiles, investment under the Technology Upgradation Fund Schemes (TUFS) has been increasing steadily. During the year 2009-10, 1896 applications have been sanctioned at a project cost of US$ 5.23 billion. The cumulative progress as on December 31, 2009, includes 27,477 applications sanctioned, which have triggered an investment of US$ 45.5
billion and amount sanctioned under TUFS is US$ 18.9 billion of which US$ 16.4 billion has been disbursed so far till the end of April, 2010. Future Prospects: In May 2010, the Ministry of Textiles informed a parliamentary panel that it proposes to allocate US$ 785.2 million for the modernization of the textile industry. The Scheme for Integrated Textile Park (SITP) was approved in
July 2005 to facilitate setting up of textiles parks with world class infrastructure facilities. 40 textiles park projects have been sanctioned under the SITP. According to the Minister of State for Textiles, Panabaaka Lakshmi, under the SITP, a cumulative expenditure of US$ 204.3 million has been incurred against allocation of US$ 220.7 million in the last three years. The
government’s interest subsidy under TUF will modernize the industry, counter market challenges and enable it to stay competitive in quality and price. The Indian home furnishing industry is influenced by traditional designs, fused with some international styling (use of lace, minimalism, etc). Such designs appeal to customers attracted by fused concepts. The home textile market witnessed an increase in the use of organic fabrics, textures and weaves that focus on natural fibres. After a brief lull in 2009, the home furnishing market is expected to recover, propelled by middle-class income growth and an expansion in home-specific organized retailing chains. The hospitality industry is expected to strengthen the home furnishing market by 25 percent. In a space hitherto dominated by indigenous players, international players are entering.