Recommendations from Textile Sector

Here’s Why:

·         Debt-free company and consistent dividend-paying track record.

·         Cash-rich company; cash per share of Rs 55.10 as on H1 FY16.

·         Robust result in the first half of FY16.

The demand for Polypropylene Staple Fibre (PPSF) is growing both in the global and domestic markets, especially in construction, technical textiles and chemical industries. Therefore, this time we were focusing on a company which is the only one of its kind in India manufacturing the entire range of Polypropylene Staple Fibre (PPSF). The company is debt-free and it has a consistent dividend-paying track record of more than 10 years. Further, the stock has high ROCE of more than 25 per cent.

Zenith Fibres, incorporated in the year 1989, currently has production capacity of 8,400 MTPA. The growing automobile sector, infrastructure development, phenomenal growth in the construction sector and many other related industries presents a huge market potential for PPSF. Non-wovens are rapidly growing in the following areas: 1) automobile segment – cars, carpets, acoustic/thermal insulation, backing for tufted carpets, 2) hygiene products – disposable diapers, female hygiene products, 3) civil engineering geotextiles – road underlays, erosion control, canal lining, artificial turfs and pavement overlays, 4) filtration - dust filters, liquid filters, oil filters, air-conditioner filters and filters for pharmaceutical producers, 5) medical textiles – disposable and surgical apparel, shoulder pads, gloves, etc. 6) consumer products – reusable carry bags, vacuum cleaner bags, tea bags, wipes, carpets and bath mats.

The financials of the company reflect the business fundamentals. The company reported over two-fold jump in net profit at Rs 2.72 crore in Q2 FY16 as compared to Rs 1.18 crore in the same period of the previous year. The total revenue rose by 6.9 per cent to Rs 18.45 crore in Q2 FY16 from Rs 17.26 crore in the corresponding quarter of the previous year. The EBITDA growth stood at 150 per cent, amounting to Rs 3.5 crore as against Rs 1.40 crore in Q2 FY15 due to margins jumping by 1,086 bps to 18.97 per cent as against 8.11 per cent YoY. For six months ended September 30, 2015, the company’s net profit was at Rs 4.10 crore, which rose by 55.61 per cent YoY. In H1 FY16, the company has earned Rs 9.29 per share against the full year of FY15’s EPS of Rs 13.36.

In the last five years ending FY15, the topline and bottomline of the company have grown at a CAGR of 14.5 per cent and 13.9 per cent respectively. The company has Rs 24.37 crore as cash in its books i.e cash per share of Rs 55.10 as on H1 FY16. On the valuation front, Zenith Fibres is trading at a TTM PE ratio of 5.7x with an EPS of Rs 16.8 and in terms of its price to book value, it trades at 1.13x with a BVPS of Rs 85. As such, the stock is worth buying with 60-65 per cent upside in the next one year.