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No beating about the bush.
Sales and profits of textile companies are running at a record high, even though stock prices are down. The markets seem to have missed this phenomenon
Textile stocks are not among the hottest shares. The sector is considered to be down in the dumps, especially since exports collapsed in 2008. Textile stocks languish on the bourses because they are perceived to be suffering from slow growth and low profitability. However, the fundamentals tell a different story.
A study by Moneylife has found out that the textile sector as a whole has recorded its highest sales and profits during the quarter to end-September, indicating a robust demand for its products. Sales for the 92 textile companies in the Moneylife sample were at Rs13,706.60 crore in the September quarter, while operating profits stood at Rs2,076.90 crore, exhibiting a healthy margin of 15%.
However, the markets seem to have missed this phenomenon. Textile stocks are still not in the investors’ radar at all. Valuation of the sector is at a lower range compared to what it was nine quarters ago. Is this an opportunity for ‘value investors’ to pick up textile stocks at a bargain price? The Moneylife sample of textile stocks is currently trading at market capitalisation (m-cap) of just 0.39 and 2.68 times its sales and operating profit respectively.
Here are some of the textile stocks with excellent performance. Banswara Syntex has posted a 13% and 71% growth in sales and operating profit respectively in the September quarter. Its average sales and operating profit growth are 21% and 58% respectively. Its m-cap is 0.2 and 1.39 times its sales and operating profit respectively. Siyaram Silk has posted an excellent performance in the September quarter as its sales and operating profit surged by 32% and 48%. Its five quarter sales and operating profit are 17% and 42%. Its m-cap is 0.24 and 2.67 times its sales and operating profit. Grabal Alok Impex posted 118% and 37% growth in sales and operating profit respectively in the September quarter. Its average sales and operating profit growth are 43% and 33%. Its market cap is 0.66 and 2.15 times its sales and operating profit.
Indeed, knowing that they can pass on the costs, readymade garment makers are planning to raise prices by 5% to 10%. Major apparel makers and leading brands like Nahar Group, Duke, Malwa Group and Rage are planning to raise prices of their garments by 5% to 10% in view of rising prices of cotton and yarn. At a time when the overall market is trading at record valuations, textile stocks offer a combination of high growth and low valuation.