Overview:
The company covered in this issue is Indo Rama Synthetics (India) Ltd. (IRSIL), which is on a high growth path. It is one of India’s major dedicated polyester manufacturer with an Integrated Manufacturing Complex in Butibori, near Nagpur in Maharashtra. Its production capacity is 6,10,050 TPA of Polyester Staple Fibre, Filament Yarn, Draw Texturized Yarn, Fully Drawn Yarn and Textile grade Chips.
Sector Profile:
The man-made fibre (MMF) industry in India is witnessing rapid growth and has become a favored investment destination due to low manufacturing costs. The sector contributes 17% of India’s textile exports making it the world’s sixth-largest exporter of MMF textiles. The government’s strong policy support, including the allowance of 100% FDI and initiatives like the National Technical Textiles Mission and Production Linked Incentive (PLI) scheme is expected to fuel the industry’s growth.
The MMF market in India is dominated by polyester and viscose with polyester holding the majority share at around 77.5%, while viscose accounts for 16.5%. Polyester is expected to continue dominating global fibre demand by 2030. The man-made fibre industry is well positioned to drive substantial growth in India’s textile sector and this industry is expected to grow at 6% annually. The PLI scheme for textiles is expected to boost the high-value MMF segment, creating new employment and trade opportunities. The rising prices of cotton also contribute to the growth of the MMF textile sector.
Despite challenges such as rising raw material cost, supply disruptions and cheaper import of fabrics, the MMF sector is poised for substantial growth. Seven (7) PM-Mitra Parks will attract lucrative investment opportunities. Similar to China, these Textile Parks will create 7 textile hubs which will reduce overall cost of production and boost exports.
About IRSIL:
IRSIL offers polyester products such as Polyester Filament Yarn (PFY), Polyester Staple Fibre (PSF), Draw Texturised Yarn (DTY), Fully Drawn Yarn (FDY), Specialty Fibre and Chips. These products find application in Apparel & Sportswear, Home Furnishing & Textiles, Hygiene & Non-woven and Automotive.
India consume 75% of the company products while the remaining 25% goes to exports. Nepal and Turkey account for 23% and 28% of total exports respectively. The company has a strong presence in important global markets such as Turkey, MENA, Brazil, Argentina, Mexico, Germany, Spain, Italy, Bangladesh, Nepal, etc. for its high-quality products.
IRSIL has an integrated production facility in Butibori, near Nagpur, Maharashtra. Its capacity includes Polyester Staple Fibre (PSF): 2,63,550 TPA, Polyester Filament Yarn (PFY): 2,59,000 TPA, Draw Texturised Yarn (DTY): 1,38,946 TPA & Polyester Chips: 87,500 TPA.
The Board of Directors has approved an expansion plan of Rs. 600 crore in the company and its wholly owned subsidiary (WOS) towards the addition of equipment for value addition and diversifying into a 700 TPD PET Resin manufacturing facility at its Butibori Plant.
IRSIL has technical collaborations with Chemtex Intl. Inc. (USA), Oerlikon Barmag (Germany), Zimmer AG (Germany), Autefa (Germany), LTG Ameliorair (France), Bertrams (Switzerland), LVD (Belgium), among other MNCs.
The company’s R&D is focused on product development & process improvements. It has successfully developed products like fibre suitable for hygiene applications, full dull and black dope-dyed yarns, modification of existing draw textured yarn (DTY) machines for auto-doffing, automation to prevent metallic contamination in hygiene products and new DTY products.
Shareholding:
The aggregate promoter shareholding in the company increased to ~82% from ~75% after the completion of a preferential issue and further acquisition of shares tendered in the open offer in May 2019. To comply with SEBI’s minimum public shareholding requirements, a member from promoter group sold ~7% of the total capital of the company in an offer for sale (OFS) in October 2020. Further, an open market sale of 0.13% of share capital was done in February 2021 after which the company complied with maximum promoter stake requirements. Now the promoters stake stand at around 75% with DIIs having around 3% and remaining 22% with the public.
Financials:
The company generates net cash and has improved net cash flows over the last two years. There has been growth in net profit with increasing profit margin on a QoQ basis… The statutory auditor of the company is Walker Chandiok & Co LLP.
PE ratio: - Price to Earnings’ ratio, which indicates for every rupee of earnings how much an investor is willing to pay for a share. This stock has a PE ratio of around 12 which is low and comparatively undervalued .
Return on Assets (ROA): - ROA shows how efficiently a company can convert the money used to purchase assets into net income or profits. This stock has ROA of -0.94 % which is not a great sign.
Current ratio: - The current ratio measures a company’s ability to pay its short-term liabilities with its short-term assets. This stock has a satisfactory current ratio of 0.85 .
Return on equity: - ROE measures the ability of a firm to generate profits from its shareholders investments in the company. This stock has a 3 Years ROE of 28 % .
Debt to equity ratio: - It is a good metric to check out the capital structure along with its performance. This stock has a D/E ratio of 1.15 which is satisfactory.
Sales growth: - This stock has reported revenue growth of 0.13 % which is not great in relation to its growth and performance.
Operating Margin: - This will tell you about the operational efficiency of the company. The operating margin of stock for the current financial year is 0.83 %.
Pros:
It is a company with zero promoter pledge. Mr. Aloke Lohia, one of the promoters, is the Founder and CEO of Indorama Ventures Ltd. (IVL). IVL is located in Bangkok and is a producer in the intermediate petrochemicals industry and the world’s largest producer of PET resins and a manufacturer of wool yarns.
Cons:
The primary raw materials required for polyester production are Purified Terephthalic Acid (PTA) and Mono Ethylene Glycol (MEG). Both PTA and MEG are petrochemical derivatives, making the industry sensitive to crude oil prices.
Conclusion:
Overall, it can be said that stock is struggling to cross 45-55 price level & once closing above this level may lead to new heights provided expansion projects completes on time.
Disclaimer :
I am not a SEBI registered advisor and this report is solely for educational purposes. The information provided does not constitute any form of recommendation. Therefore, please conduct your own analysis before engaging in any trades or consult your financial advisor. The writer holds no responsibility for your intended decisions and any resulting financial losses.