Sarla Performance Fibres - Another Interesting Textile Story in Making?

(Aditya) #104

Sarla has arranged an Analyst meet at Mumbai today. It will be great if someone based out of Mumbai could attend the same.

(kaustubhkale) #105

What time and where is it? Any details please

(Aditya) #106

In the Analyst meet notification at BSE, they have notified -

Earlier, I thought it’s an open analyst meet. But there’s no mentioning of the address or time.

(kaustubhkale) #107

oh. that is a restricted one. never mind.

(Pratik) #108

Concall is to be held on June 7 / Tuesday. Please ready up your questions for management then…

(Pratik) #109

Concall details for discussion on Q4 FY2016 results and future outlook -
Primary number: +91 22 6746 5837
Secondary number: +91 22 3960 0607
Tuesday, 07 June 2016, 11:00 AM IST

(Pratik) #110

Like last time, management has revised above concall schedule this time as well citing travel plans as reason.

(SSK) #111

Ohh i was trying to dial in now. just saw your post. please do share if you know the new timings.

(navneet.daga) #112

Any updates on when is the concall or if it has already taken place what was the result of the same?


(Pratik) #113

Mgmt. didn’t hold concall this time

(navneet.daga) #114

While I continue to hold about 5% of the total portfolio in this stock, cancelling of concalls and missing targets are not good signals. Will continue to monitor the situation for the next few weeks and take a call accordingly. If anyone has more information on the company please do pass it along.


(navneet.daga) #115

I wrote to the MD and got the following response from him on no conference call and poor US off take. This does not answer the reason for both but the response was prompt :stuck_out_tongue.

"Hi Navneet

Basically the conference call was not held only for the review of the last quarter results.

The company overall is doing reasonably well and what is mainly lacking is the increase of the utilization levels at the US operations

In spite of that we had a 50% growth in the bottom line for FY 16 as compared to FY 15 and even without much increase in the US operations we see around a 30 to 40% increase in the bottom line for FY 17 as compared to FY 16

The important thing is to create a solid base and foundation in the US and this is what we are striving to achieve


Krishna Jhunjhunwala
Managing Director"

(Gaurav Agarwal) #116

Why is Mr. Jhunjhunwala only talking about botttomline? The big question is why companys topline is not growing for almost 4 years? It is hovering around 240-260 levels.

(Pratik) #117

My take on flat topline and increase in bottomline:

  1. Company operates on cost plus operating model. This model has both advantage and disadvantage.

Advantage : When raw material price increases, Company has ability to renegotiate contract with clients and increase the end product price as well. Result is increase in sales and bottomline.

Disadvantage : When raw material price decreases, clients renegotiate contract and Company has to adjust end product prices downward to pass some benefit to clients. Result is flat sales and decrease in bottomline.

EBITDA margins remain intact in both cases.

  1. In case of Sarla, raw material (polypropylene) is crude derivative. So over last few years with decrease in crude prices, its end product prices must have likley declined resulting in flat sales.
    However, bottomline bounced in FY2016 as volumes increased (Sarlaflex made volume of 2300 TPA).

  2. In FY2017, company is estimating volume from SarlaFlex of 3300TPA to 3600TPA. Crude price volatility is unknown, but end product volume visibility is more. So more visibility on bottomline is there. If crude prices increase, then sales should also increase meaningfully.

(navneet.daga) #118

more from the MD
"Building the right team of workers and technicians has proved to be a challenge in the US and much more difficult then we envisaged as the industrial discipline is hard to find

Secondly to get into the supply chain of the billion dollar US companies we need to prove our stability and staying power and show them we are not just another fly by nigh operator"


(paresh.sarjani1) #119

If that’s the case…
Probably we should see a good topline this quarter (due to rising crude prices)

Discl - Not yet Invested.

(Rohit Balakrishnan) #120

Disc: Not Invested

(Dhairya) #121

Just noticed a few things in their Annual Report:

  1. They have a cash balance of Rs. 986 Cr on their books; however they have taken additional term loan of Rs. 379 Cr in FY 16? What is the purpose of the loan as I could not see any CWIP on their books as well? Is there any capex planned for FY 17 for which they have taken the loan and plan to utilize their surplus cash?

  2. They def seem to be grappling with how to deploy all the surplus cash. Their long term investments have gone up from Rs. 77 Cr to Rs. 322 Cr; however most of it is towards buying a property (Rs. 165 Cr) and rest parked in liquid assets (Pref shares and Mutual Funds - Rs. 80 Cr)

  3. Company plans to invest in enhancing their wind generation capacity; maybe to avail of accelerated depreciation benefits. And they also seem to be investing in non-core assets. It seems that company is having surplus cash but does not plan to invest in core assets because they believe the capacity they have set up is sufficient for the foreseeable future (USA is anyways operating at 30% capacity)

  4. Question is could the surplus cash be returned to Shareholders instead of investing in non-core assets or management could clarify what are their plans beyond increasing wind generation capacities

Disc: Invested

(zygo23554) #122

Looks interesting at first glance, adding this to my research list; will do detailed study soon unless I see an obvious red flag.

Flat topline shouldn’t worry us at all, the way FY16 results have come out is similar to other players who take PE,PP as raw material and deliver intermediate products. Garware Wall ropes has had a similar FY16, muted top line but 40%+ bottom line growth

What matters most in stories like this, once again based on a cursory first level analysis -

  1. Ability to hold onto margins during commodity up/down cycles, as long it stays in a healthy range it doesn’t make sense to sweat over the details as to why margins went down in a particular Q or even a year sometime. As long as the margin of safety is high, the specific details shouldn’t be a deal breaker

  2. Product portfolio that is evolving based on customer needs, even if it is an intermediate product customers can tell a value added input from a commodity. The R&D will be low cost & application based, once something works with one customer the same can be replicated quickly across other customers at minimal incremental cost

  3. Competitive structure in the industry, fewer organized players the better it is. Ideal structure will be an oligopoly where customers have a restricted vendor list

  4. Some differentiation either in sourcing, location, distribution or relative scale is very important. For companies of this nature it has to be a combination of one of these along with switching cost which can keep competition at bay. Pricing power, brands, patents and network effect anyway won’t work here

  5. Well funded capex already in place, with 100+ Cr of cash and a market cap of 550 Cr I guess this ain’t an issue. By the looks of it this appears to be conservatively managed from a capital structure point of view

  6. I like promoter owned and promoter run companies. I will never allocate too much to a company that has a so called “professional management” layer who will waste time playing politics and have minimal skin in the game. More the control exerted by promoters on the day to day running of the business, the happier I will be - this to me in fact is a necessary criterion to invest!

I will deep dive into the analysis soon.

(kaustubhkale) #123

Centrum initiates coverage on Sarla with TP of INR83.Sarla Performance Fibres - Initiating Coverage - Centrum 19092016.pdf (1.0 MB)