Nahar Spinning Mills Ltd - undervaluation play

2013 annual report is not available also the 2012 is a not so great one. Have tried to collect information from wherever possible

1.0 Fundamentals

1.1 Business

In 1992, as a measure of backward integration, the company diversified into the Spinning Industry by putting up a Spinning Plant at Village Simrai, Mandideep, Distt. Bhopal. To produce high quality value added Yarn for exports, company also put up Spinning Units at Village Jalalpur, Distt. S.A.S. Nagar, Village Jodhan, Distt. Ludhiana and Village Jitwal Kalan, Distt. Sangrur, Punjab. The present spindlage capacity of the company is 4.42 lacs spindles and 1080 Rotors.

Simultaneously the company also established an ultra modern facility to manufacture 12.5 million pieces of Hosiery Garments. Today, Company's products i.e. T-Shirts are being exported to reputed international brands such as GAP, Arrow, Old Navy, Banana Republic, Chaps â etc.

As a measure of further value addition in the Company's product the Company has put up a Mercersing cum dyeing plant with a capacity of 4.5 M.T. per day at Village Lalru, S.A.S. Nagar, Punjab. The superfine quality Yarn produced by the unit is being used by the manufacturers of fine quality Garments for exports. The unit is catering to both, the domestic hosiery garment market as well as export markets.

An ISO 9002 company, the Company has 7 multi location plants, a range of products, over 60% of which is aimed at export markets â USA, UK, France, Brazil, Bangladesh, Mauritius, Hondurus, Argentina, Colombia, Peru, Chile, Netherlands, Japan, Canada, Korea, Taiwan, Hongkong, Singapore, Egypt and Russia.

1.2 Market Statistics

Div & Yield %

0.89

Eps

31.89

Book Value

172.6

Market Cap(Rs.Cr)

406.58

Face Value

5

1.3 Sales

For the last 5 years

Particulars

Mar2013

Mar2012

Mar2011

Mar2010

Mar2009

Sales Turnover

1961.85

1696.48

1394.70

1055.13

962.27

Other Income

8.13

9.32

11.55

65.71

45.07

Stock Adjustments

9.17

-80.11

133.42

-4.38

-9.11

Total Income

1979.15

1625.69

1539.67

1116.46

998.23

Raw Materials

1065.96

1101.99

813.06

541.78

502.15

Excise Duty

0.58

0.30

0.04

0.02

0.24

Power & Fuel Cost

240.36

181.74

145.45

140.25

130.13

Other Manufacturing Expenses

108.00

102.93

90.67

72.05

68.66

Employee Cost

138.60

111.71

108.17

77.77

70.71

Selling and Administration Expenses

80.38

69.42

59.23

81.83

85.82

Miscellaneous Expenses

15.16

32.43

23.13

7.26

48.10

Less: Preoperative Expenditure Capitalised

0.00

0.00

0.00

0.00

0.00

Profit before Interest, Depreciation & Tax

330.11

25.17

299.92

195.50

92.42

Interest & Financial Charges

108.51

114.18

52.21

45.04

41.39

Profit before Depreciation & Tax

221.60

-89.01

247.71

150.46

51.03

Depreciation

87.55

84.44

69.78

69.86

76.11

Profit Before Tax

134.05

-173.45

177.93

80.60

-25.08

Tax

55.66

-56.09

56.47

27.11

-8.45

Profit After Tax

78.39

-117.36

121.46

53.49

-16.63

Adjustment below Net Profit

-0.53

0.16

-1.73

0.00

0.00

P & L Balance brought forward

0.00

0.00

0.00

0.00

0.00

Appropriations

77.86

-117.20

119.73

53.49

-16.63

P & L Bal. carried down

0.00

0.00

0.00

0.00

0.00

Equity Dividend

3.61

0.00

7.21

5.41

1.80

Preference Dividend

0.00

0.00

0.00

0.00

0.00

Corporate Dividend Tax

0.61

0.00

1.17

0.90

0.31

Equity Dividend (%)

20.00

0.00

40.00

30.00

10.00

Earning Per Share (Rs.)

21.55

0.00

33.32

14.57

0.00

Book Value

172.41

152.01

184.48

153.63

140.57

Extraordinary Items

0.74

1.84

-3.77

2.37

1.10

Segmental results

Type

Audited

Date Begin

1-Apr-2012

Date End

31-Mar-2013

Description

Amount (Rs. million)

Description

Amount (Rs. million)

1. Segment Revenue

Yarn

18,135.69

Garments

2,489.07

Total

20,624.76

Less: Inter Segment Revenue

-1,060.93

Net sales/income from Operations

19,563.83

1.4 Financial Ratios

Years

Mar2013

Mar2012

Mar2011

Mar2010

Mar2009

Debt-Equity Ratio

2.08

2.09

1.80

1.41

1.42

Long Term Debt-Equity Ratio

0.63

0.64

0.59

0.67

0.74

Current Ratio

1.05

1.09

1.20

1.36

1.40

Fixed Assets

1.14

1.05

0.96

0.78

0.74

Inventory

3.51

2.66

2.16

3.06

3.17

Debtors

5.21

4.50

4.52

4.37

4.21

Interest Cover Ratio

2.24

-0.52

4.41

2.79

0.39

PBIDTM (%)

16.83

1.48

21.50

18.53

9.60

PBITM (%)

12.36

-3.49

16.50

11.91

1.69

PBDTM (%)

11.30

-5.25

17.76

14.26

5.30

CPM (%)

8.46

-1.94

13.71

11.69

6.18

APATM (%)

4.00

-6.92

8.71

5.07

-1.73

ROCE (%)

13.45

-3.15

13.49

9.82

1.30

RONW (%)

13.39

-19.32

19.90

10.07

-3.22

1.5 Shareholding pattern

Sep-2013

Jun-2013

Mar-2013

Dec-2012

Sep-2012

Promoter and Promoter Group

64.83%

64.83%

64.83%

64.83%

64.83%

Indian

64.83%

64.83%

64.83%

64.83%

64.83%

Foreign

--

--

--

--

--

Public

35.17%

35.17%

35.17%

35.17%

35.17%

Institutions

0.03%

0.03%

0.04%

0.03%

0.03%

FII

--

--

--

--

--

DII

0.03%

0.03%

0.04%

0.03%

0.03%

Non Institutions

35.14%

35.14%

35.13%

35.14%

35.14%

Bodies Corporate

4.53%

5.09%

4.66%

4.23%

4.93%

Custodians

--

--

--

--

--

Total

3,60,65,303

3,60,65,303

3,60,65,303

3,60,65,303

3,60,65,303

1.6 Quarterly results

(in Cr.)

Sep-13

Jun-13

Mar-13

Dec-12

Sep-12

Mar-13

Income Statement

Revenue

553.00

522.49

514.84

505.79

496.72

1,961.28

Other Income

0.73

0.88

3.56

1.64

1.62

8.13

Total Income

553.73

523.37

518.40

507.43

498.34

1,969.41

Expenditure

-448.44

-436.85

-447.59

-430.59

-416.20

-1,645.04

Interest

-16.01

-23.03

-22.86

-21.27

-26.88

-102.76

PBDT

89.28

63.50

47.95

55.57

55.26

221.61

Depreciation

-21.65

-21.25

--

-21.87

-22.00

-87.55

PBT

67.63

42.25

47.95

33.70

33.26

134.05

Tax

-22.99

-14.36

-28.29

-10.90

-10.80

-56.19

Net Profit

44.64

27.89

19.66

22.80

22.46

77.86

Equity

18.03

18.03

18.03

18.03

18.03

18.03

EPS

12.38

7.73

5.45

6.32

6.23

21.59

CEPS

18.38

13.62

5.45

12.39

12.33

45.86

OPM %

19.04

16.56

13.75

15.19

16.54

16.54

NPM %

8.07

5.34

3.82

4.51

4.52

3.97

2.0 Technical

For technical please look for Tonyâs post in the techno funda section

Positives

- Theme can be played for currency depreciation

- Last 6 months has been good

- Low p/e ratio (3.4)

- Low market cap/sales ratio

- Stable promoter holdings

- Cotton prices are stable for some time and happen to remain so in the coming year as well

- Stable debt/equity ratio for the last 2 year

- Interest payments has been coming down

- Company has tuned profitable in the last year

- Sales has been continuously increasing for the last 5 years

- Recent improvement in profit margins

Negatives

- This company has always commanded lower valuations because of their inherent nature

- This sector always had lower market cap / sales ratio

- High capital intensive business (interest cost are generally big drag on these kind of companies)

- Not much pricing power

- These kind of companies are not wealth creators

- Promoter has already cautioned not to expect the earnings growth which has been in the last 6 months

- Low ROCE and RONW ratio in the teens

- Not so great cash profit margin

- Earning has been volatile in the past and can expect to remain so in the future

Right now the improvements in the fundamentals are not priced in for the stock. This stock can be played for 6-12 month time frame.

Sources of information

Company website, bseindia and some brokerage sites

Disc: taken position

Fellow boarders request to take forward.

My take

  1. 15 consistent years of dividend paying history ,might be more I chkd moneycontrol the data is there for past 15 yrs . So we can say a credible management .
    2 440 crs market cap and annual sales of 2000CR and profit of 50 crs .
    3 price is to book is 0.5 and some of the peers have price to book of 6
    4 Recent impetus of govt policies to revive textiles as well as many high profile investors queuing up on textile counters
    5 debt equity is reducing considerabky and also the interst outgo
    6 roe is very less from past many yrs . Other pundits can help whether it is same for all textile mfrs
    Quite new to this forum ,would love a review from other members and seniors
    Dsicl invested from last 10 mths

This stock popped up on my screener a few days back… After some basic study, I see that Nahar Spinning Mills is part of Nahar group. Another company from the same group, Nahar Industrial Enterprises also has the same business… In fact it was Nahar industrial Enterprises which caught my eye and I came to know that this one also from the same promoters have similar business… What is your take on two different companies from the same promoters operating in more or less similar fields… What is your opinion about chances for conflict of interest?