Hem Sec: Buy Shri Lakshmi Cotsyn Ltd.

Expansion on Drive: SLCL plans to increase the capacity of
fusible interlining division to 25 mn mtrs. From 12.5 mn mtrs and
venturing into manufacturing of blackout fabrics, IRR fabric, flex
fabrics and carbon fabrics with a total estimated cost of Rs.482 Crores.
The company also planning to set up spinning unit with one lakh
spindles and 5000 rotars at the cost of 300 Crore approx. by installing
refurbishing plant. Furthermore SLC also expands its Denim Fabric
manufacturing capacity from 20 mmpa to 40 mmpa and Sheeting
manufacturing capacity from 12 mmpa to 30 mmpa with a total cost
of project of Rs. 510 Crore.
Leading Player in Industry: Shri Lakshmi has positioned itself
as an integrated multi product and multi market player covering
almost all the activities of textile value chain. Shri Lakshmi’s expertise
in technical textiles and defence products will help it in getting orders
from defence and paramilitary forces. SLCL is having largest product
line among all the textile manufacturers in India.
Decent Quarterly Performance: SLCL has posted decent
results for Q4FY10. The revenues of the company have gone up from
Rs.330.62 crore in Q4FY09 to Rs.423.87 crore in Q4FY10 showing an
increase of 28.20%. The operating profits also increased by 21.62%
from Rs 41.44 crore same quarter last year to Rs.50.40 crore in
Q4FY10. The net profit of the company increased from Rs. 19.27 crore
in Q4FY09 to Rs.23.08 crore in Q4FY10 showing a growth of 19.77%.
The EPS of the company rose from Rs.9.65 in the same quarter last
year to Rs.11.56 in Q4FY10, Rs.45.91.
Valuation
At the CMP of Rs 157.15, the stock is trading at a consolidated PE of
4.58x and 3.55x its FY11E and FY12E EPS of Rs 34.29 and Rs 44.20,
respectively. Since the stock offers good opportunity, we initiate a
‘BUY’ signal on the stock with a target price of INR 230.00 in medium
to long term investment horizon expecting an appreciation of about
46%.