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Textiles
�� Yarn demand remains subdued; cotton prices decline further
After registering a strong 12% growth in CY11, demand for cotton yarn
is likely to be subdued in the current season. With the expectation of a
higher cotton output and rising cotton inventory, the ministry has also
allowed export of cotton yarn without any restrictions. Despite this
cotton prices slipped 10% from | ~39,000 (September 2011) to |
~35,000 per candy (December 2011). Cotton yarn prices also slipped by
16.2% YoY to | 165 per kg. However there has been a marginal
improvement on a sequential basis with yarn realisations improving by
6.2% QoQ. We expect a 19.6% revenue growth for our textile universe,
led by strong growth in Alok Industries and Kewal Kiran Clothing.
�� Pressure on operating margin to remain
The demand scenario has been weak despite it being a festive quarter.
Consequently we expect pressure on the operating margin as the textile
players will face the dual impact of falling demand and lower
realisations. If the inventory build up continues for some more time,
players will be forced to sell at lower prices, further impacting the
operating efficiency.
�� Depreciating rupee – a double-edged sword
While a depreciating rupee would work in favour of textile companies,
they are also facing foreign currency losses due to foreign currency
debt on their books. On the back of this, larger domestic players would
be more comfortable with the currency staying in the range of |47-48 /
dollar.
The government has recently allowed companies incurring forex losses
to amortise their loans over the life of the borrowing. This could prove
to be a big positive surprise if companies decide to write back losses
booked in Q2FY12. However, due to lack of proper clarity on the same,
we have not factored the same in our estimates.
�� Manmade fibre players to continue to witness margin pressure
The ratio of cotton yarn price to polyester oriented yarn price (POY) has
come down from a high of 2.1x in April 2011 to 1.6x in December 2011.
This indicates lower demand for man-made fibre as cotton prices have
now corrected. This will lower the substitution demand as
manufacturers and customers are again likely to shift to pure cotton
fabrics, thereby impacting the margins of these players. Also prices of
key raw materials have increased at a faster pace as compared to end
product prices. While price of PTA and MEG rose by 25 – 40% YoY,
prices of POY have risen only by 15%. This signals further pressure on
the operating margin going forward.
Others
Exhibit 51: Company Specific View (Q3FY12E)
Company Remarks
Everest Kanto We expect the company to sell ~2.3 lakh cylinders with average realisations of |
8800 per cylinders. We believe volume growth from the Dubai facality would be
dismal due to the decline in CNG cylinders orders from Iran. Simultaneosuly, CNG
cylinders realisations would witness a dip on the back of low demand.
InfoEdge Revenues are expected to grow 23.1% YoY to | 92.4 Crores from | 75.1
Crores.However, with higher spend on marketing and promotional activities, margins
are expected to remain under pressure
Orbit
Corporation
We expect the pre-sales volumes to remain weak during Q3FY12. Orbit revenue is
expected to witness a decline 12% QoQ in its topline on account of slower execution
across projects in Mumbai. Key monitorable: Pre-sales volume, execution pick up,
sales collection & debtors, & debt level.
Oberoi Realty We expect a muted sequential rise of ~4% in topline for Oberoi with Exquisite I
execution forming the major chunk. In terms of pre-sales volume, we expect it to
remain robust led by volume offtake in Oberoi Esquire. Key monitorable: Volume
offtake, Worli & Mulund project launch
Praj
Industries
The order book of the company has grown to | 850 crore in the Q2FY12, has led to
the strong revenue growth. We believe order book would continue to growth given
crude prices holding above US $ 100. We also believe orders from Europe and Latin
America would also see some addition.
Maharashtra
Seamless
For Q3FY12E we expect sales volumes to be to ~95000 tonnes . Seamless pipes
volumes are expected to be ~63000 tonnes while that of ERW is expected to be
~32000 tonnes. EBITDA margin is expected to increase by 70 bps QoQ to 20.3%.
Navneet
Publication
We expect topline to increase by 21.4% YoY (| 90.5 crore) led by strong growth in
the publications segment (24% YoY). We expect the company to report an EBITDA
margin of 14.8%. With a robust topline growth and enhanced operating performance,
we expect a bottomline growth of 19.8% YoY to | 7.4 crore,
Source: Company, ICICIdirect.com Research
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Textiles
�� Yarn demand remains subdued; cotton prices decline further
After registering a strong 12% growth in CY11, demand for cotton yarn
is likely to be subdued in the current season. With the expectation of a
higher cotton output and rising cotton inventory, the ministry has also
allowed export of cotton yarn without any restrictions. Despite this
cotton prices slipped 10% from | ~39,000 (September 2011) to |
~35,000 per candy (December 2011). Cotton yarn prices also slipped by
16.2% YoY to | 165 per kg. However there has been a marginal
improvement on a sequential basis with yarn realisations improving by
6.2% QoQ. We expect a 19.6% revenue growth for our textile universe,
led by strong growth in Alok Industries and Kewal Kiran Clothing.
�� Pressure on operating margin to remain
The demand scenario has been weak despite it being a festive quarter.
Consequently we expect pressure on the operating margin as the textile
players will face the dual impact of falling demand and lower
realisations. If the inventory build up continues for some more time,
players will be forced to sell at lower prices, further impacting the
operating efficiency.
�� Depreciating rupee – a double-edged sword
While a depreciating rupee would work in favour of textile companies,
they are also facing foreign currency losses due to foreign currency
debt on their books. On the back of this, larger domestic players would
be more comfortable with the currency staying in the range of |47-48 /
dollar.
The government has recently allowed companies incurring forex losses
to amortise their loans over the life of the borrowing. This could prove
to be a big positive surprise if companies decide to write back losses
booked in Q2FY12. However, due to lack of proper clarity on the same,
we have not factored the same in our estimates.
�� Manmade fibre players to continue to witness margin pressure
The ratio of cotton yarn price to polyester oriented yarn price (POY) has
come down from a high of 2.1x in April 2011 to 1.6x in December 2011.
This indicates lower demand for man-made fibre as cotton prices have
now corrected. This will lower the substitution demand as
manufacturers and customers are again likely to shift to pure cotton
fabrics, thereby impacting the margins of these players. Also prices of
key raw materials have increased at a faster pace as compared to end
product prices. While price of PTA and MEG rose by 25 – 40% YoY,
prices of POY have risen only by 15%. This signals further pressure on
the operating margin going forward.
Others
Exhibit 51: Company Specific View (Q3FY12E)
Company Remarks
Everest Kanto We expect the company to sell ~2.3 lakh cylinders with average realisations of |
8800 per cylinders. We believe volume growth from the Dubai facality would be
dismal due to the decline in CNG cylinders orders from Iran. Simultaneosuly, CNG
cylinders realisations would witness a dip on the back of low demand.
InfoEdge Revenues are expected to grow 23.1% YoY to | 92.4 Crores from | 75.1
Crores.However, with higher spend on marketing and promotional activities, margins
are expected to remain under pressure
Orbit
Corporation
We expect the pre-sales volumes to remain weak during Q3FY12. Orbit revenue is
expected to witness a decline 12% QoQ in its topline on account of slower execution
across projects in Mumbai. Key monitorable: Pre-sales volume, execution pick up,
sales collection & debtors, & debt level.
Oberoi Realty We expect a muted sequential rise of ~4% in topline for Oberoi with Exquisite I
execution forming the major chunk. In terms of pre-sales volume, we expect it to
remain robust led by volume offtake in Oberoi Esquire. Key monitorable: Volume
offtake, Worli & Mulund project launch
Praj
Industries
The order book of the company has grown to | 850 crore in the Q2FY12, has led to
the strong revenue growth. We believe order book would continue to growth given
crude prices holding above US $ 100. We also believe orders from Europe and Latin
America would also see some addition.
Maharashtra
Seamless
For Q3FY12E we expect sales volumes to be to ~95000 tonnes . Seamless pipes
volumes are expected to be ~63000 tonnes while that of ERW is expected to be
~32000 tonnes. EBITDA margin is expected to increase by 70 bps QoQ to 20.3%.
Navneet
Publication
We expect topline to increase by 21.4% YoY (| 90.5 crore) led by strong growth in
the publications segment (24% YoY). We expect the company to report an EBITDA
margin of 14.8%. With a robust topline growth and enhanced operating performance,
we expect a bottomline growth of 19.8% YoY to | 7.4 crore,
Source: Company, ICICIdirect.com Research
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