We initiate BUY recommendation on Sutlej Textiles and Ind. Ltd (STIL)
Sutlej Textiles and Industries Ltd was incorporated on 22.06.2005 and was created out of a corporate restructuring exercise in which the textiles division of Sutlej Industries Ltd. (SIL) and Daman Ganga Processors Ltd were demerged w.e.f. July 1, 2005. A flagship unit of the multibusiness conglomerate promoted by Dr. K. K. Birla, Sutlej is among India's leading textile producers with a value-chain extending from yarns and fabrics to home textiles. STIL is among India's leading producers of dyed spun yarn and value added/speciality yarn. It also manufactures home textiles. It has a presence right from spinning (man-made & cotton yarns) to dyeing to weaving (processing of home textiles) and processing/finishing. It is amongst the few exclusive spinners in India for specialty yarns such as Modal, Lyocell and Tencel in the country. Its manufacturing facilities are located in Bhawanimandi (Rajasthan), Kathua (Jammu & Kashmir) and Daheli (Gujarat). The company also has its own captive power plants to ensure steady supply of electricity for uninterrupted production.
Outlook and Valuation
In the long-term, we expect the textile exports of the country to go up significantly as China is phasing out slowly. As its cotton yarn production and its currency also strengthened substantially over Indian rupee in the last 5 years. STIL with significant increases in capacities would be in a better position to capitalize the opportunities to be available on export front going forward.
Our take is that the textile industry would change its prospects significantly in the next 2 to 3 years. Sutlej Textiles & Industries, with recent acquisitions and expansions is in a formidable position to grow its fundamentals substantially in the next 2 to 3 years. We also expect the textile industry to expand its valuation multiple on the stock market significantly in the next 2 to 3 years along with anticipated recovery in the textile exports. We find it an appealing BUY at the current market price. Hence we initiate a BUY on the stock with a target price of Rs.1,220 (which is 10x it's FY2019E EPS of Rs.122).
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