CMP 79.55

Target Price 91.00

ISIN: INE495C01010

NOVEMBER 27th

2014

SANGAM (INDIA) LIMITED

Result Update (PARENT BASIS): Q2 FY15

BUYBUYBUYBUY

Index Details

Stock Data

Sector Textiles

BSE Code 514234

Face Value 10.00

52wk. High / Low (Rs.) 88.70/30.55

Volume (2wk. Avg. Q.) 17000

Market Cap (Rs. in mn.) 3135.86

Annual Estimated Results (A*: Actual / E*: Estimated)

YEARS FY14A FY15E FY16E

Net Sales 14396.20 15490.31 16512.67

EBITDA 2018.30 2187.89 2349.46

Net Profit 405.00 480.70 546.98

EPS 10.27 12.19 13.88

P/E 7.74 6.52 5.73

Shareholding Pattern (%)

1 Year Comparative Graph

SANGAM (INDIA) LTD BSE SENSEX

SYNOPSIS

Sangam (India) Ltd. is one of the largest

manufacturers of polyester viscose dyed yarn in

Asia at a single location with 25% market share in

the country.

For the 2nd quarter of FY15, Net sales grew by

2.02% and stood at Rs. 3750.30 million as against

Rs. 3676.20 million over the corresponding quarter

last year.

In Q2 FY 15, Net profit stood at Rs. 119.70 million

from Rs. 122.40 million over the corresponding

quarter last year.

Profit before tax (PBT) stood at Rs. 187.30 million

in Q2 FY15 as against Rs. 181.40 million in Q2 FY14.

An increase of 3.25% y-o-y.

The company has reported an EPS of Rs. 3.04 for the

1st quarter of Current year against an EPS of Rs. 3.11

for the corresponding quarter of the previous year.

During the half year end of FY15, the company

registered a growth of 3.49% in Net sales of Rs.

7458.20 million against Rs. 7206.60 million during

the half year ended of FY14.

India Ratings & Research (Ind-Ra) has assigned

Sangam (India) Limited (Sangam) a Long Term

Issuer Rating of IND A-, with a stable outlook.

Net Sales and PAT of the company are expected to

grow at a CAGR of 4% and 2% over 2013 to 2016E

respectively.

PEER GROUPS CMP MARKET CAP EPS P/E (X) P/BV(X) DIVIDEND

Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%)

SANGAM INDIA LTD 79.55 3135.86 10.27 7.74 0.95 15.00

ARVIND LTD 287.95 74361.10 15.46 17.63 2.82 23.50

RSWM LTD 193.05 4468.90 40.58 4.76 1.13 125.00

BANSWARA SYNTEX LTD 74.00 1149.00 15.01 4.93 0.54 30.00

QUARTERLY HIGHLIGHTS (PARENT BASIS)

Results updates- Q2 FY15,

Months SEP-14 SEP-13 % Change

Net Sales 3707.90 3530.40 5.03

PAT 119.70 122.40 (2.21)

EPS 3.04 3.11 (2.21)

EBITDA 541.70 520.00 4.17

Sangam (India) Ltd. has achieved a turnover of Rs. 3707.90 million for the 2nd quarter of the current year 2014-

15 as against Rs. 3530.40 million in the corresponding quarter of the previous year. The company has reported

an EBITDA of Rs. 541.70 million in Q2 FY15. During the quarter, net profit stood at Rs. 119.70 million against Rs.

122.40 million in the corresponding quarter of the previous year. The company has reported an EPS of Rs. 3.04

for the 2nd quarter of Current year against an EPS of Rs. 13.11 for the corresponding quarter of the previous year.

Break up of Expenditure

For the end of Q2 FY15, Total expenditure rose up by 8 per cent mainly on account of Employees Benefit

Expenses 2%, power and fuel 23% and cost of Materials consumed by 8% are the main attribute for the growth

of expenditure when compared with corresponding quarter of previous year. Total expenditure in Q2 FY15 stood

at Rs. 3362.60 million as against Rs. 3216.30 million in Q2 FY14.

Break up of Expenditure (Values in Million)

Q2 FY15 Q2 FY14

Cost of Materials Consumed 2263.70 2101.20

Depreciation & Amortisation 191.50 188.10

Employees Benefit Expenses 300.00 276.40

Other Expenditure 349.30 311.10

Power & Fuel 423.60 343.20

Toll Contract fee 0.00 213.9

COMPANY PROFILE

Sangam (India) Ltd is flagship Company of the SANGAM GROUP and one of the largest player in the dyed poly

viscose (PV) yarn market in India started operations in 1985 and promoted under the name and style of Arun

Synthetics Pvt. Ltd. At Bhilwara in Rajasthan, the company operates its facilities to produce synthetic and

blended dyed/grey spun yarn, cotton yarn and fabrics (synthetics blended denim and knitted fabrics). It also has

facilities for fabric processing.

At present, Sangam India has 162720 spindles of polyester- viscose dyed yarn and 31,200 spindles for cotton

yarn installed in Bhilwara along with 257 weaving machines and a 31 MW thermal power plant. The company

also has strong presence in the Indian synthetic blended fabric segment with brands like Sangam and Anmol. The

company has an established client base like Reliance, Reid & Taylor, Siyaram and Grasim. Its fabric is marketed

through a network of 200 plus dealers and thousands of retailers.

Business Area

Sangam is a preferred PV dyed yarn supplier to top textile companies across the world, Sangam (India) has

emerged as a preferred supplier of fabrics on account of its colours, blends, textures and finishes. It has a

colour bank of more than 5,000 shades and produces 6-50 counts of yarns. It offers single ply, double ply,

grindle, roving grindle, core spun, slub and other fancy yarns, making it a one-stop shop for fabric

manufacturers. The company has also partnered various brands to introduce new varieties of man-made fi

bres, adding considerable value to its products.

Products portfolio

• Yarns: PV and Cotton

• Woven fabrics

• Branded suiting

• Denim fabric

• Texturised yarn

• Wind power

Capacities:

Division & Production Capacity

• Spinning (Ring Spinning) 201216 Spindles / 55000 MT p.a.

• Spinning (Open End) 4096 Rotors / 18000 MT p.a.

• Synthetic Fabric 18 Million Meter p.a.

• Denim Fabric 32 Million Meter p.a.

• Fabric Processing 53 Million Meter p.a.

• Knitted Fabric 18 Machines / 3000 MT p.a.

• Texturised Yarn 7200 MT p.a.

• Thermal & Wind Power 36 MW

Plants Locations

• Biliya Kalan, Bhilwara, Rajasthan.

• Sareri, Bhilwara, Rajasthan.

• Atun, Bhilwara, Rajasthan.

FINANCIAL HIGHLIGHT (PARENT BASIS) (A*- Actual, E* -Estimations & Rs. In Millions)

Balance Sheet as at March31, 2012A-2016E

FY13A FY14A FY15E FY16E

I. EQUITY AND LIABILITIES:

A. Shareholders’ Funds:

a) Share Capital 394.20 394.20 394.20 394.20

b) Reserves and Surplus 2584.30 3282.19 3358.12 3811.46

Sub-Total-Net worth 2978.50 3676.39 3752.32 4205.66

B. Non-Current Liabilities:

a) Long-term borrowings 3448.60 2758.60 2537.91 2284.12

b) Deferred Tax Liabilities [Net] 476.10 449.60 413.63 388.81

Sub-Total-Long term liabilities 3924.70 3208.20 2951.54 2672.93

C. Current Liabilities:

a) Short-term borrowings 2195.70 2217.80 2439.58 2659.14

b) Trade Payables 644.40 707.00 742.35 772.04

c) Other Current Liabilities 1486.90 1429.70 1687.05 1889.49

d) Short Term Provisions 80.60 94.30 32.06 35.27

Sub-Total-Current Liabilities 4407.60 4448.80 4901.04 5355.95

TOTAL -EQUITY AND LIABILITIES (A+B+C) 11310.80 10971.30 11604.90 12234.54

II. ASSETS:

D. Non-Current Assets:

Fixed Assets

Tangible Assets 5828.00 5371.60 5457.55 5512.12

Intangible Assets 4.40 4.50 4.73 5.01

Capital work-in-progress 84.10 137.70 176.26 211.51

a) Total Fixed Assets 5916.50 5513.80 5638.53 5728.64

b) Non Current Investments 78.50 78.50 78.50 78.50

c) Long Term Loans and Advances 115.80 170.10 289.17 399.05

Sub-Total-Non-Current Assets 6110.80 5762.40 6006.20 6206.19

E. Current Assets:

a) Inventories 2135.50 2337.30 2402.74 2466.95

b) Trade Receivables 1754.60 2008.50 2299.73 2587.20

c) Cash and Bank Balances 81.70 32.80 30.18 31.99

d) Short Term Loans and Advances 1066.90 626.80 657.26 722.99

e) Other Current Assets 161.30 203.50 208.79 219.23

Sub-Total-Current Assets 5200.00 5208.90 5598.70 6028.35

TOTAL -ASSETS (D+E) 11310.80 10971.30 11604.90 12234.54

Annual Profit & Loss Statement for the period of 2013 to 2016E

Value(Rs.in.mn) FY13A FY14A FY15E FY16E

Description 12m 12m 12m 12m

Net Sales 14849.20 14396.20 15490.31 16512.67

Other Income 64.80 60.90 19.24 21.17

Total Income 14914.00 14457.10 15509.56 16533.84

Expenditure -12709.20 -12438.80 -13321.67 -14184.39

Operating Profit 2204.80 2018.30 2187.89 2349.46

Interest -686.70 -660.60 -693.63 -724.15

Gross profit 1518.10 1357.70 1494.26 1625.31

Depreciation -769.80 -743.20 -786.31 -825.62

Exceptional Items 0.00 -3.00 0.00 0.00

Profit Before Tax 748.30 611.50 707.95 799.68

Tax -235.30 -206.50 -227.25 -252.70

Net Profit 513.00 405.00 480.70 546.98

Equity capital 394.20 394.20 394.20 394.20

Reserves 2584.30 2920.10 3358.12 3811.46

Face value 10.00 10.00 10.00 10.00

EPS 13.01 10.27 12.19 13.88

Quarterly Profit & Loss Statement for the period of 31 MAR, 2014 to 31 DEC, 2014E

Value(Rs.in.mn) 31-Mar-14 30-Jun-14 30-Sep-14 31-Dec-14E

Description 3m 3m 3m 3m

Net sales 3693.80 3750.30 3707.90 3782.06

Other income -12.70 16.20 4.90 8.92

Total Income 3681.10 3766.50 3712.80 3790.98

Expenditure -3183.90 -3241.40 -3171.10 -3243.11

Operating profit 497.20 525.10 541.70 547.86

Interest -175.60 -167.60 -162.90 -170.23

Gross profit 321.60 357.50 378.80 377.63

Depreciation -179.50 -189.40 -191.50 -192.55

Exceptional Items -3.00 0.00 0.00 0.00

Profit Before Tax 139.10 168.10 187.30 185.08

Tax -38.30 -54.70 -67.60 -57.56

Net Profit 100.80 113.40 119.70 127.52

Equity capital 394.20 394.20 394.20 394.20

Face value 10.00 10.00 10.00 10.00

EPS 2.56 2.88 3.04 3.23

Ratio Analysis

Particulars FY13A FY14A FY15E FY16E

EPS (Rs.) 13.01 10.27 12.19 13.88

EBITDA Margin (%) 14.85 14.02 14.12 14.23

PBT Margin (%) 5.04 4.25 4.57 4.84

PAT Margin (%) 3.45 2.81 3.10 3.31

P/E Ratio (x) 6.11 7.74 6.52 5.73

ROE (%) 17.22 12.22 12.81 13.01

ROCE (%) 34.50 33.31 34.07 34.70

Debt Equity Ratio 1.90 1.50 1.33 1.18

EV/EBITDA (x) 3.95 4.00 3.69 3.43

Book Value (Rs.) 75.56 84.08 95.19 106.69

P/BV 1.05 0.95 0.84 0.75

Charts

OUTLOOK AND CONCLUSION

� At the current market price of Rs. 79.55, the stock P/E ratio is at 6.52 x FY15E and 5.73 x FY16E respectively.

� Earning per share (EPS) of the company for the earnings for FY15E and FY16E is seen at Rs.12.19 and

Rs.13.88 respectively.

� Net Sales and PAT of the company are expected to grow at a CAGR of 4% and 2% over 2013 to 2016E

respectively.

� On the basis of EV/EBITDA, the stock trades at 3.69 x for FY15E and 3.43 x for FY16E.

� Price to Book Value of the stock is expected to be at 0.84 x and 0.75 x respectively for FY15E and FY16E.

� We recommend ‘BUY’ in this particular scrip with a target price of Rs.91.00 for Medium term investment.

INDUSTRY OVERVIEW

India is the one of the world's largest producers of textiles and garments. Abundant availability of raw materials

such as cotton, wool, silk and jute as well as skilled workforce have made the country a sourcing hub. It is the

world's second largest producer of textiles and garments. The Indian textiles industry accounts for about 24 per

cent of the world’s spindle capacity and 8 per cent of global rotor capacity. The potential size of the Indian

textiles and apparel industry is expected to reach US$ 223 billion by 2021.

The textiles industry has made a major contribution to the national economy in terms of direct and indirect

employment generation and net foreign exchange earnings. The sector contributes about 14 per cent to

industrial production, 4 per cent to the gross domestic product (GDP), and 27 per cent to the country's foreign

exchange inflows. It provides direct employment to over 45 million people. The textiles sector is the second

largest provider of employment after agriculture. Thus, the growth and all round development of this industry

has a direct bearing on the improvement of the India’s economy.

Market Size

The Indian textiles industry is set for strong growth, buoyed by strong domestic consumption as well as export

demand.

� The most significant change in the Indian textiles industry has been the advent of man-made fibres (MMF).

India has successfully placed its innovative range of MMF textiles in almost all the countries across the globe.

MMF production recorded an increase of 10 per cent and filament yarn production grew by 6 per cent in the

month of February 2014. MMF production increased by about 4 per cent during the period April 2013–

February 2014.

� Cotton yarn production increased by about 10 per cent during February 2014 and by about 10 per cent

during April 2013–February 2014. Blended and 100 per cent non-cotton yarn production increased by 6 per

cent during February 2014 and by 8 per cent during the period April 2013–February 2014.

� Cloth production by mill sector registered a growth of 9 per cent in the month of February 2014 and of 6 per

cent during April 2013–February 2014.

� Cloth production by power loom and hosiery increased by 2 per cent and 9 per cent, respectively, during

February 2014. The total cloth production grew by 4 per cent during February 2014 and by 3 per cent during

the period April 2013–February 2014.

� Textiles exports stood at US$ 28.53 billion during April 2013–January 2014 as compared to US$ 24.90 billion

during the corresponding period of the previous year, registering a growth of 14.58 per cent.

Investments

The textiles sector has witnessed a spurt in investment during the last five years. The industry (including dyed

and printed) attracted foreign direct investment (FDI) worth Rs 67109.40 million (US$ 1.11 billion) during April

2000 to February 2014.

Some of the major investments in the Indian textiles industry are as follows:

• Private Equity (PE) firm Everstone plans to invest Rs 1000.00 million (US$ 16.62 million) for an undisclosed

minority stake in the fashion label of designer Ritu Kumar.

• Raymond’s ‘Complete Man’ plans to enter the developed markets in the US, Europe and East Asia as the

textile company seeks to expand the network of its Made to Measure (MTM) stores. With plans to invest

around Rs 2000.00 million (US$ 33.24 million), the company is looking for partners to help it grow its

overseas business.

• Arvind Ltd has picked up the 49 per cent stake held by the Murjani Group in Calvin Klein in India. With this,

Arvind and PVH Corp are expected to drive Calvin Klein's business in the country.

• Suraaj Linens, India’s leading manufacturer of Home Textiles articles, has launched a new line of modern

home textiles that reflect trendsetting patterns, fabrics and styles.

• American apparel-maker, Tommy Hilfiger plans to add 500 stores in India over the next five years as part of

their expansion spree. Currently, Tommy Hilfiger operates 58 franchisee outlets and over 60 shop-in-shops

in other department stores.

Government Initiatives

The Government of India has promoted a number of export promotion policies for the textiles sector. It has also

allowed 100 per cent FDI in the Indian textiles sector under automatic route.

Some of initiatives taken by the government to further promote the industry are as under:

� The government has taken a lot of initiatives for the welfare and development of the weavers and the

handloom sector. Under revival, reform and restructuring (RRR) package, financial assistance to the tune of

Rs 10190.00 million (US$ 169.66 million) has been approved and the Indian government has released Rs

7410.00 million (US$ 123.42 million).

� Encouraged by turnaround in textiles exports, the Government of India plans to set up a US$ 60 billion target

for the current financial year, a jump of over 30 per cent from the previous financial year.

� The Cabinet Committee on Economic Affairs (CCEA) has approved an Integrated Processing Development

Scheme (IPDS) with a corpus of Rs 5000.00 million (US$ 83.28 million) to make textiles processing units

more environment-friendly and globally competitive.

� The Government of India plans to set up a Rs 1000.00 million (US$ 16.62 million) venture capital fund to

provide equity support to start-ups in the textiles sector, in order to encourage innovative ideas in this

export intensive sector.

� The Government of India has allotted Rs 7000.00 million (US$ 116.60 million) in the 12th Five Year Plan for

the development of technical textiles. In 2012–13, the technical textiles industry reached Rs 7.48 trillion (US$

124.60 billion) at an annual growth rate of 3.5 per cent.

Road Ahead

The Indian textiles industry is set for strong growth, buoyed by both strong domestic consumption as well as

export demand. The industry is expected to reach US$ 220 billion by 2020.

The Central Silk Board sets targets for raw silk production and encourages farmers and private players to grow

silk. To achieve these targets, alliances with the private sector, especially major agro-based industries in pre-

cocoon and post-cocoon segments have been encouraged.

For the textiles industry, the proposed hike in FDI limit in multi-brand retail will bring in more players, thereby

providing more options to consumers. It will also bring in greater investments along the entire value chain –

from agricultural production to final manufactured goods.

With consumerism and disposable income on the rise, the retail sector has experienced a rapid growth in the

past decade with several international players such as Marks & Spencer, Guess and Next having entered the

Indian market. The organised apparel segment is expected to grow at a compound annual growth rate (CAGR) of

more than 13 per cent over a 10-year period.

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contained herein is from publicly available data or other sources believed to be reliable but we do not represent that

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in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the

information contained in this report. Firstcall Research and/ or its affiliates and/or employees will not be liable for

the recipients’ investment decision based on this document.

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