Garden Silk Mills - Multibagger

While at one time its commercials of Garden Vareli had created a strong brand image, the company has been keeping a low profile in recent times. But this is not to say that it hasn’t been riding a strong growth curve

With the worst behind it, the textile sector is back in the reckoning and a few select scrips make sense from the investment point of view. One such scrip is Garden Silk Mills, which has been seen reviving its brand image and airing its famous old commercial on a few channels. This scrip, like many textile companies, seems to have been ignored due to the sector remaining out of investors’ fancy, but Garden Silk Mills (GSM) has continued to grow almost unnoticed over the years. In fact what caught our attention is not only the brisk growth of the company but also its continuous expansion, consistent dividend track record of 19 years, high dividend yield of 2 per cent and the rock bottom valuations of just 4x of its FY10 estimates, which is what makes it attractive from a long-term perspective.

A first glance the name Garden Silk Mills (500155 ) immediately leads us to its association with the brand Garden Vareli and its famous saree commercial. But GSM is much more than just a saree manufacturer. It should be noted that it is an integrated player from manufacturing chemicals to branded fabrics with a turnover of almost Rs 1,700 crore. A look atthe company’s operations shows that it has a presence in the manufacturing of polyester chips, yarns, fabrics and chemicals such as Purified Terephthalic Acid (PTA) and Monoethylene Glycol (MEG).

Yarns, including partially oriented yarn (POY) and processed yarn, are the major revenue contributors and form 49 per cent of its total revenues, while 42 per cent comes from polyester chips, 8 per cent from fabrics and the balance one per cent from others, including PTA and MEG. What’s interesting about GSM is that it continues to strengthen its position in the market and is seen continuously expanding its capacities.The company had doubled its capacities in FY09 to polyester chips’ capacity of 1,600 tonnes per day, 430 tonnes per day of POY and 110 tonnes per day of polv textured yarn (PTY). But in a bid to cater well to all the segments of the polyester chips and yarn, GSM is further expanding these capacities by 10-15 per cent.

These include polyester textile grade chips by 1,30,000 tones per annum, installing machinery to directly spin a diverse range of specialised yarns, upgradation of the existing plant to manufacture high value polymeric chips, installing a draw warping machine for the sizing sector and setting up a captive power plant of 18 MW The expansion, costing around Rs 400 crore, will be commissioned in a phased manner from February 2010 till Q3FY1 1. In fact this expansion is also aimed at increasing GSM’s international presence in markets such as Latin America, Egypt, Europe and China with an aim to touch export revenues of 15 per cent by end of March 2010 from its existing level of 5 per cent.

Once commissioned, this expansion will push the company’s revenues even further. Besides, with the strong brand and product reach that Garden Vareli has, GSM is strengthening its place even further and targeting the working women class across metros, towns and villages with value-added fabrics such as party wear, wedding wear at competitive prices. On the financial front, for 9MFY1O GSM’s revenues increased by 42 per cent to Rs 1,827.85 crore (Rs 1360.21 crore), while profits increased by 5 per cent to Rs 39.67 crore (Rs 37.82 crore). For FY10 we expect GSM to revenues of Rs 2,442-2,500 crore, while profits could be around Ru 55 crore. Thus at an estimated EPS of P.s 14, GSM is available at just 5x, which is quite low and looks worth grabbing at its CMP of Rs 72 with a one year target price of Rs 90.