Amarjothi Spinning Mills - Rs.70.00

Incorporated in 1987, Amarjothi Spinning Mills Ltd (ASML) was promoted by the well known Amarjothi Group of Tirupur. Since then, ASML has emerged as one of the major manufacturer of mélange yarn in South India. Its factory is located at Pudusuripalayam in Tamilnadu and has a capacity of around 36,000 spindles. Besides it has recently set up a yarn dyeing unit at Perundurai with an installed capacity of 5,000 kgs per day which became fully operational from March 2005. Interestingly, due to the dismantling of the quota system, exports from Tirupur are expected to increase three fold by 2008 and so is the demand for yarn - the basic raw material. Hence ASML being a major yarn supplier with 80% sales volume coming from Tirupur is set to witness phenomenal growth in coming years.

To cater to this increasing demand, ASML is enhancing its spinning capacity by 60% to 58,000 spindles by end of this fiscal thereby taking its total production capacity to 8mn kg per year from 5mn kg. It has also recently installed two more windmills of 1.65MW each thereby taking the total windmill capacity to 6.6 MW. Thus the entire power requirement of its Spinning Division is met through its own 4 windmills. It is planning to introduce new products like dyed fibre yarn, dyed cotton yarn, PC yarn, sewing thread etc. for future growth. Company has obtained ISO 9001:2000 certification which will increase the trade/export opportunities for the company. It has its eye on the export market too and targets 25% of its earnings to come from exports by FY07 from 5~10% currently.

Being a significant contributor to the country’s total exports the government has announced several incentives like withdrawal of excise duty, concessional rate of interest under TUF scheme, removal of quantitative ceiling on export of cotton yarn to non-quota countries, TEXPROCIL’s endorsement for export of cotton yarn has been dispensed with, import of consumable spares under the EPCGC scheme has been allowed by paying only 5% customs duty etc. All these factors are positives for the company apart from the fall in cotton prices this year. Although the first half numbers of FY06 are not encouraging due to increased depreciation etc, the long-term prospects look very promising. For FY06, ASML is expected to report sales of Rs.80 cr. and NP of Rs.6.75 cr. which amounts to an EPS of Rs.10 on its current equity of Rs.6.75 cr. For FY07, it can earn NP of more than Rs.10 cr. NP i.e. EPS of Rs.15. Thus, the scrip discounts less than 5 times against its FY07 earning. Only long term investors are recommended to buy at current levels as the scrip has the potential to double in 18~24 months.