JBF Industries - Rs44.00

Incorporated in 1982 as a private limited company with two small texturising units at Silvassa, JBF Industries changed its corporate status to a public ltd. company in 1986. And with constant capacity expansion, it emerged as one of the largest independent texturising units by 1996. Later in order to be self-sufficient in the supply of key raw materials, it undertook two major backward integration projects to manufacture polyester Partially Oriented Yarn [POY] in the year 1995 and Polyester Chips in the year 1998. Today, it is one of the largest integrated players in the texturised yarn business and is also one of the top 5 players in POY with a strong and influential brand. Globally, the demand for synthetic and blended textile products has increased and the demand for polyester is on the rise in the domestic markets too because of its bright colour, low maintenance cost and being cheaper than cotton. With the removal of quota, JBF is witnessing sharp increase in demand for its yarn and is getting good orders. Further, the FM has proposed to reduce the excise duty on polyester filament yarn form 24% to 16%.

The company has its plants located at Silvassa and Valsad district of Gujarat, which are the hubs of the texturising business. Its installed capacity of polyester chips is 1, 20,000 TPA, POY is 60,000 TPA and Texturised Yarn is 3200 TPA. All the units are working at 100% capacity and almost 50% of its polyester chip production is consumed captively. Interestingly, its polyester chip plant has the system of using either PTA or DMT as the raw material and has the flexibility of using both on different production lines. This helps the company in selecting the raw material according to cost and availability. Striving further after reaching the core of the texturising business, JBF diversified into the production of Bottle Grade Chips with an initial capacity of 10,800 TPA. To cater to the increasing demand of Polyester Chips, JBF has a capex plan of Rs170 cr. for setting up a new grass root plant of 600 TPD, which is expected to be operational by the second half of this calendar year. Also in keeping with its constant thrust on growth, JBF has set up a unit in Sri Lanka with an installed capacity of 4000 TPA for local supply as well as exports.

JBF enjoys locational advantage in terms of proximity to the upstream PFY spinners and downstream powerloom industry, which translates into savings in packaging and transportation costs. Although margins are slightly under pressure due to rising raw material costs, it will be compensated by increase in volumes. For the nine months ended 31Dec 2004, its Net Sales grew substantially by 47% to Rs542 cr. but NP decreased by 35% to Rs16.50 cr. due to higher tax provision and slight decrease in operating margin. At CMP it is quoting at 25% discount to its book value of Rs58 and dividend yield works out to around 5%. For FY05, it is expected to post a top line of Rs750 cr. and a bottom line of Rs23.50 cr. This works out to an EPS of Rs7.50 on its current equity of Rs31 cr. For FY06, it may report an EPS of Rs12. Investors are advised to buy for long term as the share price can double in 18~24 months.