Kallam Spinning - Rs.32.00

(KSL) was promoted by Shri Kallam Haranadha Reddy and associates and belongs to the reputed Kallam Group of Industries with vast experience in ginning, pressing, oil extraction, spinning and other cotton related business. It was originally incorporated as Kallam Agro Ltd but its name was subsequently changed to KSL in 1997. Since then, it has emerged as leading producers of combed cotton yarn in South India. With the abolition of the quota system, textile/garment export from India is poised for a massive growth in future which means proportionate rise in the demand of yarn as well. Besides, favourable govt policies and stable cotton prices are good for cotton yarn manufacturers. Due to better price parity and strong demand, KSL has partially shifted the thrust from exports to the domestic market but is still planning to set up an EOU spinning mill to tap the higher end market of USA and Europe.

KSL’s Mill is located at Guntur in AP with an installed capacity of 22,608 spindles. It also has a Hydel power plant with a capacity of 1.6 MW for captive consumption. To cater the rapidly increasing demand, KSL is implementing Rs.22 cr. capex plan under which it is putting up a new spinning mill at Dhulipalli near Sattenapalli in Guntur with a production capacity of 14,500 spindles. The whole project will be funded mainly through debt and partially through internal accruals and is expected to become operational by the end of this fiscal. Besides, there are good prospects for expansion of its spinning capacity because of the booming demand for cotton yarn in the post quota regime.

On the financial front, KSL has already got a term loan of around Rs.15 cr. from Andhra bank under TUF scheme and the bank has reduced the interest rate to 9.50% for all existing loans. It sales were flat at Rs.32 cr. in FY05 but NP zoomed 170% to Rs.2.70 cr. posting an EPS of Rs.4 on its equity of Rs.6.85 cr. Notably for the first six months of FY06, it has already earned a NP of Rs.2.52 cr. which is equivalent to its NP for the whole of FY05. Hence for the full FY06, company may report a topline of Rs.35 cr. and bottomline of Rs.4.50 cr. which transforms into an EPS of around Rs.7. Moreover, the company is yet to receive balance insurance claim of Rs.1.51 cr. from New India Assurance which will add to its other income in future. FY07 will even be more rosy due to the impact of expansion and it can sport an EPS of Rs.11~12. Investors are strongly recommended to buy as this scrip, which can double in 12~15 months.