Suryalata Spinning - Rs.78.00

Incorporated in 1983, Suryalata Spining Mills Ltd (SSML) is engaged in the manufacture of synthetic blended yarns of polyester/viscose, 100% polyester and 100% viscose counts ranging from 20s to 60s and black dope dyed yarn. Besides exporting its product to Italy, Turkey, Taiwan, Iran, Srilanka, Indonesia, Nigeria and other European countries, SSML also caters to the domestic markets of Bhilwara, Ichalkaranji and Bhiwandi, which are large textile processing and producing centres. It has two Spinning Plants one in Andhra Pradesh and the other in Maharashtra. Unlike other players, both its facilities are ultra modern and equipped with hi-tech machines from world renowned manufacturers such LMW, Turmac Engineering and Murata Machinery Ltd, Japan.

Last year, the company completed Rs.8.60 cr. expansion cum modernization programme at its AP factory and a couple of months back it enhanced its Maharastra unit capacity by 7200 spindle at a cost of Rs.11 cr. With this expansion, its present installed capacity stands around 65,000 spindles. To diversify its product portfolio, the company is foraying into the manufacture of cotton yarn and is setting up two new units one in AP (25000 spindles) and the other in Maharashtra (20,000 spindles) at an investment of Rs.90 cr. These units are expected to commence commercial production from December 2006 and will be eligible for various incentives and exemptions allowed by the AP government as per the SIIP policy 2005-2010. Moreover, to become an integrated player, it is planning to set up a weaving and processing unit with a capacity of 50,000 metres per day at an initial cost Rs.35 cr. It is also considering a proposal to set up a Rs.25-cr. garment facility with a capacity of 10,000 trousers a day.

Post-quota regime, EU and US companies are increasing the outsourcing of their requirements from India due to its edge in availability of raw material, skilled labour etc. over competing countries. Taking into consideration its expansion plans, it is expected to report sales of Rs.210 cr. with NP of Rs.9.50 cr. for FY07. This translates into EPS of Rs.17 on its current equity of Rs.5.45 cr. As the full impact of the expansion will come only in FY08, it may report more than Rs.300 cr. in sales.
Although the company may raise around Rs.30 cr. through FCCB/preferential allotment etc. in future, which may dilute the equity capital to some extent, still it’s trading cheap with current market cap of only Rs.40 cr. The scrip has the potential to appreciate 25~30% in a year’s time and can even double in 24~30 months.