Dhanlaxmi Fabrics - Rs.56.00

Dhanlaxmi Fabrics Ltd (DFL) promoted by Devinder Kumar is the flagship company of the Dhanlaxmi Group, which is in the textile business since 1975. Today, it is a one stop shop for garment exporters, fabric exporters and local garment manufacturers. It manufactures quality fabrics at its weaving unit, undertakes processing of fabrics and job work such as dyeing, bleaching, printing and then finishing the same. It is also into yarn dyeing of cotton and viscose yarn. The company’s specialized machines can produce all types of fabrics upto 63” width i.e. cotton, manmade, blended, lycra of 60 gm. per mtr. to 600 gm. per mtr quality in reactive, vat, disperse and discharge colours with soft, smooth, waterproof, fireproof, normal and glazed finishes. DFL is a recognized supplier to well-known garment exporters including Sonal Garments, Texport Syndicate, Leela Scottish Lace, Creative Home Fashions Ltd., Bombay Rayon, Choudhary Garments, Hytone, Gini Silk Mills etc. whose end customers in the global market are Walmart, JC Penny, GAP, OTTO etc.

DFL’s weaving and processing plants are spread over 1,30,000 sq ft area with fabric and yarn processing units located in Thane and weaving factory of 32 Sulzer looms located at Ichalkaranji. Its yarn dyeing plant has fully automatic, sophisticated imported yarn dyeing machines with all processes controlled by computer. It also has an in-house R&D centre equipped with the latest testing equipments and a full fledged testing laboratory. Being an ISO 9001:2000 certified company, it has Oko-Tex Standard 100 Certificate given by Testex Zurich. It is also capable of meeting all European & American Standards as regards usage of eco-friendly, azo-free dyes, colour chemicals and adheres to all national and international legislation and compliance norms regarding child labour, fire safety, pollution control and general working conditions. It has also set up a Wind Turbine Generator of 1.25 M.W. at Dhule, Maharashtra, which produces around 24 lakh units of power p.a. DFL plans to set up a weaving and knitting project at Bhiwandi at an estimated cost of Rs.50 cr. and set up two more wind power projects in Maharashtra at an estimated cost of Rs.12 cr. The group has an ambitious capex plan of Rs.75 cr. for a weaving unit at Kolhapur with Rapier looms to manufacture fancy cotton shirting’s and a new processing house with latest machineries with a capacity of 1,00,000 mtrs per day.

The company has come out with very impressive results for the March 2006 quarter, sales almost doubled to Rs.16.50 cr. whereas net profit zoomed to 145% to Rs.1.90 cr. reporting an EPS of Rs.3.20 for the quarter. For the full year, its topline grew by 56% to Rs.51 cr. and net profit increased by 63% to Rs.4.65 cr. and posted an EPS of Rs.8 for FY06. It declared a dividend of 14% compared to 10% last year. Considering the company’s growth plans and impressive track record, we estimate it to report sales and net profit of Rs.65 cr. and Rs.6.50 cr. respectively for FY07. This translates into an EPS of Rs.11 on its current equity of Rs.6 cr. Hence, investors are advised to buy on decline with a price target of Rs.80 (40% appreciation) in 12-15 months.