Amarjothi Spinning Mills Ltd - Rs.38.00

Incorporated in 1987, Amarjothi Spinning Mills Ltd (ASML) was promoted by the well-known Amarjothi Group of Tirupur, which has diverse interest in finance, power, education, real estate and textiles. It has emerged as a major yarn producer with special emphasis on mélange yarn. Melange means mixture in French and the company has perfected the art of manufacturing yarn, which gives mixed effect of colour in the yarn. It is a 100 % cotton two tone yarn and could be blended with most fibres like polyester, viscose, modal, wool, silk, polynosic, tencel, lycra etc. Although the company derives major revenue by catering to the local Tirupur market it also exports to Europe, Mauritius, Sri Lanka, Israel, Egypt, Turkey, Hong Kong, Malaysia, Philippines, Korea, China, Japan, USA, European and South African Countries.

ASML’s plant is located at Pudusuripalayam in Tamilnadu and has a capacity of around 40,000 spindles, which results in annual production of around 48,00,000 MT of yarn. It also has an in-house dyeing unit at Perundurai, Erode with capacity for fibre dyeing upto 3000 kgs per day. Moreover, its three windmills with a total capacity of 4.95 MW are in operation generating a substantial portion of power requirement of its spinning mill. ASML has been improving the share of its value added yarn in the market in the form of dyed fibre yarn, dyed cotton yarn, PC yarn, etc. It offers competitive price due to low power cost through windmills, low interest cost, low processing cost, etc. Importantly, the company has obtained ISO 9001:2000 certification, MGMT.SYS RVA C 216 Certification for quality management and systems and OEKO TEX STANDARD-100 certification for not using any harmful substances in the product.

Due to market uncertainties and not so aggressive management, the proposed expansion plan of raising the spinning capacity to 58,000 spindles was put on hold in spite of loans being sanctioned for the purpose. The modernization was also restricted to essential machinery and the balance kept in abeyance. Still, the company reported encouraging numbers for H1 FY07. Both Sales and PAT grew by around 30% to Rs.48 cr. and Rs.3.35 cr. respectively. For full year FY07, it is estimated to clock a turnover of Rs.100 cr. with net profit of Rs.7.50 cr. This will lead to an EPS of Rs.11 on its equity of Rs.6.75 cr. With reserves of more than Rs.25 cr., the book value of its share stands at Rs.48. It declared 14% dividend for FY06 and may announce 16% for FY07, which would give a yield of more than 4% at CMP. With a current market cap of only Rs.25 cr. and its 52W H/L as Rs.79/35 respectively, this scrip is available for a song. Investors are strongly recommended to buy for a price target of Rs.55 (45% return) in 9-12 months. Long-term investors can expect 100% return in 18-24 months.