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  • May 20, 2023 - 5 Undervalued Textile Stocks to Add to Your Watchlist

5 Undervalued Textile Stocks to Add to Your Watchlist

May 20, 2023

5 Undervalued Textile Stocks to Add to Your Watchlist

Bringing your mom along on a shopping trip can be a smart way to save money. Moms are often skilled negotiators and can help you get better deals on the items you're looking to buy.

In the stock market, one of the best ways to avoid spending extra, is to look at the price-to-earnings (PE) ratio and the price to book value ratio of the company.

How much do you pay for one rupee of the company's earnings? This is what the PE ratio tells us. For example, a stock with a PE ratio of 20 means you are paying Rs 20 for Re 1 of earnings.

The PE ratio is the most widely used valuation tool to measure a stock's value. The higher the PE ratio the more you are paying for a rupee of earnings, and the more overvalued the stock.

In today's article, we take a look at 5 textile stocks that are trading below their five-year average PE ratio. Lately, all textile stocks have remained under pressure because of sectoral headwinds.

Why textile stocks are falling

Lately, the textile sector has seen its fair share of problems. The sector was standing on a tripod of difficulties. One leg of the tripod was elevated raw material prices, the other one was the Russia-Ukraine war and the last leg was subdued capacity utilisation.

Little wonder that even the best textile stocks in India were falling in 2022 and they rolled over the effect to 2023.

As things stand now, the demand scenario appears bleak owing to a looming global recession in the US and Europe.

The sector was in deep trouble as a majority of textile players exported their products to US and European markets. With a recession and global slowdown looming, demand took a sharp hit.

The demand was down at least 30% from the peak with additional capex falling flat on these companies.

High cotton prices, weak demand, muted cotton yarn spreads and sizeable premiums in domestic cotton prices relative to international prices weakened the overall performance of the industry.

Many textile stocks in India witnessed a sharp correction. Coming back to the PE ratio, the average industry PE of the textile sector is around 36x.

In 2023, textile companies are poised to make a comeback. Some of them have the added advantage of domestic demand which is still robust.

With input cotton prices on a decline, the lost flavour in the textile sector could get back sooner than anticipated. Amid the changing scenario, these 5 textile stocks are trading well below the average industry PE ratio.

They are also trading below their 5-year average PE ratio.

#1 Deepak Spinners

Established in Chandigarh in 1986, Deepak Spinners manufactures and distributes synthetic and blended yarn.

The product portfolio of the company includes polyester, acrylic, viscose, polyester viscose blends, polyester acrylic blends, and among others.

It exports to countries such as Syria, the Middle East, Turkey, Belgium, and the US.

Apart from the challenges we mentioned above, cotton spinner companies like Deepak Spinners faced more challenges. The domestic cotton prices were trading at a huge premium compared to international ones, making Indian cotton products uncompetitive globally.

The rise in prices in the international market and low domestic and international demand were worrying the spinning mills.

A clear impact was seen on the revenue growth. In the last five years, pandemic and sectoral headwinds slowed down the company's revenue growth.

On a compounded annual growth rate (CAGR) basis, its total revenue increased by 4% in the last five years.

Profit has a different story to tell as the company's net profit has increased by 47% on a CAGR basis in the past five years.

Deepak Spinners Financial Performance (2018-2022)

Particulars Mar-18 Mar-19 Mar-20 Mar-21 Mar-22
Total revenue (Rs in m) 4,393.0 4,747.0 4,607.0 3,966.0 5,283.0
Growth (%) - 8.1 -2.9 -13.9 33.2
Gross profit (Rs in m) 323.0 427.0 346.0 417.0 694.0
Gross profit margin (%) 7.4 9.0 7.5 10.5 13.1
Net profit (Rs in m) 57.0 137.0 149.0 157.0 393.0
Net profit margin (%) 1.3 2.9 3.2 4.0 7.4
Source: Equitymaster

Deepak Spinners has significantly reduced its debt in the past five years.

Shares of the company currently trade at Rs 249.7. At the current price, the PE multiple works out to 3.9x while it's also undervalued on the price to book value front.

The company's five year average PE multiple is 5.8x.

In the past one year, Deepak Spinners share price is down 2.8% while it is down 1.2% on a YTD basis.

chart

To know more, check out its factsheet and quarterly results.

#2 S P Apparels

Second on this list is S P Apparels.

Established in 1988, S P Apparels has more than three decades of experience as an exporter of knitted garments.

It is a vertically integrated organisation which predominantly manufactures products for infants and children.

In the past five years, S P Apparels has posted decent growth. On a CAGR basis, the company's total revenue and net profit has increased by 5% and 12%, respectively.

Net profit margin has seen little movement.

S P Apparels Financial Performance (2018-2022)

Particulars Mar-18 Mar-19 Mar-20 Mar-21 Mar-22
Total revenue (Rs in m) 6,624.0 8,264.0 8,090.0 6,523.0 8,594.0
Growth (%) - 24.8 -2.1 -19.4 31.7
Gross profit (Rs in m) 1,058.0 1,196.0 734.0 1,024.0 1,450.0
Gross profit margin (%) 16.0 14.5 9.1 15.7 16.9
Net profit (Rs in m) 478.0 734.0 469.0 432.0 847.0
Net profit margin (%) 7.2 8.9 5.8 6.6 9.9
Source: Equitymaster

In recent quarters, the company's garment facility was delayed due to approvals, but the company is hopeful that it will start soon.

Meanwhile, the recent gains could be attributed to the management's commentary, which highlighted that spinning unit performance will be better in Q4 and it expects a good traction.

In the quarter ending December 2022, promoters, foreign investors and even mutual funds hiked their stake marginally in the apparel company.

The company has manageable debt on its book with debt to equity coming in at 0.3x.

Shares of the company currently trade at Rs 382. At the current price, the PE multiple works out to 11.5x while it's also undervalued on the price to book value front.

The company's five-year average PE multiple works out to 12.1x.

In the past one year, S P Apparels share price is up 11.5% while it is up 16.5% on a YTD basis.

chart

To know more, check out its factsheet and quarterly results.

#3 APM Industries

Third on this list is APM Industries, a manufacturer of synthetic blended spun yarns.

It set up its textile spinning unit in 1979-80 at Bhiwadi, Alwar, Rajasthan under the trade name of Orient Syntex for manufacturing synthetic blended spun yarns.

For the financial year 2022, it reported total revenue of Rs 3,168 m, up 33.9% on a YoY basis. Net profit also spiked by 208% compared on a YoY basis.

This comes on the back of a low base and buoyant domestic demand.

In the past five years, its total revenue grew by 3% on a CAGR basis. The net profit during the same time grew at a CAGR of 4%.

What has worked for the company is its health relationship with top customers, who contribute to around 30-35% of the revenue.

APM Industries Financial Performance (2018-2022)

Particulars Mar-18 Mar-19 Mar-20 Mar-21 Mar-22
Total revenue (Rs in m) 2,760.0 2,695.0 2,683.0 2,366.0 3,168.0
Growth (%) - -2.4 -0.4 -11.8 33.9
Gross profit (Rs in m) 184.0 137.0 165.0 160.0 311.0
Gross profit margin (%) 6.7 5.1 6.2 6.8 9.8
Net profit (Rs in m) 128.0 73.0 72.0 48.0 148.0
Net profit margin (%) 4.6 2.7 2.7 2.0 4.7
Source: Equitymaster

APM Industries maintained low debt levels in the past five years. For the financial year 2021-22 its debt equity ratio was 0.1x.

Shares of the company currently trade at Rs 51.3. At the current price, the PE multiple works out to 5.3x. It trades at a price to book value multiple of 0.6x, slightly above its long term average of 0.4x.

The company's five-year average PE multiple works out to 9.7x.

In the past one year, APM Industries share price is up 29% while it is down 9.8% on a YTD basis.

chart

To know more, check out its factsheet and quarterly results.

#4 Kama Holdings

Kama Holdings is an Indian investment company. It primarily makes long term investments in its subsidiaries.

The chief area of investment includes textile business, chemical business, and packaging film business. Its flagship unit is SRF which is a multi-business entity.

In the past five years, on a CAGR basis, its revenue has grown by 18%. While net profit has grown at a CAGR of 33% during the same time.

In-house expertise and support from SRF has helped grow Kama Holdings' subsidiaries in their respective chemical based segment, where the revenue split is around 40%.

Kama Holdings Financial Performance (2018-2022)

Particulars Mar-18 Mar-19 Mar-20 Mar-21 Mar-22
Total revenue (Rs in m) 55,370.0 77,461.0 74,787.0 84,676.0 125,024.0
Growth (%) - 39.9 -3.5 13.2 47.6
Gross profit (Rs in m) 9,187.0 13,700.0 13,973.0 21,657.0 31,379.0
Gross profit margin (%) 16.6 17.7 18.7 25.6 25.1
Net profit (Rs in m) 4,576.0 6,466.0 10,166.0 11,966.0 18,889.0
Net profit margin (%) 8.3 8.3 13.6 14.1 15.1
Source: Equitymaster

The company has successfully brought its debt equity ratio below 1 in the past two years.

Shares of the company currently trade at Rs 12,628.8. At the current price, the PE multiple works out to 3.5x.

The company's five-year average PE multiple works out to 3.8x.

In the past one year, Kama Holdings share price is up 22.5% while it has gained 2.6% on a YTD basis.

chart

To know more, check out its factsheet and quarterly results.

#5 Siyaram Silk Mills

Last on this list is Siyaram Silk Mills.

Incorporated in India, Siyaram Silk Mills is blended fabric and garment manufacture with an associated chain of retail outlets and branded showrooms.

It is one of the most renowned vertically integrated textile companies in India. It operates the widest range of the latest machinery in its eco-friendly plant at Tarapur, Daman, and Mumbai.

Siyaram is a well-established brand closely associated with the Indian landscape with immense brand recall value.

Today, the company benefits from having the longest surviving and resilient serving portfolios of brands within India.

This strong brand value has translated into robust financial.

CAGR Growth of Siyaram Silk Mills Financials (2018-2022)

chart

In the past five years, the company's long term debt has reduced significantly. In 2018 the company's total debt stood at Rs 1,345 m which was reduced to Rs 368 m by 2022.

Shares of the company currently trade at Rs 526.9. At the current price, the PE multiple works out to 10.6x.

The company's five-year average PE multiple works out to 67.3x.

In the past one year, Siyaram Silk Mills share price is down 2% while it is up 6.4% on a YTD basis.

chart

To know more, check out its factsheet and quarterly results.

Snapshot of textile companies trading below their average PE multiple

Here's a quick view of the above companies based on their financials.

chart

Please note that these parameters can be changed according to your selection criteria.

This will help you identify and eliminate stocks not meeting your requirements and emphasise those stocks well inside the metrics.

Happy Investing!

Investment in securities market are subject to market risks. Read all the related documents carefully before investing

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FAQs

Which are the top textile companies in India?

Based on marketcap, these are the top textile companies in India:

You can see the full list of the textile stocks here.

What are the top gainers and top losers within the textile sector today?

Within the Textiles sector, the top gainers were ANGEL FIBERS (up 7.7%) and SAMTEX FASHIONS (up 6.4%). On the other hand, VIJAY TEXTILE (down 12.4%) and NUTECH GLOBAL (down 7.0%) were among the top losers.

You can also take a look at the most active stocks from the textile sector and also check out our textile sector report.

How should you value textile companies?

Investing in stocks requires careful analysis of financial data to find out a company's true worth. However, an easier way to find out about a company's performance is to look at its financial ratios.

Two commonly used financial ratios used in the valuation of stocks are -

Price to Earnings Ratio (P/E)- It compares the company's stock price with its earnings per share. The higher the P/E ratio, the more expensive the stock.

Price to Book Value Ratio (P/BV) - It compares a firm's market capitalization to its book value. A high P/BV indicates markets believe the company's assets to be undervalued and vice versa.

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