Veteran Fund Manager Picks Stake in Smallcap Textile Company. Stock Zooms 20%

Among the bulk deals that took place in yesterday's trading session, the one by Madhusudan Kela caught the attention of investors.

Data from the exchanges shows that ace investor Madhuri Kela, wife of Madhusudan Kela, picked up a stake in a smallcap textile firm.

Shares of the company rallied over 17% yesterday to touch a new 52-week high. Today, the stock is up 2%.

Before we move to the stock details, let's take a look at who Madhusudan Kela is and his top stock picks.

Who is Madhusudan Kela?

Known for his ability to identify quality companies with strong growth prospects, Madhusudan Kela is one of the most well-known and seasoned investors in the Indian stock market, with an extensive experience of over 27 years.

He prefers a value investing style and has a long-term investment horizon.

Which textile stock did Madhusudan Kela buy and why?

According to data from exchanges, Madhuri Kela bought 8.4 lakh shares or 1.67% stake in Sangam (India) at a weighted average price of Rs 268 per share.

Sangam (India) manufactures and exports textiles. The company is the largest producer of PV dyed yarn in Asia at a single location.

It's also a forerunner in manufacturing ready to stitch fabric. It's annual capacity is 30 million (m) meters of fabric and 48 m meters of denim.

The veteran fund manager initially took a stake in the textile firm in the September 2022 quarter. Back then, he had acquired a 1.1% stake.

While we don't know the exact reasons why he doubled down on Sangam (India), there are some reasons we can guess...

The first reason being capex theme playing out. Sangam India had earlier guided for a capex of around Rs 3 bn in FY23. However, during the same period gone by, it incurred a capex of Rs 5.2 bn to increase capacity in a phased manner.

Once the effect of enhanced capacities comes into play, Sangam India could see costs come down and maximum optimisation. Some of its plants where capacity expansion is underway will be operational by October 2023 and some by January 2024.

Sangam (India) in an Expansion Mode

The second reason behind Madhusudan Kela's bullishness could be the strong operational performance it has shown in the past three years.

Sangam India is also a beneficiary of China plus one megatrend.

Sangam India Financial Snapshot

Rs m, consolidated	FY19	FY20	FY21	FY22	FY23
Revenue	18,735	17,901	13,590	24,378	27,150
Growth	14%	-4%	-24%	79%	11%
Operating profit	1,682	1,700	1,320	3,145	3,020
OPM (%)	9%	9%	10%	13%	11%
Net profit	132	133	42	1,407	1,350
NPM (%)	1%	1%	0%	6%	5%
Debt to Equity	1.4	1.2	1.1	1.1	0.9

Data Source: Ace Equity

One more reason could be the turnaround in the textile sector, which has been due for a long time. With input cotton prices on a decline, the textile sector is set for a strong comeback in 2023.

All being said, the export segment needs to be tracked closely as it saw a 28% dip in exports due to weak demand. The same could continue for some quarters owing to macro-headwinds in the European and US markets.

How Sangam India shares have performed recently

In the past five days, Sangam India share price has rallied over 20%.

Yesterday, shares of the company rallied 20% in intraday trade before settling 17% higher at Rs 333 per share.

In the past one year, Sangam India shares have rallied 23% while on a year-to-date basis, shares are up around 41%.

Sangam India touched a 52-week high of Rs 360 yesterday and a 52-week low of Rs 185 on 20 January 2023.

Have a look at the table below which compares Sangam India with its peers.

Comparative Analysis

Company	Fiberweb India	Himatsingka	Indo Count	Pearl Global	Sangam
ROE (%)	6.9	10.1	25.0	21.2	15.2
ROCE (%)	8.4	9.7	22.5	29.7	17.8
Latest EPS (Rs)	2.2	-6.5	14.0	68.9	26.0
TTM PE (x)	14.5	0.0	14.7	8.1	12.8
TTM Price to book (x)	0.5	0.8	2.3	1.7	1.8
Dividend yield (%)	0.0	0.4	1.0	0.9	0.6
Industry PE	48.4
Industry PB	6.1

Data Source: Ace Equity

About the company

Sangam (India) is engaged in the business of manufacturing and selling of synthetic blended, cotton & texturised yarn, fabrics, denim fabrics and readymade seamless garment.

It operates various brands such as Sangam Yarns, Sangam Suitings which is also the flagship brand, Sangam Denims and C9 Airwear.

It has clients including Banswara Syntex, Siyaram, RSWM Limited, Arvind, Trident, Marks & Spencer, Reliance Trends, Zivame, Myntra, Lifestyle International, Benetton and Westside, among others.

To know more, check out Sangam India's financial factsheet and its latest quarterly results.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...