1992 batch of Sensex stocks: Century Textiles & Industries Ltd. - Views on News from Equitymaster

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  • Sep 27, 2012 - 1992 batch of Sensex stocks: Century Textiles & Industries Ltd.

1992 batch of Sensex stocks: Century Textiles & Industries Ltd.

Sep 27, 2012

Change is said to be the only constant in nature. Only those who know when and how to adapt to such changes are the ones that survive and progress with time. This applies to the corporate world as well. One such test for its fitness was the wave of liberalization in 1990s that not many firms could pass. Century textiles was one among such companies that lagged behind. A flagship company of Birla group headed by Mr. B.K Birla, the company is diversified across unrelated segments, ranging from paper (19% of sales), cement (53% of sales) and textiles (27% of sales) and lacks strategic focus. Infact, until few years back, it was operating in shipping segment as well, only to exit after making losses. The fortunes of its segments (all cyclical, high capital and low return and mostly in commodity sector) move in tandem, offer no synergies and hardly any defense during tough times.

The rot sets in

While the company thrived in pre liberalization era, it could not prove its mettle when faced with challenges of cheaper imports, anti dumping rules in export markets, increased competition and general economic volatilities across segments. In a single year (FY 97), the company saw nearly all its profits wiped out. The next two years were marked with heavy losses, exposing management's failure to address crisis. The performance since then has been volatile, with fortune swinging in line with domestic and global macroeconomic environment. Infact, in FY12, two of its key segments - textiles and paper (with combined share of 45% in the revenues and 69% in assets), posted losses at the operating level. The PAT margins slipped from 4.6% to 0.4%. The RoE (at 1.2% versus 13% in FY11) and Debt to Equity ratio (2%) stood at their lowest and highest levels respectively in the decade while interest coverage ratio stood at just 1.1.

The company is once again facing issues like high cost prices, slowdown in demand, high interest costs, and competition from cheaper imports that dragged its performance in the past. Despite having a prior experience in bad times and a long time to devise survival and growth strategies, the management has done little and Century textiles stands defenseless in the times of a slowdown. The annual results of the company have shown huge volatility which means something is lacking strategically and even a good performance in a particular year doesn't promise anything in the future.

Hampered by lack of moat

With 8% CAGR growth in the topline and 2% decline in the bottomline in the last decade, the mismanagement of company's operations is obvious. Century textiles enjoys hardly any gains that generally one expects from diversification. Instead, it has failed to focus on and scale up like its competitors in the relevant segments. Failing to add much value from its operating businesses, Century textiles is now banking on its land bank in South Mumbai, 25% of which is in dispute with Bombay Dyeing. Even there, the company is facing procedural delays in getting approvals. Despite being more than a century old, it has hardly any core competence, moat, scale advantage or first mover benefits. No wonder it lost its place in the Sensex to other focused players.

1992 batch of Sensex stocks Series - Previous: Ceat Ltd.

Richa Agarwal

Richa Agarwal (Research Analyst), Managing Editor, Hidden Treasure has over 7 years of experience as an equity research analyst. She routinely scours the small cap universe for fundamentally strong companies trading at attractive prices. Having degrees in both finance as well as engineering has served her well in analysing business models across the small cap space.

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