Century Textiles and Industries established in 1897, is a flagship company of BK Birla group. Initially, Century started as textile mill but over the years the company has diversified into rayon yarn, tyre cord, minerals/chemicals, cement, and pulp/paper. Its textile division is one of the largest units in India. Recently the company has entered into ready to wear segment too.
Let’s have a look at the revenue break of the company for FY03.
Century has a cement production capacity of around 5 mtpa. Its cement plants operated at 111% utilisation and contributed around 41% to the total FY03 revenues. The margins from this segment remained under pressure because of lower cement prices last year (PBIT margins declined from 9% in FY02 to 2.6% in FY03). The outlook for this segment remains positive because the demand supply gap is narrowing, which will improve the realisations. The government’s thrust on infrastructure and the strong demand in the housing sector will boost the demand for cement going forward.
Textile segment of Century includes yarn, shirting fabric, denim, viscose filament yarn etc. Textiles contributed around 37% of the total FY03 revenues. Its PBIT margins too improved from 2.7% in FY02 to 11% in FY03. In domestic territory, textile shirting business is dominated largely by unorganised sector. The company faces competition from powerloom and handloom units because these unorganised players have access to comparatively cheaper labour and lower raw material cost. Nowadays, due to increasing acceptability of PV (polyester viscose) yarn, unorganised players are able to produce fabric at lower rates. Where as, Century manufactures 100% cotton shirting, so raw material prices largely depend on cotton production, the prices of which are 30%-40% higher than PV yarn.
On the export front, textile division faces competition from the cheap supplies by countries like Pakistan and Bangladesh because of lower labour cost. Moreover, cotton prices are also lower in these countries as compared to India. As a result, the company has cut down around 22% of the production which had high potential in export market but not domestically marketable. Also, the company has changed it focus from export market to domestic market and plans to set up more retail shops and enter direct marketing.
In denims, Century has a 100% exports-oriented plant, which takes advantage of the lower cotton prices in neighboring countries. Being 100% EOU it can import cotton at lower duty. The paper pulp segment contributed around 16% to the company’s FY03 revenues. The PBIT margins remained more or less stable at over 14%. With the increasing demand for the better quality paper, domestic paper business has good growth prospects.
At the current price level of Rs 128, the stock trades at P/E multiple of 14.2x FY03 earnings. Century’s cost control efforts will help it to improve bottomline. In order to reduce the staffing cost, the company has already conducted one round of VRS. The entry in ready to wear segment will help company to revive its textile business. However, it will also expose it to competitive risks. The increasing brand consciousness among consumers can help the company to increase revenues going forward. But in the past few years, Century has not known to be very proactive. Also, continued speculation on who’s going to lead the company post Mr. B. K. Birla is also likely to have a bearing on the company’s valuations in the long run.
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