Cen­tury Enka Ltd: A wor­thy buy

Money Times - - Expert Eye -

(BSE Code: 500280) (CMP: Rs.389.85) (FV: Rs.10)

The ro­bust re­sults posted by Cen­tury Enka Ltd (CEL) have re­sulted in large-scale buy­ing at de­clines by dis­cern­ing in­vestors. Going for­ward, CEL is ex­pected to post an EPS of Rs.52 in FY18. The stock hit an all-time high of Rs.692 in March 1992.

CEL was pro­moted by the BK Birla group in 1965 in tech­ni­cal and fi­nan­cial col­lab­o­ra­tion with Enka In­ter­na­tional, Nether­lands, part of the Akzo group and it went pub­lic in 1967. A few years ago, it ac­quired the en­tire 38% stake of Enka In­ter­na­tional and re­duced its eq­uity cap­i­tal from Rs.30 crore to Rs.20 crore.

CEL has two man­u­fac­tur­ing units – one at Pune (Ma­ha­rash­tra) and the other at Ra­jashree Na­gar (Bharuch - Gu­jarat), known as Ra­jashree­Poly­fil. It man­u­fac­tures Polyester Fil­a­ment Yarn (PFY), Ny­lon Fil­a­ment Yarn (NFY), Polyester Par­tially Ori­ented Yarn (POY), Polyester and Ny­lon Chips of in­dus­trial and fab­ric grade and Ny­lon In­dus­trial Yarn and Ny­lon Tyre Cord Fab­rics (NTCF). Its Pune plant pro­duces High Tenac­ity Ny­lon (Polyamide 6) and Polyester In­dus­trial Yarns, GreigeTyre Cord Fab­rics, etc. It has tex­tur­is­ing fa­cil­i­ties and twist­ing ma­chines at Ma­had in Raigad district of Ma­ha­rash­tra. Its poly­mer chips ca­pac­ity is 1,46,000 TPA, syn­thetic fil­a­ment yarn ca­pac­ity is 1,25,200 TPA and tyre cord fab­ric ca­pac­ity is 22,000 TPA.

CEL’s prod­ucts are used by the tyre, tex­tile and belt in­dus­tries as re­in­forc­ing ma­te­rial in tyres, con­veyor belts, V-belts, hoses, ropes & cordage and broad/nar­row wo­vens. They are also used in plas­tics and engi­neer­ing prod­ucts. It of­fers a wide range of POY prod­ucts for

Draw Tex­tur­is­ing, Air Tex­tur­is­ing, Draw Twist­ing and Draw Warp­ing ap­pli­ca­tions. Be­sides cloth­ing, polyester is also used in tech­ni­cal tex­tiles like Geo

Tex­tiles for road con­struc­tion, fire re­tar­dant tex­tiles, air bags in pas­sen­ger cars, non-wo­ven dis­pos­able prod­ucts, etc. Another ma­jor ap­pli­ca­tion of polyester is in

PET (Polyethy­lene Tereph­tha­late) bot­tling and con­tain­ers.

CEL sup­plies yarn on Jumbo

Beams for siz­ing with qual­ity un­matched in terms of runnabil­ity, su­pe­rior and uni­form fab­ric dye­ing. Its

Jumbo Beams are a pre­ferred choice for all siz­ers and qual­ity fab­ric man­u­fac­tur­ers.

It of­fers an en­tire prod­uct mix for siz­ing and weav­ing on Cops/Pa­per tubes. Its range of spe­cial­ity yarns in­cludes Bi-shrink­age/Bi-com­po­nent yarns, NSY (for Non-Sized

Di­rect Warp) and In­ter­laced Tex­tured yarns that are de­vel­oped for high qual­ity fab­rics with a dis­tinct feel and ef­fect.

For FY17, CEL’s net profit soared 53% to Rs.91 crore on 18% higher sales of Rs.1354.7 crore fetch­ing an EPS of Rs.42. Dur­ing Q4FY17, its net profit climbed 19% to Rs.23.3 crore on 44% higher sales of Rs.406.4 crore fetch­ing an EPS of Rs.11. A div­i­dend of 70% has been pro­posed.

CEL’s per­for­mance im­proved in line with the busi­ness engi­neer­ing work un­der­taken in the pre­vi­ous year. It con­verted some more polyester spin­ning lines at its Bharuch site to pro­duce NFY. The de­mand for NFY wit­nessed good growth due to lower raw ma­te­rial prices. Fur­ther, the Com­pany ex­panded its cus­tomer base and sold higher quan­tity of NTCF. One of the fac­tors that boosted its per­for­mance was the sav­ing in en­ergy costs due to ac­cess to open power pur­chase at the Pune site and gen­er­a­tion of power by its own DG sets at the Bharuch site. With an eq­uity cap­i­tal of Rs.21.9 crore and re­serves of Rs.834 crore, CEL’s share book value works out to Rs.391. To­tal debts are Rs.45 crore whereas in­vest­ments, cash and cur­rent as­sets stand at Rs.124 crore. Its gross block of as­sets as at FY17 was Rs.1687 crore. It in­curred in­ter­est cost of Rs.5.6 crore v/s Rs.9.6 crore in FY16. The pro­mot­ers hold 25.3% of the eq­uity cap­i­tal, DIs hold 8.1% (LIC 6.9%), FIIs hold 12% and PCBs hold 10.3%, which leaves 44.3% stake with the in­vest­ing pub­lic.

CEL in­vested an ad­di­tional Rs.98 crore in var­i­ous Mu­tual Funds (MFs). It has in­vest­ments worth Rs.8.5 crore in Ke­so­ram In­dus­tries, the mar­ket value of which cur­rently stands at Rs.19.5 crore. The Com­pany is all set to post cash profit of Rs.140 crore in FY18. This will help re­pay all loans and fetch higher other in­come from in­vest­ments in MFs. The de­mand for NTCF is de­pen­dent on the trans­port and com­mer­cial ve­hi­cle in­dus­tries and CEL fore­sees a fur­ther rise in the do­mes­tic de­mand. The In­dian tex­tile sec­tor is grow­ing at 9% p.a. and the ex­ten­sion of the Tex­tile Upgra­da­tion Fund (TUF) will bol­ster fur­ther in­vest­ment in this sec­tor. More­over, the gov­ern­ment's stim­u­la­tion pack­age to safe­guard the tex­tile sec­tor at large and its sym­pa­thetic ac­tion in ad­dress­ing GST im­ple­men­ta­tion will boost the in­dus­try’s cap­i­tal ex­pen­di­ture.

The per capita con­sump­tion for polyester in In­dia (1.6 kg) is fairly low in com­par­i­son to the world aver­age (3 kg) and in re­la­tion to other coun­tries such as China (6 kg) and USA. Thus, there ap­pears to be a vast growth po­ten­tial for the use of polyester in the coun­try.

CEL is closely watch­ing the de­vel­op­ments in the Syn­thetic Yarn in­dus­try, im­ports from China, high de­pen­dency on raw ma­te­rial im­ports and sin­gle source of do­mes­tic sup­ply. Against this back­ground, it eval­u­ates var­i­ous op­tions that may be avail­able for its growth strat­egy. It con­tin­ues to put thrust on re-engi­neer­ing its ex­ist­ing op­er­a­tions and carry on bal­anc­ing in­vest­ment in mod­i­fi­ca­tion of ex­ist­ing equip­ment and some fresh in­vest­ments in en­ergy con­ser­va­tion schemes.

The de­mand for Ny­lon Tex­tile Yarn in the Ap­parel in­dus­try has wit­nessed good growth over the last two years due to lower raw ma­te­rial prices. Part of the de­mand has also come from growth in warp knit­ting, nar­row weav­ing and high speed au­to­matic weav­ing looms sec­tor.

CEL is strength­en­ing its fi­nan­cials by im­prov­ing in­ter­est cov­er­age and op­er­a­tional ef­fi­cien­cies and in­vest­ing in bal­anc­ing equip­ment to im­prove its cap­i­tal us­age ra­tio. At the CMP of Rs.389.85, the stock trades at a P/E of 9.28x on FY17 EPS of Rs.42. The Com­pany is ex­pected to post cash profit of Rs.140 crore in FY18. A rea­son­able P/E of 12x on FY17 EPS will take its share price to Rs.504 in the medium-term. The stock’s 52-week high/low is Rs.454/204.25.

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