Sut­lej Tex­tiles Low on Val­u­a­tions, not on Re­turns

En­sur­ing con­sis­tent sup­ply of key in­puts and cut­ting its debt has put co firmly on the growth path

The Economic Times - - Markets & Finance - RAMKRISHNA KASHELKAR

Sut­lej Tex­tiles has turned into a con­sis­tent per­former that is low on val­u­a­tions but high on re­turns, a turn­around that be­came pos­si­ble af­ter the com­pany en­sured con­sis­tent sup­ply of three key in­puts of cot­ton, power and labour while re­duc­ing its debt lev­els. This strat­egy has helped the com­pany make a strong come­back af­ter fac­ing sharp vo­latil­ity in earn­ings be­tween 2007-08 and 2011-12.

Part of the KK Birla group, Sut­lej Tex­tiles is In­dia’s leading man­u­fac­turer of dyed yarn, with a ca­pac­ity of 2.6 lakh spin­dles in three units spread across Jammu & Kash­mir, Ra­jasthan and Gu­jarat. The com­pany is also In­dia’s largest man­u­fac­turer of value-added cot­ton melange yarn, which is used for high-value cloth­ing. All leading fab­ric and cloth­ing man­u­fac­tur­ers such as Si­yarams, Ray­mond, Dig­jam, Don­ear are among the cus­tomers of the com­pany which gets one-fourth of its rev­enues from ex­ports.

“Raw ma­te­ri­als, un­in­ter­rupted power sup­ply and labour are the three crit­i­cal in­puts for our in­dus­try. The com­pany in­vested in build­ing quar­ters at man­u­fac­tur­ing units to re­duce labour short­ages that had plagued our per­for­mance in the past,” said Dilip Gho­rawat, Sut­lej Tex­tiles’ whole-time di­rec­tor and chief fi­nan­cial of­fi­cer.

The com­pany car­ries 4-5 months of cot­ton in­ven­tory while main­tain­ing ex­cel­lent re­la­tion­ship with do­mes­tic pro­duc­ers of polyester and vis­cose. It has built a 12mw cap­tive power plant at its Ra­jasthan unit and a 3mw plant at its Gu­jarat unit. “Con­sis­tent 24x7 power sup­ply from the state grid in Gu­jarat re­sulted in the cap­tive power plant re­main­ing idle for the last three years. As a re­sult, we de­cided to im­pair that as­set in FY14,” Gho­rawat said.

The com­pany also slowed its capex plans over the past four years in a bid to bring down its debt-to-eq­uity ra­tio. “In the last four years put to­gether, we spent only Rs 125-130 crore, when other in­dus­try play­ers were spend­ing hun­dreds of crore. We com­pro­mised on growth, but now the debt-eq­uity ra­tio stands at 0.6 as against 3.5 in FY10,” said Gho­rawat. The com­pany is cur­rently in the process of adding around 13% spin­dle ca­pac­ity to its value-added cot­ton melange seg­ment, which is ex­pected to be com­mis­sioned by Oc­to­ber. This can add Rs 200-250 crore on an­nu­alised ba­sis at full util­i­sa­tion lev­els. Delever­aged bal­ance sheet and a 30acre land par­cel at Kota in Ra­jasthan give the com­pany com­fort to start plan­ning for growth in fu­ture. “We have or­ganic and in­or­ganic growth plans,” Gho­rawat said with­out dis­clos­ing de­tails. “We have three bench­marks when con­sid­er­ing these op­por­tu­ni­ties — re­turn on cap­i­tal em­ployed should be above 20%, debt-eq­uity ra­tio shouldn’t ex­ceed 1.2 and the project’s pay­back pe­riod should be max­i­mum 4.5 years.” In this en­tire process, the com­pany has gained in vi­tal­ity. Its re­turn-on-eq­uity stood at 28% for 2013-14, which Gho­rawat said was the high­est in the en­tire tex­tiles in­dus­try. The com­pany has main­tained a con­sis­tent div­i­dend pay­ing record since in­cep­tion and de­clared Rs 8 per share div­i­dend for the fis­cal. The com­pany is cur­rently val­ued at 3.7 times its net profit for 2013-14 and 1.1 times its book value. It has emerged as a strong con­tender for fu­ture growth.

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