Century Enka Ltd
(BSE Code: 500280) (CMP: Rs.269.8) (FV: Rs.10)
Company Background: Incorporated in 1965, Pune-based Century Enka Ltd (CEL) manufactures synthetic yarn– Nylon Tyre Cord Fabric (NTCF) that find application in making bias tyres and Nylon Filament Yarn (NFY) used in making sarees, dupattas, dress materials and athleisure among others. Plans are afoot to offer Polyester Tyre Cord Fabric (PTCF) as a reinforcement material in radial passenger vehicle tyres. Its manufacturing facilities at Rajashree Nagar in Bharuch (Gujarat) and at Bhosari in Pune are equipped with state-of-the-art manufacturing technology. With continuous innovation, CEL has delivered new and high-quality products. Today, it has a strong presence in both NTCF and NFY products. It has 31,000 TPA manufacturing capacity of NTCF, which contributes 60% to its revenue and has 24% domestic market share. In the NFY segment, it has 36,000 TPA manufacturing capacity, which contributes 40% to its revenue and has 19% domestic market share in the NFY segment.
Financials: CEL’s equity of Rs.21.85 crore is supported by huge reserves of around Rs.901.76 crore. The promoters hold 25.25%, DIIs hold 7.31%, FPIs hold 2.87% while the investing public holds 64.57% stake in the company. CEL has reduced its debt from Rs.155.87 crore to Rs.30.62 crore in the last five years, which is highly impressive. Its share book value works out to Rs.412.3 and its price:book value ratio stands at just 0.65x.
Performance Review: For FY18, CEL reported
PAT of Rs.70.09 crore on sales of Rs.1447.77 crore fetching an EPS of Rs.32.08. For Q2FY19, it posted
56% higher sales of Rs.479.08 crore with 28% higher PAT of Rs.23.23 crore fetching an EPS of Rs.10.6. For H1FY19, it reported 88% higher PAT of Rs.45.68 crore on 31% higher sales of Rs.884.95 crore fetching an EPS of Rs.20.9.
This B.K. Birla group company is a regular dividend-paying company and has paid 70% dividend for FY18.
Industry Overview: During FY18, the Government of India raised the custom duty on NTCF imports from 10% to 20% and imposed anti-dumping duty on radial tyre imports, which resulted in demand stability for domestic NTCF producers. Apart from this, there exist anti-dumping duties on NTCF imports from certain countries. But to circumvent the levy of anti-dumping duty, significant imports of NTCF from FTA (Free Trade Agreement) countries with zero / concessional duty are being made. This continues to put pressure on the NTCF margin. With higher disposable income with the middle class and the ever-changing fashion requirement of the young, NFY is witnessing steady growth by virtue of its feel and lustre quality. While NFY continues to enjoy preference in saree, dupatta and dress materials, its substitution in silk and Viscose filament yarn (VFY) provides an opportunity to boost consumption.
Conclusion: CEL continues to enjoy its leadership in NFY in terms of product range, quality parameters and by volumes. It witnessed full capacity utilization of NTCF at both its Pune and Bharuch plants. In order to consolidate its position further in value-added segments, it proposes to install additional Air Texturising capacity. Besides, it will also undertake conversion of additional polyester spinning machines into nylon spinning machines to enhance its production capacity. Apart from this capex, it continues to diversify its product range by offering dipped Polyester Tyre Cord Fabric. It is also exploring possibilities of offering dipping services for Rayon Tyre Cord Fabric. It also plans to fully integrate its NTCF capacity and will approach the government for its permission. It has successfully converted few of its polyester spinning machines at Bharuch into nylon spinning machines, which has enhanced NFY capacities by about 10,000 TPA. It hopes to enhance its market share from 19% to 22%.