The sentiment of the investors has been bad in the case of the textiles sector and the brunt of the same has been borne by almost all the companies in the sector. Due to this, some of the companies are available at great valuations and one such company is BSL. This company’s market cap is a mere Rs 16 crore against its net worth of Rs 40 crore making it an attractive buy. However, net worth is not the only criterion for recommending the scrip. We are of the opinion that the market is over-reacting to the counter.
Just understand what this company does. Its major revenue comes from fabrics, accounting for 95 per cent of the total revenue. The balance contribution comes from yarn, readymade garments and wind power. It has a capacity of 17,136 synthetic spindles, 8,768 numbers of woolen worsted spindles, 134 looms that consist of eight looms for silks and wind power capacity of 2.4 MW. The company last year took a major beating on financial numbers due to strong rupee appreciation and higher interest cost. Due to that, the company that was paying consistent dividend from the last so many years had to skip the same for FY2008.
So what is it then that makes us bullish on the counter? First is the rupee depreciation against the dollar. The company derives 58 per cent of the revenue from exports and the company CFO claims that rupee depreciation would really help the company to improve its financials in the current year. On the other hand, last year the company went in for silk weaving and revenue from the same year is expected to be in the region of Rs 10 crore. This is high margin business and it should help the company to report better margins going forward. To counter the slowdown in the domestic business, it is also looking at institutional sales and the readymade section. Overall, the company is looking at 20 per cent growth in its topline in the current year.
On the financial side, last year the company reported sales of Rs 178 crore and loss of Rs 6.55 crore. We feel that in the current year the loss will be substantially reduced due to the factors mentioned above. Remember that last year the company has made profit at operating levels that stood at Rs 12.73 crore and even at the gross profit level it has been positive. In other words, the company is making cash profit. In the first quarter of the current year, the company reported sales of Rs 44.25 crore as against last year’s sales of P.s 37.85 crore, showing a growth of 17 per cent. The losses got reduced from Rs3.6 crore to a mere Rs 1.21 crore. We are setting a price target of Rs 31 in the next 12 months allowing for an appreciation of 40 per cent. Just one line of caution:
the volume on the counter is quite erratic and hence one may not be able to buy the required quantity. So accumulate in small quantities.
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