Dressed To Party - Ginni Filaments

It sometimes makes sense to focus on scrips that are ignored by the market but have the potential to catch investors’ fancy. This is where one may come across an attractive bet and end up making better returns. Taking a cue from our cover story theme of turnaround candidates, our hunt led us to Ginni Filaments. Though the scrip has turned around with profits of Rs 4.88 crore in FY10, the company is well-poised to post even better numbers in the coming period.

An integrated player in woven and the non-woven segment, Ginni Filaments (Ginni) reports its business in two segments i.e. traditional textiles that include yarn, fabric, and the garment business which contribute around 75 per cent to the total revenues and the non-woven segment that contributes the rest.

In FY08 and FY09, Ginni was in the red on account of lack of demand due to global slowdown, dip in realisations, and derivative losses. However, post the turnaround it has been doing well. Firstly, because there is a constant rise in global demand for cotton yarns and this is expected to continue in FY11 as well. Indian yarn exports have more than doubled to 85 lakh bales in FY10 (35 lakh bales). If that is the case then Ginni stands to directly benefit from this trend as yarn forms 55 per cent of Ginni’s total revenues and exports 70 per cent of its total yarn produce to countries such as Europe, China, South Korea, Peru, Brazil, and Bangladesh.

Second, with the recent floods in Pakistan the cotton yarn prices may go further up on shortage, while at the same creating additional demand for Indian players. This augurs well for companies such as Ginni. That apart, Ginni has also gone in for timely procurement of cotton, its major raw material. With the global demand for cotton yarn picking up, cotton prices have shot up to as high as Rs 34,000 from Rs 23,000 seen previously. This timely procurement will help Ginni keep its overall input cost down, thus expanding margins further.

Third, Ginni has also opted for restructuring its debts in FY10 wherein its loan repayment period was extended from seven to ten years with an interest rate reduction of 1.5 per cent. This will help Ginni keep its interest cost low. Meanwhile, Ginni is carrying out capex of Rs 140 crore that will be funded through a combination of debt, equity and internal accruals. The funds so raised would be used to double the capacity of non-woven to 24000 TPA, increase garment capacity by 3 lakh pieces per month and spinning capacity by another 8000 spindles, besides, debottlenecking of the existing plants. This will generate good revenue growth in the coming years.On the financial performance front, for Q1FY11 Ginni’s revenues increased by 27 per cent to Rs 140.19 crore while profits were Rs 5.18 crore compared to Rs 2.45 crore of losses during Q1FY10 and Rs 4.88 of profits for the whole of FY10. For FY11 the management expects a turnover of Rs 600-625 crore with profits of around Rs 18-20 crore. At these estimates Ginni is available at a PE of merely 5x and looks like a good grab with a one-year target of Rs 21.