Stock Pick From The Textiles Sector

Here Is Why:

• Topline and bottomline  grew at a CAGR of 25 per cent and 59 per cent for the five year ending FY13
• 57 per cent of revenue comes from exports
• Revival of economies in the US and Europe to drive revenue going forward

The performance of the textile sector has remained subdued for last few years. Nonetheless, situation is changing for good as of now helped by better global economic growth, favourable condition in cotton and sharp depreciation in the value of rupee. In this column we present to you one dark horse from the sector Orbit Exports which has the potential to generate better returns going forward.

There are compelling reasons why we believe this company will perform well in the bourses going forward. In the last five years ending FY13, we find that the company has grown by 25 per cent and 59 per cent respectively on its topline and bottomline. Apart from this, the main reason why this sector has again become a favourite is for its exports. With sharp depreciation in the rupee since it has stayed consistently above the Rs 60 mark against the USD gives edge to the exporters. The export component of Orbit Exports constitutes 57 per cent of the revenue. The company exports its products to the USA, Latin America, Africa, Europe and the Far East. More importantly with the economies improving in the US and Europe, the export business of the company is likely to benefit from the same as demand in these regions can be a growth driver for the company. Company exports two million meters of fabric every quarter. Orbit Exports is also the largest exporter of Christmas ribbons and made up products in India. Its clientele also have some renowned brand names like Calvin Klein, Zara and Debenhams to name a few. 

Going forward the Company is in the process of expansion of Kosamba Plant by importing new machineries and thereby increasing the manufacturing capacity of the Company. During FY13, the Company has developed new products and designs which has enabled the Company to develop new markets and in catering the existing customers. The introduction of new products and designs has helped the Company to add new customers in different geographical regions and segments.

The management has indicated that the efforts of the company will be to continue with the exercise of cost reduction, productivity improvement and import substitution. Also, it is ensuring international quality continuously through process modification, technology up-gradation. The company is planning to launch new products to substitute imports and facilitate exports.

Now let’s dig into the financials of the company. The financial result for Q2FY14 of the company is really an encouraging one. The topline and the bottomline grew by 20 per cent and 128 per cent respectively on YoY basis for Q2FY14 to stand at Rs 36.4 crore and Rs 3.68 crore. The EBITDA margins for Q2FY14 improved by 715 basis points on YoY basis to stand at 28 per cent. Apart from this company has been able to reduce its debt. The debt to equity ratio as of H1FY14 stands at 0.66x as against 0.90x reported during the end of FY12. On the valuation front, the company trades at a TTM PE of 6.13x and the EV/EBITDA as of FY13 stands at 6.04x. The company is consistently paying dividend since last five years and has dividend yield of 2.5 per cent at CMP. Looking at the attractive valuation and consistent track record of the company one can expect a 20 per cent return from the current market price with one-year time horizon.