Recommendation from Textiles Sector

This section gives a recommendation of a stock having stock price below Rs 150 with sound fundamentals and expected to give handsome returns over a one-year time horizon.

SARLA PERFORMANCE FIBERS : WEAVING A SUCCESS STORY 

HERE IS WHY
✓ Demand for Indian textiles to witness growth
✓ Evolvement into making customised yarns adds to revenue
✓ On a financially stable footing

The Indian textile industry, a key contributor to the country’s economy, accounts for 2.3 per cent of the GDP, 13 per cent of industrial production, and 12 per cent of the export earnings. Employing approximately 35 million people, it stands as India’s second-largest employer. The sector is poised for dynamic growth, with its market size expected to expand at a 10 per cent CAGR, reaching USD 350 billion by 2030 from USD 197 billion in 2023. Leveraging e-commerce and advanced technologies, the sector aligns with global trends toward durable, eco-friendly products. A recovery is anticipated in 2024-25 driven by stable demand, export recovery and price stabilisation. Owing to this, our low price scrip recommendation for this issue is Sarla Performance Fibers Limited, which is a leading textile company specialising in the production and export of polyester and nylon textured, twisted and dyed yarns, covered yarns, high tenacity yarns and sewing threads.

Originally a manufacturer of basic yarns, the company has evolved into a supplier of high-value, customised yarns. The stabilisation of raw material prices, strong expected demand and stable promoter holdings with a consistent increase in stake support this positive trajectory. Sarla Performance Fiber’s acquisition of Hindustan Cotton Company demonstrates its commitment to strategic expansion. Advancements in production efficiency and technology are driving growth in India’s yarn segment, while the expanding man-made fibre (MMF) sector offers significant opportunities. The global yarn, fibre and thread market is expected to grow from USD 112.7 billion in 2023 to USD 154.1 billion by 2027.

The growth will be led by the Asia-Pacific region due to cost advantages and production capacities. Sarla Performance Fiber’s focus on sustainability, innovation and strategic investments will help it capitalise on these trends and achieve success in the competitive global textile landscape. In Q2FY25, on a consolidated basis, the revenue of the company increased by 18.84 per cent YoY to ₹113.9 crore compared to ₹95.85 crore from the previous year’s same quarter. On a sequential basis, its revenue increased by 2.82 per cent.

The PBIDT excluding other income increased by 65.08 per cent to ₹22.13 crore YoY as compared to ₹13.4 crore from the previous year’s same quarter, while sequentially it increased by 13.77 per cent. The net profit stood at ₹19.28 crore compared to ₹6.52 crore, a YoY increase of 195.68 per cent, while sequentially it increased by 15.44 per cent from ₹16.7 crore. On a trailing 12-month (TTM) basis, the shares of Sarla Performance Fibers are trading at a PE of 16 times, higher than its three-year median PE of 14.6 times and lower than the industry PE of 20.8 times.

The company has maintained a threeyear ROE and ROCE of 8.59 per cent and 10.1 per cent, respectively. It has a three-year compounded sales and profit growth of 14 per cent and 8 per cent respectively. The company has a debt-to-equity ratio of 0.33 times and a Piotroski score of 7. To reiterate the growing potential for Indian textiles across the world will be a shot in the arm for companies like Sarla Performance Fibers. And given the fact that the company is well-attuned to the need for becoming eco-sustainable, its products will find increasing favour. Considering all these factors, we recommend BUY.