Target-A-Year

Banswara Syntex

Current Market price: 49.40
Target 1: 102
Target 2: 118

Current Quote of Banswara Syntex

BSL's top line growth :

BSL witnessed a top line expansion of 13.6% YoY and 24.3%QoQ to Rs 1.1 billion as compared to Rs 947 million in the corresponding quarter last year. The Top Line reported by the company was less than our expectation by 11%. The company's garmenting and cotton yarn capacities commenced operations in Q2FY2007 and are contributing positively to the company's revenues. BSL's expansions are still on going and the company will be able to expand its top line at CAGR of17.1% (FY2007-09E) to report a top line of Rs 5.2 billion in FY2009E.

Margins come under pressure with higher input costs:

BSL's OPM declined by 440 bps on a sequential basis to 10% on account of higher raw material costs and power and fuel cost. With the company moving up the value chain into garmenting the staff cost has been on the rise as well. The company's OPM's should improve with the captive thermal power plant commencing operations from Q1FY2008.Estimate that the company should report OPM's of 15.6% and 16.6%in FY2008E and FY2009E respectively.

Profits decline as margins fall:

BSL's bottom line declined by 31.7%YoY and 18.4% sequentially to Rs 29 million inQ4FY2007. This was mainly on account of decline in OPM by 440bps sequentially. On account of the poor performance in this quarter the company has fallen short of our estimates by 15% for the FY2007.

FY2007 Results:

BSL has reported a top line of Rs 3.8 billion in FY2007 as against Rs 3.2 billion in FY2006 witnessing a growth of 20.7%YoY. The growth in company's revenues was driven by new cotton yarn and trouser facilities kicking in from Q2FY2007. The company's OPM for FY2007 expanded by 230 bps to 13.7% as compared to 11.3% in FY2006 mainly on account of fall in raw material prices as the oil prices took a breather. Driven by top line and OPM expansion the company's bottom line grew by 71.4%YoY to Rs 149 million. This was much lower than our estimate of Rs 172 million. This translates into an annualized EPS of Rs 11.2; the stock is thus trading at 5.6x trailing earnings.

Valuation:

BSL has witnessed a robust bottom line growth of 71.4%YoY driven by some of its expansions commencing operations. The company's forward integration in to garments and diversification into cotton yarn will start yielding results going forward. Further, with its captive thermal power plant commencing operations in Q1FY2008 the company will be able to improve its operating margins further. The company will witness a top Line and bottom line CAGR (FY2007-09E) of 34.3% and 56.4% respectively. My expectations and research is strongly in favour of buying this stock with mentioned targets and time-frame.

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