INDIA: Century Enka Out Of The Woods

Century Enka has proved to be among the most consistent performers in the synthetic yarn industry. The company has been showing consistently improving performance. Results for the quarter ending September 2003 have been better than any it has posted during any other quarter over the past two years.

This apart, the company is also close to completing its Rs 170-crore modernisation-cum-expansion of its units by the end of the current year. This initiative is likely to help the company sustain its growth over the coming years too.

Since the synthetic yarn segment has also made inroads into the marketshare of cotton yarn due to the 50-55% surge in cotton prices this year, demand for synthetic yarn is likely to pick up further and the company's expansion could prove be to be very ideally timed. Thus, the company appears to be on a launching pad and take-off from its current position. The action could start in a few months from now.

Financials

The company has completed the second quarter of the current financial year with a healthy performance. During the July-September 2003 period, the company clocked net sales of Rs 216.7 crore, up 17.05% compared to the corresponding quarter's net sales of Rs 185.12 crore in the previous financial year. During the second quarter of the current financial year, the operating profit of Rs 41.26 crore improved upon that of the corresponding period previous year’s figure of Rs 31.92 crore by an even better 29.26%. This is chiefly due to the cost reduction measures put to use by the company at its units, and the better sales realisation of synthetic yarn. With the interest costs of Rs 1.02 crore also dropping by about 19.5% as compared to the second quarter of the previous financial year, Century Enka's gross profit of Rs 40.24 crore surged by over 31.11% compared to Rs 30.69 crore clocked in corresponding period previous financial year. The company clocked a net profit of Rs 20.41 crore during the second quarter of the current financial year, up 35.07% compared to the second quarter previous financial year.

These healthy results come after a dismal performance posted by the company in the first quarter of the current financial year, when it had posted net profit of only Rs 1.41 crore on net sales of Rs 161 crore. During that quarter, turnover as well as profits had slipped compared to the corresponding quarter previous financial year, due to the five to six weeks disruption in production at all its units due to the uncertainty pertaining to the CENVAT issue. The issue had caused a countrywide strike by workers at the texturising/yarn units in the textiles sector, leading to a sharp decline in profitability of various corporates in the sector.

Expansion drive

The company is engaged in a Rs 170-crore upgradation-cum-expansion drive at two of its units at Bharuch and Pune. At its Bharuch unit, the company is in the process of setting up fresh capacity for conversion from polyester chips to polyester yarn. And at its existing unit in Pune which manufactures nylon cord fabric, the company has undertaken a small capacity expansion in anticipation of increasing demand for nylon cord fabric.

Apart from these expansion projects, the company has undertaken a revamp of its ageing polymerisation capacity. While Rs 105 crore capital outlay has been earmarked for the new Bharuch unit, the remaining capital expenditure of around Rs 65 crore is expected to be spent on the modernisation and de-bottlenecking of these plants. The company hopes to finance these expansion and modernisation projects through its internal accruals and the support of FIs. The entire expansion and modernisation projects are likely to be completed by the close of the current financial year itself.

Outlook

Except for the poor performance that the company posted in during the first quarter of the current year as a result of issues faced by the yarn and texturising sectors, the company is better placed technically on all fronts and is likely to sustain the same momentum in the second half of the current financial year too. The improvement in the prices of polyester yarn is likely to help the cause of the company. And with the company set to start churning out higher volumes over the next financial year, the company is well placed to sustain a reasonable growth in the coming financial year.

Thus, the stock, at Rs 154, looks attractively priced in the light of positive outlook for the second half and beyond.

November 21, 2003

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Added: November 21, 2003
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