The company operates in the textile industry – processing
and selling fabrics.
It focuses on heritage and craft fabrics and uses dyes/plain
fabrics to create printed fabrics.
The company has reported very modest growth in revenues and
operating profits over the last five years – reporting 4cr of operating profits
on revenues of 36cr in the last financial year. It employed no net debt in
financing its operations and held about 9cr in liquid investments, primarily in
equity mutual funds.
The industry is blighted by government policies that work
against domestic players such as propping up of ‘zombie’ units (to preserve
employment) and export restrictions on cotton yarn and other related
products. The company is forced to
import fabrics due to the lack of domestic supplies, resulting in exposure to a
weakening INR. Moreover, the US and
Europe account for over 60% of Indian textile exports, resulting in substantial
diminution in the industry’s overall revenue as a result of their economic
slowdown.
Management indicate that the industry is a bit directionless
in terms of government policy resulting in uncertain estimates of future cash
flows.
Management, however, indicate a focus on technical textiles
(used in construction), which is dominated by industrial nations and relatively
low penetration in the Indian market.
The company also has interests in the real estate and
construction industry through a partnership.
This has generated rental income and partnership profits along with
interest and dividend income on other financial investments. Needless to say, these sources of income are
subject to the risks impacting real estate and the financial markets, which are
underpinned by the interest rate cycle – not to mention some lack of focus in
the company’s core competence, which is in textiles.
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