While browing through the results of some companies I came across this interesting company called Sumeet industries. Out of the glare and glitz of the broader market this company is expanding massively. And the good thing is that its expansion is likely to be completed by the end of 3rd quarter. Thus the results for 3rd and 4th quarter of FY10 is going to be substantially higher.
Current price : Rs 14.98
Target price : Rs 75
Period of holding : 1 year
Lets see what the company is trying to do.
Sumeet industries is a manufacturer and exporter of polyester and polypropelene yarn and woven fabric. Key financial data is shown in the table below.
(Amount in crores)
Particulars 2008-09 2007-08 2006-07 2005-06 2004-05 2003-04 CAGR
Sales 157.79 128.51 112.49 82.19 34.90 34.24 36%
PAT 3.82 3.67 3.36 0.85 0.90 0.82 36%
PAT % 2% 3% 3% 1% 3% 2%
EPS 0.95 1.82 1.93 0.49 0.78 0.7
No of shares 3.99 2.51 2.24 2.24 1.66 1.66
(in crores)
During the period FY04 to FY09 sales have grown from Rs 34.24 crores to approx Rs 157.79 crores which is approximately a five fold increase or a 36% CAGR. Correspondingly the PAT (Profit after tax) has also grown from Rs 81.56 lacs in FY04 to Rs 3.81 crores in FY09 which is again a CAGR of 36%. However the EPS has not increase in that proportion. That is because the equity base has been expanded. And the reason is simple - for expansion.
It has setup fully imported C.P. PLANT of 100000 Tons per annum capacity and this has started operations from the 1st of July 2009. It is also setting up a 10’ lines of Polyester POY / FDY Spinning Plant with annual installed capacity of 48300 Tons per annum as Expansion Cum Backward Integration Project. This is expected to be operational by the end of 3rd quarter FY10. You must be wondering what do these expansion mean.
a) Using the CP plant pet chips which were earlier bought from the market will be produced within the company which will reduce cost substantially and will also be very much competitive and the company will be in a position to compete in the market in its price strategy with its peer group.
b) The polyester capacity that the company currently has is 12500 Tons per annum. So the expansion means a fourfold increase in capacity.
So atleast a fourfold increase in profits is what we can safely assume only from the capacity expansion. Also as per last financial years accounts raw materials consumed is approx 61% of sales. Thus even if we assume a 10% decrease in cost due to CP plant the net profits are likely to increase quite substantially. Even on a conservative basis its truly a 5 bagger atleast in the next 12 months.
