JK Corporation: augmenting growth

ANALYSTS' CORNER

Fortis Securities rates JK Corporation as an Outperformer. The report states that the company has earmarked a capex of Rs 40 crore to be deployed in two phases to streamline its manufacturing process in order to improve its efficiency and reduce costs.

This will enhance clinkerisation capacity by 5.3 lakh tonne per annum. The expansion would be funded partly by promoters and partly through internal accruals without any debt component.

The planned expansion is in line with the company's aim to gain market share. It is planning to float an SPV to set up a power plant of 36 MW at its plant location in Rajasthan by December 06 at a cost of Rs 140 crore.

The plant will meet its entire power requirement and help it to reduce power cost by Rs one/Kwh. This will not only reduce the production cost of the company but will also ensure efficient production. The stock is trading at a P/E of 10.7x FY06E, 18.3 x FY07E and 9.6x FY08E.

ICC: quota abolition to drive sales

Motilal Oswal Securities recommends a Buy on Indian Card Clothing (ICC). The report states that quota abolition will drive growth in textiles. The card clothing industry is expected to be a major beneficiary, since card clothing is used for production of yarn, the demand for card clothing will commensurately increase.

Besides, the average life of clothing cards is between 1.5 to 2 years. Hence, there is huge replacement demand for clothing cards. ICC is a dominant player in card clothing industry, which is a near duopoly, between ICC and LCC, with a market share of around 40 per cent each.

ICC is the only company in India manufacturing card clothing for all types of yarn. It has liquid investments worth over Rs 35 crore in equity shares and mutual funds.

Besides, it is constructing a commercial property in Mumbai and Pimpri. The report expects ICC's sales to grow at 15 per cent CAGR over FY05-07E and profits to grow at 24 per cent CAGR on the back of margin improvement.

Sangam India: stable margins

Anand Rathi Securities recommends a Buy on Sangam India. The company is coming up with a Rs 400 crore expansion spread over FY06-08, whereby it would be expanding capacities in PV dyed yarn, fabric weaving. It would also be setting up fresh capacities in the cotton yarn segment and processing.

With this expansion the company would be able to achieve a turnover of Rs 800 crore by FY08E. The report expects sales to grow at a CAGR of 37 per cent in FY05-08E. The company has the highest operating margins in the industry at 14.9 per cent.

Apart from that, the margins have been very consistent over the years, withering the cyclicality in the raw material prices. With stable margins, coupled with a robust top-line growth, earnings would grow at a CAGR of 51 per cent in FY05-08E. The stock discounts its FY07 estimated earnings by 8.2x and FY08E by 5.3x.