Mawana Sugars: Rise in earning forecast

ANALYSTS' CORNER

IDBI Capital, initiating coverage on Mawana Sugars, recommends a "buy". The report states that the demand-supply equation of the domestic sugar industry is likely to remain tightly balanced owing to falling sugarcane production in some parts of the country. Thus, sugar prices would remain firm over next couple of years.

Moreover, international prices are expected to remain buoyant due to diversion of sugarcane towards ethanol, reduced dumping of subsidised sugar from European countries and rising sugar deficit in some Asian countries.

The company has chalked out aggressive plans to capitalise on the emerging opportunities, doubling its sugar capacity over the next two years in addition to diversifying into ethanol and cogeneration. These initiatives, along with better realisations, economies of scale and lower interest outgo to lead to a spurt in earnings.

Pantaloon Retail: Consistent innovation

Enam Securities, in its visit note on Pantaloon Retail, states that the company's ability to consistently innovate with new formats and add new categories has enabled it to build a substantial competitive advantage.

By offering products at lower price points through cost rationalisation, the company has been able to address a large consumer segment at the lower end of the pyramid.

The report adds that the company has demonstrated unmatched execution and rollout capabilities by successfully adding over 10 lakh square feet of retail space in FY05. The company has already signed one crore square feet of retail space to be rolled out over the next 3-4 years.

The merchandising area is expected to triple by FY07, driven largely by Central and Food Bazaar. The company's proposed foray into home furniture, furnishing, consumer electronics, books, music, leisure and entertainment is expected to further accelerate the growth momentum. The stock trades at 33x FY07E earnings.

Sangam India: Sales seen growing

Anand Rathi Securities, initiating coverage on Sangam India, recommends a "buy". 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. Hence, the report expects sales to grow at a CAGR of 37 per cent in FY05-08e.

The company has 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 growth in the topline, earnings would grow at CAGR of 51 per cent in FY05-08e.

The present excise duty structure of zero per cent on cotton and 16 per cent, both on polyester and viscose and eight per cent on PV dyed yarn has resulted in unutilised Modvat credit. This weighs on the margins as raw material costs are inflated to this extent.