| (Rs crore) | Q4FY05 | Q4FY04 | % chg | FY05 | FY04 | % chg |
| Net sales | 197.18 | 166.36 | 18.53 | 739.62 | 534.65 | 38.34 |
| Other income | 0.99 | 0.65 | 52.31 | 2.46 | 1.28 | 92.19 |
| Operating profit | 27.33 | 28.94 | -5.56 | 89.46 | 94.6 | -5.43 |
| OPM (%) | 13.86 | 17.4 | - | 12.1 | 17.69 | - |
| Net profit | 12.74 | 1.19 | 970.59 | 29.16 | 26.66 | 9.38 |
| NPM (%) | 6.46 | 0.72 | - | 32.6 | 28.18 | - |
| EPS (Rs) | 4.11 | 0.38 | - | 9.43 | 8.82 | - |
| Trailing 12-month P/E | | 7.47 |
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| Currently JBF Industries has integrated manufacturing facilities in Silvassa with capacities of 120,000 tpa (tonnes per annum) in polyester chips and 60, 000 tpa in Polyester POY. |
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| JBF is the largest manufacturer of textile grade polyester chips in the country. The capacity addition is expected to help the company achieve its aim of doubling the turnover by 2007. |
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| The company is planning to increase its polyester chips output by another 20,000 tpa to 32,000. According to Rakesh Gothi, managing director of JBF, the improvement in the polyester cycle will ensure a bigger opportunity for players like JBF Industries. |
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| Of the total revenues, polyester chips account for 45 per cent while POY contributes 55 per cent. |
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Waiting for the boom
The company's products are mainly used in the manufacture of textiles and plastics. And it is the expected boom in the textile industry that is driving the hopes of the company. |
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| The overall fibre consumption in India is around 49 lakh metric tonnes. Of this, the proportion of cotton to non-cotton fibres is in the ratio of 60:40. |
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| But it is the varying growth patterns in these two segments that are giving hope to players like JBF. Growth of cotton for the past six years has been much lower (at 1.81 per cent) compared to synthetics such as polyester (6.99 per cent). |
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| "There is a definite shift toward synthetics with the total consumption of synthetic fibre being to the order of 17 lakh mt. Hence, Polyester can be considered a common man's fabric," says Gothi. |
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| Gothi points out that polyester growth is set to escalate and will remain high in the region of 10-12 per cent. Also cotton prices are on an upward trend, which will improve polyester consumption. |
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| Analysts also note that India has a lower per-capita consumption of polyester at 1.6 kgs. This is lower than countries like Pakistan (3 kg), China (6.6 kg) and USA (8 kg). |
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| Another factor that is expected to drive polyester segment is that the textile industry has entered a quota-free regime in 2005. This is expected to enhance the prospects of the industry, as exports are set to increase by $36 billion to $50 billion by 2010. |
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| According to analysts, India's exports to US, which stood at 4 per cent of total world exports, are expected to go up to 15 per cent during the period. |
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Brighter raw material outlook
The main raw materials of JBF - purified terepthalic acid (PTA) and mono ethylene glycode (MEG) - are petroleum-based products. Higher oil prices meant a squeeze on margins on the raw material front. |
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| There was a near 25 per cent rise on the raw material front in Q4FY05 and 54 per cent jump in FY05. This led to a decline in margins at operating levels to 13.86 per cent in Q4FY05 (17.40 per cent in Q4FY04) and 12.10 per cent in FY05 (17.69 per cent in FY04). |
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| According to Gothi, things are looking up on the raw material front. The factors that will drive this are two fold - higher cotton prices and availability of raw materials, and easing duties. |
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| Several new capacities will come up in PTA and MEG in the country by end of the year. While IOC is setting up a 550,000 mt PTA plant in Panipat by October 2005, India Glycols is introducing an additional capacity of 50,000 mt for MEG, and Reliance Industries is coming up with a capacity of 80,000 mt. |
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| The higher availability should mean an easing of process as well, reckon analysts. |
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| According to an analyst with a domestic securities firm, oil prices may sustain at higher levels in the near term, though it could see a correction by November. |
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| "The impact of oil prices on PTA and MEG is only part of the story. PTA and MEG prices are coming down due to the new capacities that are coming up, both domestically as well as globally." |
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| The relief in excise duty on PFY from 24 per cent to 16 per cent and customs duty on raw materials - PTA, MEG, DMT - from 20 per cent to 15 per cent are also considered to be positive for the industry. |
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| Despite the worries on the raw material front, the company has reported a 38.34 per cent increase in net sales for FY05 to Rs 739.62 crore, while net profit has risen by 9.38 per cent to Rs 29.16 crore. During FY05, chip production has gone up by 26 per cent and POY production by 6 per cent, mainly due to the internal de-bottlenecking undertaken by the company. |
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| Another factor which is going for JBF Industries is the demand-supply mismatch in the polyester chips market. According to Gothi, there is a gap of 1100 mt per day between supply and demand. |
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| "Projections show that demand supply gap will continue for next four-five years at least," notes Gothi. |
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Valuations
The valuations of JBF Industries also look attractive at the current levels. The stock currently trades at Rs 71.34 levels at a trailing 12-month P/E of 7x. Compared to competitors like Indo Rama Synthetics (11x) and Century Enka (13x), JBF's valuations appear to be cheap. |
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| "The scrip has started rising recently from 40 levels with a good pickup in volumes. The 58 - 60 levels are an effective support base below which, the scrip is unlikely to fall. Buying is recommended but only for patient and disciplined investors," says Vijay Bhambwani, CEO of BSPLIndia.com. |
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