Rajasthan Spinning & Weaving Mills: Growth aided by yarn business

ANALYSTS' CORNER

IDBI Capital, in its results preview, states that the company has posted healthy revenue and profit growth in Q2. Revenues are up 16 per cent y-o-y at Rs 203 crore and profits were up 43.5 per cent at Rs 6.1 crore.

The growth aided by the 24 per cent increase in the yarn segment and the 16 per cent rise in the fabric segment. The yarn business contributed 85 per cent to the total turnover and almost 40 per cent of the same was exported.

However, dyed yarn business of the company didn't perform as expected in the first half and is expected to see better times in the next half.

This should drive up margins in the yarn segment. The company has decided to put up a 20 million metre denim capacity to reap the benefits of the healthy 20-25 per cent growth expected in the domestic denim segment and the shifting of denim capacities from the west to Asia.

This plan has been adopted instead of its earlier plan to enter the terry-towel segment. It plans to set up a fully integrated capacity with an outlay of Rs 190-200 crore. The stock trades at 11x.

MTNL: Stable profits

Edelweiss Securities maintains its "accumulate" recommendation on MTNL. The company reported marginally positive revenues of Rs 1270 crore (up 0.4 per cent q-o-q) led by improving fixed line revenue scenario amidst a falling subscriber base.

Despite capacity constraints in CDMA and GSM subscribers, EBITDA margins improved marginally to 19.2 per cent in Q2 FY06 from 18.7 per cent in Q1 FY06, although EBITDA margins on y-o-y basis are down significantly from 23.7 per cent in Q2 FY05.

This has been on account of lower ADC and lower fixed line revenue base, though VRS impact is a positive for staff costs.

While profitability was hit drastically in Q1 FY06 on account of initial impact of lower ADC, pricing pressure and renewed competition, the company seems to be on a gradual path of recovery as profits remained relatively stable despite on sequential basis at Rs 170 crore versus Rs 172 crore in Q1 FY06. An increasing GSM subscriber base and growing broadband operations partially offset the negative factors seen in the first quarter.

Trent: Growth in retail business

Enam Securities rates Trent as an "underperformer" relative to the sector. The company's results are marginally below expectations. It has reported 58 per cent y-o-y growth in retail sales to Rs 85.6 crore for Q2 FY06. Net profit rose 55.8 per cent to Rs 5.7 crore.

Retail business continues to do well and has reported a 20 bps increase in operating margins to 6.7 per cent. The company has added two new Westside stores in Kolkata and Vadodara in Q2 taking the total number of stores to 20.

Despite this addition and the fact that the previous quarter's revenues did not include any sales from the hypermarket (opened in November 04), the report believes that overall growth of 58 per cent in retail sales in not encouraging enough. But the operating performance remains healthy.

The company has been able to sustain its operating margin despite its foray into the low margin hypermarket business.The stock trades at 30x FY07E.