Suryalakshmi cotton mills is investor’s darling in textile sector. This company was started in 1962 and one of the great wealth creators for the investors. This company manufactures over 300 varieties of denim also manufactures yarn for hosiery or weaving.
Textile sector is one of the worst hit sectors in India. Dollar appreciation and decrease in demand for denim has impacted the margins in the last 2 years. The price from an all time high of about 600 has come down to Rs 30 levels (after 1:1 bonus).
Textile industry is cyclical in nature and a turnaround is expected in a year’s time. This year’s budget will offer some sops to this sector and hence we have a short term trigger for the sector as a whole. Once the sector turns around, there is no looking back to Suryalakshmi as it is a leader in the sector and one of the most investor friendly textile companies. Recently Suryalakshmi has also entered into garments business.
Suryalakshmi is back in black in the third quarter of 2008, by reporting a 177% net profit increase compared to the third quarter 2006. One should also note that , the company had reported a net loss of about 2.72 crores for the September 2007 quarter. The net profit in the last quarter was 1.33 crores . There is 34% increase in sales compared to the previous quarter.
This is, in my opinion, is one of the best contrarian buys and definitely a future multibagger (20 bagger?). Once sector turns up, chasing this stock is very difficult.
This is only for long term investors and those who are expecting continuous upper limits within no time can forget this scrip and try their luck elsewhere. This company will definitely bring ‘Laxmi’ to patient investor’s house and lighten of their portfolio.
Unfortunately there was a fire in on of the denim factories on Jan 28, 2008. Though as per company statement, entire facility is insured, there will be a production disruption and it may impact the margins the the current quarter. Watch the company closely and this will be an excellent buy at around Rs 30.
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