From Rs 300 to Rs 700 in just 16 sessions! Here's all you need to know about this multibagger textile stock

A smallcap stock with a market capitalisation of nearly Rs 300 crore has been buzzing on Dalal Street due to its steep rise in just 16 sessions. At the time when the benchmark BSE Sensex declined over 3 per cent since February 15, 2023, shares of this textile firm rallied nearly 127 per cent to Rs 702.95 on March 10, 2023. The scrip was at Rs 308.45 on February 15 last month. Incorporated in 1983, the based company is engaged in manufacturing and selling synthetic yarns such as polyester spun yarn and blended yarn, among others. This is Suryalata Spinning Mills Ltd.

Value investor Manish Goel is positive for the company. In his blog, he said that Turkey is known as the hub of spinning mills and it is affected by the earthquake. Therefore Indian Mills are receiving more trade enquiries from Turkey as well as European nations. He further said that the fall in cotton prices from their peak and the China+1 policy to benefit Indian spinning companies.

In terms of financials, Suryalata Spinning Mills reported nearly 17 per cent growth in net profit at Rs 25.88 crore for nine months ended December 2022. On the other hand, gross sales increased 8.33 per cent to Rs 372.94 crore in 9MFY23. Earlier, the company posted 154 per cent YoY growth net profit at Rs 47.75 crore for the year ended March 31, 2022. Gross sales increased by 73.70 per cent YoY to Rs 480.34 crore in FY22. Meanwhile, the return ratios of Suryalata Spinning Mills also showed consistent improvement in the recent past.

The return on assets of the company stood at 15.96 per cent in FY22 against 6.85 per cent in FY21 and 5.06 per cent in FY20. Return on equity also came at 27.77 per cent for the financial year ended March 2022 against 11.53 per cent in FY20. Return on capital employed also increased to 27.54 per cent in FY22 from 13.28 per cent in FY20.

In his blog, Goel highlighted that Graham’s formula indicates that the fair value of Suryalata Spinning Mills is around Rs 1,167, indicating a potential upside of a further 66 per cent from the current market price.

“Unstable political scenario in Sri Lanka and Pakistan, and wage issues in Bangladesh will shift export demand from these economies to garment players in India. These three countries command over 7 per cent of the global export pie,” Goel said.

He further added that the company has two manufacturing units located strategically at Kalwakurthy and Urukondapet. Both units are well connected and are only an hour away from the Hyderabad international airport. “At present, the company has a capacity of 1,20,000 spindles producing 30 KTA (Kilo Tones per Annum) of yarn and is equipped with the latest state-of-the-art machinery,” he said.

While sharing his views on management quality, the market watcher added that there are many financial ratios which prove management quality. “One unique thing which impressed me was that its promoters or management was giving dividends to public shareholders but they were waiving their own dividends. In how many listed companies do you find such promoters or management."

Also read: GAIL, Sun TV, NALCO shares in focus as company boards consider dividend today

Also read: 75% upside! Should you invest in this potential rerating candidate from the cement sector?