Textile Sector- Coming back into limelight

Indian textile industry holds a significant position in India as it provides the most basic need of Indians. Right from the procurement of raw materials to the final production stage of the actual textile, this industry works on an independent basis.

The industry in a very short span has created a niche for itself globally on the back of easy availability of raw materials, highly skilled economical labor, significant production of cotton yarn and highly potential readymade garment industry in terms of sizes, fabric variety, quantity, quality and cost. It contributes to around 14% of the industrial output and 30% of the export market share.

Going ahead, textile export market of India is expected to touch new highs. In order to attain this target Indian textile industry has already started improving their design skills, including a combination of various fibers. Indian textile industry is all set to meet international standards. Moreover, many international brands have already started procuring most of their fabrics from India.

Keeping this in view, we are quite bullish on the textile industry as a sector and foresee a bullish rally ahead. One of the stock we are bullish in this sector is Garden Silk Mills Ltd. The company designs, manufactures and sells polyester yarn, offers fine filament and micro filament polyester fabrics, such as georgettes, chiffons and dyed and printed jacquards.    

The financial position of the company has been improving for the last few years and it reported healthy figures for the Q1FY11. It reported a sales turnover of Rs 845.33 crore and a net profit of Rs 6.59 crore.

It is looking forward to it’s entry into new segments like party wear and wedding wear under the brand of Vareli, and also focusing new markets like China, Egypt, Europe and Latin America. The company has already doubled its capacity in FY09 which includes increasing the production of polyester chips, POY and PTY. It is further increasing the capacity by another 15%, which includes polyester textile grade chip by 130000 tonnes per annum. These expansions are to be commissioned in a phased manner from October 2010 to march 2011.    

The company is fundamentally quite healthy with strong future plans. Currently trading at Rs.90, we recommend a Buy with a target of Rs.110.

We foresee this sector coming into reckoning after a very long bearish phase. Hence, for contrarian investors comfortable with rik, we recommend an increase in weightage of this sector in their portfolio.