Sangam India - A Blockbuster Pick

Sangam (India) Ltd. - A Good Bet In Post Quota Regime

Sangam (India) Ltd, the largest polyester-viscose dyed yarn manufacturer in India, plans to focus on exports and defence garment market for growth in the post quota scenario.

"We have been receiving good inquires from a number of large international firms on account of low-cost advantage. The company has recorded an impressive growth of 156 per cent in its export sales in the third quarter ended December 2005," Managing Director of the company, Mr S N Modani, said here. "It has registered a 65 per cent rise in exports at Rs 48 crore in first nine months of the current fiscal year compared to Rs 29 crore in the corresponding period last year," Mr Modani said.

The company is targeting 70 pc growth in export on year-on-year basis. Apart from international export markets, the company is also looking for opportunities in to the supply of polyester viscose fabrics to Indian Army and other para-military forces. The company has supplied four lakh metre fabrics in first nine months, thereby, registering a growth of 350 per cent in this segment. The total demand for market size is estimated at five crore metres per annum.

"The PV sector has been recently opened for the defence after lot of trials as the PC garments lose colour and texture after repeated wash. It is also uncomfortable wear in tropical climate," Mr Modani said. In contrast, the PV fabrics are more durable, retains original texture, absorbs moisture and enables mass production under one shade, he said.

Sangam is planning a Rs 540 crore investment drive to increase spindle and weaving capacities and setting up a 21 MW captive power plant. The added capacities would be operational by March 2007.

"We will invest Rs 300 crore to add 97,000 spindles, which will increase our total capacity to 1.6 lakh spindles," L L Soni, associate vice president of Sangam, said. The company is also adding 140 weaving machines costing about Rs 80 crore, and Rs 70 crore will be invested in setting up a processing house with a capacity of 80,000 tonne per day. The company is now outsourcing its processing requirements to a sister concern SPBL.

The investment also marks Sangam's entry into cotton yarn to become "a complete yarn solutions company." About 14,000 cotton spindles will be operational by the end of this month and another 17,000 by the end of March. "Almost 65,000 PV spindles will start operations by October," Soni said. The company already has a 10 MW captive plant, but is investing Rs 90 crore to set up an additional 21 MW plant to meet increasing energy needs.

Meanwhile, Sangam has posted a 62.65% rise in net profit at Rs67.5mn for the third quarter ended December 31, 2005 as compared to Rs41.5mn in the corresponding quarter previous year. Net sales rose 6.23% to Rs826.5mn compared to Rs778mn during the same quarter previous year. During the quarter, the company witnessed a significant improvement in operating profit margins on account of reduction in raw material cost and higher realizations. Operating profit margins increased by 13.49% to 16.28%. The company’s exports sales jumped by 156% to Rs 18.63crore from Rs72.7mn.

The company has posted 63.72% rise in net profit at Rs167mn for the nine months period ended December 31, 2005 compared to Rs102mn in the corresponding period previous year. Net sales increased by 11.05% to Rs2.52bn compared to Rs2.27bn during the same period previous year.

Commenting on company’s financial performance, R P Soni, Chairman, said: “We are witnessing an accelerated growth in the polyester-viscose yarn segment. Volume growth following improved demand and lower raw material costs has resulted in margin improvement. Moreover, we are de-risking our business model by increasing our product range and adding fresh capacities which will enable us to establish our presence across the entire value chain.”

The company’s on-going expansion plan has progressed as per schedule with 13,200 cotton spindles and 90 weaving machines have become operational in January 2006. Further, the company is expected to install additional 18000 spindles by March 2006. The revenue from these operations will be reflected from the next quarter onwards. The project will be financed through a mix of debt and equity. Speaking about raising funds, Soni said: "About Rs 400 crore will be raised from the government's TUFS scheme and Rs 136.4 crore would be through internal accurals." Sangam India will get a five per cent interest subsidy on the loan amount under the Technology Upgrade Fund Scheme (TUFS) of Government of India.