Century Textiles & Inds

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Suresh Rathi R E P O RT 0 8 0 9 / 0 0 5 2 3 M AY 2 0 0 8

Reporting-

Century Textiles & Industries

9, Parekh Vora Chambers 66 N.M. Road, Fort Mumbai - 400023

Phone: +91-22-22666178 Fax: +91-22-66344007 E-mail: [email protected]

Suresh Rathi

Century Textiles & Industries Ltd. 111 Years and going stronger…. Research Report No 0809/005 23rd May 2008

BUSINESS OVERVIEW The company was incorporated in the year 1897 and is the flagship of the BK Birla Group.

CMP: Rs. 777/-

Company has made rapid progress in expanding and diversifying its activities and today it is a well diversified conglomerate

It has presence in cotton textiles, denim, viscose filament, rayon yarn, tricots, caustic soda, sulfuric acid, salt, cement, pulp and paper & floriculture business. Century Textiles is aggressively pursuing an expansion-cum-modernization program, which will boost its top line & bottom line and lead to growth in the years to come. At A Glance

Equity (Rs Cr.) Book Value EPS PE Ratio Market Cap (Rs Cr.) 52 Week High/Low Dividend Yield (%) Last Dividend (%)

Segment Reporting:93.04 138.3 37.51 20.71 7227.50 1275/566 0.57 45.00

Others 1%

Textiles 18%

Share Holding Pattern (%) as on 31 March 2008

Foreign Institutions Non Promoter Hold Promoters Public & Others Total

10.51 16.93 11.74 40.08 20.75 100

Cement 56%

& Paper Pulps 25%

Cement: - Concrete Involvement Cement forms the main driving force behind Century’s top line. It forms 56% of the total sales of the company. This segment has already contributed for a growth of 30% year-onyear basis. It has got four cement manufacturing units located at Baikunth in Chhattisgarh (capacity 2.10 million TPA), two plants at Maihar in Madhya Pradesh (capacity 1.80 million TPA & 2.00 million TPA) & fourth plant at Gadchandur in Maharashtra (capacity 1.90 million TPA). Total capacity = 7.8 mn. TPA.

Aashish Chitlangi Institutional Desk:

[email protected]

+91-9820186491

Rahul Bhandawat Research Desk:

[email protected] +91-9321413828

Year

Sales Rs (Cr)

% of Total Sales

Profit/Loss Rs (Cr)

% of Total Profit

200803 200703 200603

1922.15 1756.28 1295.75

55.83% 51.02% 50.26%

506.87 494.30 108.41

90.07% 86.12% 50.80%

To reduce the high power cost and frequent load shedding, company has installed captive thermal power plant. For handling the capacity enhancements at all existing cement units the company plans to invest 150 crores to undertake technological up gradation and balance equipments. Company has already decided to expand cement manufacturing capacity to 11.30 million tonnes per annum by setting up new cement plants of 2 million tonnes per annum capacity adjacent to existing plant of Manikgarh Cement at Gadchandur, Maharashtra. Also it is setting up a 35 MW captive thermal power plant and 1.50 million tonnes per annum cement grinding unit at Sagardighi in District Murshidabad, West Bengal.

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The good health of our economy and the ongoing thrust of the government on infrastructure developments especially roads, airports, irrigation, housing and rural sector is sure to boost demand in cement.

Paper & Pulp: - Increased Presence Century manufactures pulp, writing & printing paper. Plant is situated at Lalkua, (Uttaranchal). The Company presently is producing over 42,000 tonnes of Writing &

Printing Paper (Wood based) and about 38,000 tonnes of Rayon and/or paper Grade Pulp per annum. Company's second Paper unit is based on Bagasse based paper with a capacity of 84,600 tonnes of paper per annum & has another unit for manufacturing paper recycled from waste paper with a capacity of 75,960 metric tonnes per annum.

Year

Sales Rs (Cr)

% of Total Sales

Profit/Loss Rs (Cr)

Profit %

200803 200703 200603

869.12 592.42 503.82

24.73% 18.44% 19.02%

114.84 103.52 87.97

20.41% 18.04% 41.22%

The global paper industry is witnessing a paradigm shift in demand and consumption of paper due to cheerful Asian economies, particularly China and India. Asian countries have experienced higher demand for paper products due to higher economic growth, ranging from 7% to 10%. per annum. The demand is expected to grow at a steady rate in Asia and Latin America in the years to come. The Indian domestic per capita consumption of paper is 6 kg, is lower than the South Asian average of 11 kg and only a fraction of the global average of 53 kg. Thus, there is good scope for demand growth. Domestic demand for paper is expected to grow at a rate of 6 to 7%. India’s potential appetite for enhanced consumption of paper is significant. Increase in literacy level supported by increased government spends on education financed by the 3% education cess and optimistic economic conditions are likely to accelerate the growth in consumption of paper. This growth in demand has helped paper manufacturers to increase prices on regular basis. These increases until now were just adequate to pass on raw material cost increases. But the recent price rise and future price hikes are likely to help the industry improve their net margins. Moreover, the government is in the process of giving tax benefits to paper manufacturer, using conventional raw material. This will further improve the performance of the company’s paper and pulp division. Company has envisaged major investments on new facilities and expansion of the existing ones. The company plans to set up a 500 ton per day capacity multilayer packaging board plant at an investment of Rs 775 crores. The plant will also include 40MW steam turbine. Further, the company plans to install a 450 ton per day capacity paper grade pulp plant (fiber line) to produce wood pulp to meet the pulp requirements. The pulp facility will be set up at an investment of Rs 495 crores, which includes replacement of the existing chemical recovery boiler of 350 ton per day to 1,200 ton per day boiler. All these expansions are expected to be operational around September 2009.

Textiles: - Facing Pressure Century’s Textile plant, one of the Asia's largest Composite 100% Cotton Textile Mill situated at Worli in Mumbai used to produce 100 Million sq. meters / year of fabrics. The Worli unit has been closed since 12th January 2008 in accordance with the permission received from Government of Maharashtra, Labor Commissioner. Company is in process to develop the said land as discussed below. Century Yarn plant situated at Satrati in Madhya Pradesh produces 5 Million Kg / year of yarn. Century Denim plant situated at Satrati in Madhya Pradesh produces 20 Million meters / year of denim.

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Century Rayon plant situated at Kalyan near Mumbai. Both the production units Century Yarn & Denim are 100% export oriented units. It also produces apparels which include formal shirts, kurtas, T-shirts and trousers. Has seven manufacturing units, equipped with sophisticated technology and most of them having ISO-9001 accreditation, Cotton fabrics which have global presence in countries like France, Germany, Denmark and China.

Year

Sales Rs (Cr)

% of Total Sales

Profit/Loss Rs (Cr)

Profit %

200803 200703 200603

623.74 793.16 763.16

17.75% 24.69% 28.81%

-79.22 -29.29 1.86

-14.08% -5.10% 0.87%

India has a long history of cotton and our country has always been a key player in global cotton production and trade. The importance of this commodity can be best judged from the fact that it is the most important raw material for India's Rs 1,50,000 crore textile industry, which accounts for nearly 20 per cent of the total national industrial production and provides employment to over 15 million people. World over, denim has moved from being just a commodity to a fashion product. Women and children’s segments have led the growth in the volumes. Cotton output in India, the world’s second-largest producer, is expected to reach a record 25 million bales this year, due to good weather, higher land under crop and more usage of genetically modified seeds. India produced about 23.5 million bales of 170 kg each in the last year, which was the best ever. Despite the above there is a flip side to the story. Though yields are expected to be better this year, the domestic cotton prices are expected to fall & are already near to their 10year lows. After the start of cotton plucking season in October and a likely bumper crop, the low prices will further dampen the sentiment. Continued lower cotton prices will also translate in continued lower raw material cost for Century.

“Cottons” – by Century: - Creating Retail Space “Cottons” by Century, the premium men’s apparel brand from the Century Textile and Industries, proposes to expand its retail footprint throughout the country in a big way. The company is planning to open 400 stores involving 700,000 to 800,000 square feet of floor space in different parts of the country by 2008-09. At present, the company has about 100 stores. Cottons by Century is the only brand among the 20-odd brands launched in India over last decade to grow at over 200% consistently for last three years. Company aims to increase the sales turnover to Rs 110 crore in the next fiscal and targets Rs 500-600 crores of revenue by 2010. The denim space in the country is now ruled by brands like Lee, Wrangler, Newport and Flying Machine. The company has tied up with international specialty property companies such as Knight Frank to assist it in getting retail space. In future, its new stores will become operational on franchise basis or on rent, which will involve no major capital expenditure for the company. The product, projected as mid-topremium brand, will be focusing on high quality, affordable price and expanding the reach to tier-3 and tier-4 cities. Cottons by Century, which is a leading global player in 100% superfine cotton textile category provides about 500-550 choices in stores. The domestic apparel industry is also improving due to the general growth in the economy. With the company’s changing design patterns, thrust on retail marketing and promotion of ready-to-wear garments, the management is hopeful of improved performance in future with good top line growth.

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Property: - En-cashing the real-estate boom Century’s textile plants are situated in Mumbai and Kalyan (near Mumbai). Mumbai has become highly unviable for textile players due to very high costs across-the-board. The company has made a loss before interest and tax (PBIT) of Rs 79.22 crore on sales of over Rs 623.74 crore in the textile division. This is abysmally bad compared to other players who are operating in non-metro areas. Thus the company has decided to shift its operation. The Worli unit has been closed since 12th January 2008 in accordance with the permission received from Government of Maharashtra, Labor Commissioner thus resolving the long standing dispute with labor unions & clearing path to redevelop the 30 acres of property it holds in Worli. This will unlock a substantial profit opportunity for the company. The company has decided to develop land at its Worli textile unit in Mumbai for commercial purposes. The land would be used for hospitality, information technology and IT-enabled services. The company has 30 acres of land at Worli. Of this, 10 acres are owned by the Wadia group. The company has the right to use the land on lease for 999 years. The 30 acres translate into a developable area of about 40 lakh sq. ft. As per current plans, the Company is in talks with players in the hospitality sector and is expected to finalize a deal in two-three months. This would follow negotiations with IT players. Going by the valuation parameters, construction and development of 40 lakh sq. feet would cost about Rs 1,500 crores, while same would have realization of over Rs 14,000 crores. The company is not planning to sell any significant portion but planning to lease it. The whole development is targeted to be completed in the next 3 – 4 years. After completion of the project Century is expected to get Rs 1000 crores annually in term of revenues as rental/lease income. That will be near about 1/8th of the company’s current market cap or approx 4 times the current Cash profit of the company

Concerns: ™ With the inflation figures touching 8%, Government is pressurizing all cement manufacturers to lower prices despite increase in raw material prices. ™ Government has already banned export of cement leading to further stocking in local markets & consequent pressure on prices. ™ Continuous rise in the prices of bagasse will have a negative impact due to increase in raw material procurement price for Paper & pulp division ™ A likely bumper cotton crop this year, might lead to lower cotton prices. ™ Product - ‘Cottons’ By Century is expensive and still out of middle class buying range, it would be difficult for century to gain dominant presence in the segment. ™ The development at Worli land will entail giving approx 350sqft each to all 990 workmen free of cost as per final settlement with the staff union. ™ The property story & its upside have already been factored in the current price. Benefit only due to this factor remains limited, especially since the property market seems to be cooling from their all time highs.

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Results: Particulars

Mar 08 (4)

Mar 07 (4)

Sales Other Income PBIDT Interest PBDT Depreciation PBT Tax Deferred Tax PAT

992.69 20.57 102.91 24.61 78.30 30.06 48.24 10.24 1.85 36.15

875.60 31.50 171.27 25.41 145.86 42.57 103.29 29.74 -20.81 94.36

(%Var) 13.40 -34.70 -39.90 -3.10 -46.30 -29.40 -53.30 -65.60 -61.70

Mar 08 (12)

Mar 07 (12)

3442.61 70.13 627.83 89.18 538.65 168.58 370.07 98.24 -7.60 279.43

3140.16 74.64 547.25 59.52 487.73 135.19 352.54 97.79 -18.06 272.81

(%Var) 9.60 -6.0 14.70 49.80 10.40 24.70 5.00 0.50 57.90 2.40

Key Financial Ratios: (Based on audited results of 31-03-2007) Ratios

0703

Return on net worth (RONW) %

39.98

Return on capital employed (ROCE) %

28.87

Cash profit margin %

14.78

Current Ratio %

0.90

Debt Equity Ratio %

1.18

Interest Cover %

8.67

Long Term Debt-Equity Ratio %

0.77

APATM %

10.70

Equity Returns (%): Exchange BSE Average Volume NSE Average Volume

Closing Price

30 Days

3 Months

6 Months

1 Year

777.15

-3.19 153992 -3.93 336626

-3.84 121069 -4.10 276010

-28.86 138021 -29.00 335479

23.70 309695 23.54 670853

777.15

Synopsis: Century is expected to earn Rs. 1000 crores annually from its real-estate development plans. With the kind of growth potential of retails segment, Century has rightly focused its key strength - Cotton & has major expansion plans in this direction. Expansion plans of its cement & paper units are expected to be completed by 2009-10. Overall this stock is up for grabs….. A true blue chip…. Available at a decent price for long term value investing….

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KEY LOCATIONS -: REGISTERED OFFICE :Lalit Mundra 11 & 12 ‘A’ Mithila C.H.S. J.B.Nagar, Andheri (E), Mumbai – 400059. Tel: 022-28354000, 28216446 Fax: 022-28205533 Email: [email protected]

-: CORPORATE OFFICE :Kailash Sarda Mahesh Hostel Complex, Opp Bombay Motors, Chopasni Road, Jodhpur – 342003 Tel: 0291-2654000 Fax: 0291-2430913 Email: [email protected]

-: INSTITUTIONAL SALES :Aashish Chitlangi 9, Parekh Vora Chambers, 66 N.M.Road, Fort, Mumbai – 400023. Tel: 022-22666178, 22691103 Fax: 022-56344007 Email: [email protected] For details visit our website at www.srspl.com

Report Prepared by: Rahul Bhandawat Research Department

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