Amarjothi Spg Mills Ltd: A Strong Buy

RATIONALE FOR RECOMMENDATION:

1. Book Value Rs 126

2. Available at PE Ratio of 5 against Industry average PE Ratio of 17.

Thus, offers substantial scope for PE Expansion.In fact, Amarjothi has

lowest PE Ratio in textile industry presently. It is mainly due to

very very low profile of promoters

3. FY15 Eps Rs 20

4. CASH Eps substantially higher at Rs 40. Stock trading at 2.50xCash Eps

5. Stock trading at just 0.35xFY15 Sales

6. Has 18MW WIND POWER generation

7. Most modern Dyeing/processing house

8. Dividend paying

9. Consistently profit making (Amarjothi reported profits even when

almost entire textile industry reported losses few years back).

BACKGROUND:

Tirupur based Amarjothi Spg Mills Ltd is engaged in production of various types of yarn which are mainly used by knitted fabric industry:

a.  Polyester/Cotton Yarn

b.  Dyed Fibre Yarn

c. Dyed Cotton yarn

In fact, Amarjothi mainly produces Melange yarn which commands premium in the market. Moreover, co's factory is very very close to consumption centre.

Amarjothi makes wide range of speciality yarns including 100% Excel yarn, 100% Modal Yarn, 100% Viscose yarn, Cotton/Modal yarn and even Organic Cotton yarn.

Its dyeing/processing unit is located at sprawling 12 acre complex, considered one of the most modern capable of dyeing following types of fibres:

Cotton Fibre, Organic Cotton, Viscose Fibre, Modal, Polyester, Excel,Acrylic fibre etc

FINANCIAL PERFORMANCE;

                          H1/FY16     2014-15

                          Rs/Cr            Rs/Cr

Sales                  108               201

Depreciation         6.77             13.70

PAT                      5.84            13.21

Equity                   6.75

Book Value Rs      126

EPS Rs                 8.65          19.58

CASH Eps Rs                         40

Amarjothi had reported PAT of Rs 13.21 crores for FY15, translating into Eps of Rs 19.58. CASH Eps stood at Rs 40.  Stock is trading at PE Ratio of 5.

Book Value as on 30/09/2015 stands at Rs 126.

Amarjothi has 18MW of WIND POWER generation capacity. Hence, co's profit margins are higher due to captive power generation. Moreover, proximity to consumption centre also leads to substantial cost savings.

Amarjothi Spg has already reported Eps of Rs 8.65 for H1.  Amarjothi should report Eps of Rs 21 for FY16. STOCK IS AVAILABLE AT JUST 4.72xFY16Eeps.

Amarjothi Spg HAS LOWEST VALUATIONS IN ENTIRE TEXTILE INDUSTRY although company has been reporting decent profits consistently and also paying dividend regularly. Due to low profile of promoters, stock

is trading at depressed valuations. Look at the following (peer comparison)

 Company Name           PERatio

Banswara Syntex          22

Trident Ltd                    14

Sangam India               17

Suryalaxmi Cotton        11

Nitin Spinners               9

And even Book Value of Amarjothi Spg is higher than above referred peer group companies.

It is clear that once Amarjothi catches attention of investors, its valuations are bound to rise. Even if Amarjothi gets very modest PE Ratio of 9, its stock price should be Rs 180.

A soundly managed company with strong fundamentals but still available at screamingly low Valuations.  A STRONG BUY