Garden Silk Mills Ltd is a leading Indian textile company with strength in polyester-based textiles and yarns. The company operates manufacturing facilities in Gujarat and is a market leader in polyester chips with a 38% market share. It is expected that GSML's capacities will increase substantially over the next few years as several expansion projects are completed. The outlook for the Indian polyester industry remains positive due to higher domestic demand and a switch from cotton due to rising prices. Based on financial projections, the analyst estimates GSML's fair value at Rs. 143 per share by FY12.

1. December 31, 2010
Recommendations <= 1 year 1 - 2 yrs 2 - 5 yrs
GARDEN SILK MILLS LIMITED HOLD
Strong Buy
Garden Silk Mills Ltd (GSML) is one of the pioneers in Indian Textile Industry, Buy
Hold
with particular strength in Polyester based textiles and yarns. The company
Reduce
operates only in one segment, namely textiles. They are having their Sell
Strong Buy – Expected Returns > 20% p.a.
manufacturing facilities located at Vareli and Jolwa in Surat, Gujarat. Buy – Expected Returns from 10 to 20% p.a.
Hold – Expected Returns from 0 % to 10% p.a.
• The outlook remains positive about the long term prospects of Indian
Reduce – Expected Returns from 0 % to 10% p.a. with possible downside risk
polyester yarn industry due to higher domestic demand and switch-over Sell – Returns < 0 %
effect from cotton due to higher cotton price. Growth in Polyester segment
will also be led by increase in domestic demand, due to increase in higher STOCK DATA
disposable income in rural and urban areas. BSE / NSE Code 500155/GARDENSILK
Bloomberg Code GRDN IN EQUITY
• The demand for polyester will be driven not only by conventional textiles;
No. of Shares (Mn) 38
but will also be driven by newer applications such as technical textiles and Sensex / Nifty 20256 / 6060
home textiles during FY10-FY12 period. PRICE DATA
CMP Rs (29th Dec' 10) 129.2
• GSML’s capacities are expected to increase by 39.6% to 963,600 TPA while Beta 0.91
Market Cap (Rs mn) 4,947
yarn capacities are expected to be augmented by 34%to 281,700 TPA. While
52 Week High-low 154 / 67
the chips capacity has already been commissioned, the POY facilities are Average Daily Volume 26,067
expected to come into operation in a phased manner over the period Jan- STOCK RETURN (%)
30D 3M 6M 1Y
June 2011. The company has further expanded its Draw Warping capacity Garden Silk Mills 18% 28% 66% 66%
by 35TPD to 109 TPD. Sensex 4% 2% 16% 16%
Nifty 4% 1% 15% 17%
Based on FY12 PE multiple of 5.8, the fair value per share for the company SHARE HOLDING PATTERN (%)
works out to Rs. 143. Promoter 56.3
Institution 1.4
Financial Snapshot Non Institution 42.3
Projections (Rs Mn) FY08A FY09A FY10A FY11E FY12E Total 100.0
Net Revenues 16,763 13,316 25,149 31,436 36,152 1 Year Price Performance (Rel. to Sensex)
Y-o-Y Growth % 20% -21% 89% 25% 15% 100
GSML
EBIDTA 1,899 1,703 2,528 3,073 3,254
80 Sensex
Y-o-Y Growth % 15% -10% 48% 22% 6%
PAT 400 496 632 709 938 60
Y-o-Y Growth % 72% 24% 27% 12% 32%
40
EPS Rs 10 13 17 19 25
BVPS Rs 102 114 128 144 165 20
EBITDA % 11% 13% 10% 10% 9%
NPM % 2% 4% 3% 2% 3% 0
ROE % 10% 11% 13% 13% 15%
-20
PER x 7.0 5.3
P/B Ratio 0.9 0.8
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2. December 31, 2010
BUSINESS PROFILE
Garden Silk Mills Ltd. occupies a leadership position in the manufacturing of Polyester Filament Yarn (PFY)-
GSML is market leader
based textiles in India. It is the largest manufacturer of PFY-based fabrics in the country. It is also the leading in polyester chips
market with a market
manufacturer of fully drawn flat filament yarn and textile-grade chips.The company's products and services
share of 38%
include textiles, which includes yarn (including partially oriented yarn and processed yarns), cotton, polyester,
silk, fabrics, georgettes, chiffons, faille’s and jacquards. Their apparel section includes Vareli business shirts and
ready-to-wear women garments. Additionally the company is also the second largest specialty yarn maker and
the largest specialty chip maker in India.
GSML is market leader in polyester chips market with a market share of 38%. The company ’ s chip
manufacturing facilities are located at Surat (Gujarat), which accommodates about 42% of India ’ s total
extruder base yarn manufacturing facilities. Furthermore, Silvassa, which contains additional 31% of the
capacity, is located in close proximity from Surat. This locational advantage gives GSML easy access to the end
consumers increasing its cost-efficiencies substantially. GSML’s impressive marketing network encompasses GSML has presence in
more than 70 dealers, 12 company owned depots and more than 290 authorized retail outlets including shops countries like USA, UK,
South Africa, and Gulf
and counters in over 65 cities in India. GSML fabrics are also available in a host of countries including Canada,
and is planning for
U.S.A., U.K., Indonesia, Malaysia, South Africa, Middle East and Gulf countries. future expansion
Revenue Break up FY10 Revenue (Rs mn) Segmentwise Revenue
6.30% 100%
5.67
Contribution
7.85 8.00
80%
42.54 Yarn to weaving
45.78 48.96 6% mills/looms
60%
Export
43%
40%
Chips to
Domestic 51%
42.76 42.35
50.93 independent POY
20%
players
0% Fabric to end
FY08 FY09* FY10 users
FY09* Revenue is for 9 months
93.70% Chips Yarn (POY & Processed yarn) Fabrics Others
Industry Outlook
Globally synthetic fibers, led by polyester (polyester staple fiber and polyester filament yarn) have been The demand for
polyester filament yarn
growing rapidly owing to a growing demand for fiber and the continuing replacement of natural fibers in India grew by around
in a world short of agricultural acreage. In the last 15 years the total fiber consumption worldwide has 14% in 2009-10 and is
expected to grow at a
grown up from 47% to 57% while that of cotton have reduced from 42% to 32%. Moreover the CAGR of 6-7% in the
percentage of polyester in global synthetics market has gone up from 58% to 79% in this period. In India years to come
polyester has been steadily replacing natural fibers as well. According to industry reports India’s overall
textile and apparel industry is expected to touch $220 billion (Rs.9.9 trillion) by 2020 from $70 billion
now.
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3. December 31, 2010
Textile Value Chain: Garden Silk Mills Ltd’s Business Model.
• Long term prospectus of polyester business remains positive; expected to grow by 7.0%. Reason being higher domestic
demand and switch-over effect from cotton due to higher cotton price.
• Raw materials prices are expected to remain stable despite rising crude oil prices .Purified Terephthalic Acid (PTA) &
Monoethylene Glycol (MEG) are the key raw materials for GSML.The prices of these raw materials, being crude derivatives
are more or less in tandem with the crude oil prices. The polyester players have moderate pricing flexibility, wherein
moderate and gradual increase in the feedstock prices can be eventually passed on to the consumers, but any sudden
upward spike in prices may have to be absorbed by the polyester yarn manufacturer. Industry reports say that even in
case of rising crude prices; the prices of these ram materials are expected to remain stable; reason being increase in
production capacities of PTA & MEG.
• Cotton yarn is a substitute for Polyester yarn. High cotton prices and low availability may lead to increase in cotton yarn
prices. This may prompt independent weaving mills/looms to shift their polyester-cotton (PC) from cotton yarn to
polyester yarn. In recent months the domestic prices have peaked to a life time high of Rs 100/kg due to strong demand
from China. The prices of cotton are expected to remain robust in near-to-medium term because of delay in cotton
deliveries due to heavy rains and secondly due to global demand exceeds its supply.
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4. December 31, 2010
BUSINESS PERFORMANCE
Robust Revenue Growth…
Revenue in Q2FY11 grew 48.7% annually to Rs 9550.6mn due to increase in exports which stood at 6.3%. This GSML is also putting
up a coal based
was basically due to increase in demand for polyester from China, and secondly due to increase in international thermal power
cotton prices. Net profit for FY 2009-10 stood at 252.7mn, an increase of 148% on Y-o-Y basis. project of 18 MW at
Jolwa expected to
Tax payment for Q2FY11 increased by 40.9% to 65.2mn due to deferred tax adjustments. EBITDA margins stood commence power
generation before
at 8.08% as compared to 8.3% for Q2FY10. This erosion was due to high raw material prices and employee March, 2011
expenses. PAT margins stood at 4.9% for Q2FY11 as against 1.7% Q2FY10.
Revenue, Operating & PAT Margin Quarterly Performance
40,000 10% 10000 12%
35,000 9% 9000
8% 8000 10%
30,000
7% Revenues (Rs mn) 7000 8%
Margins(%)
25,000 6% 6000
20,000 5% 5000 6%
4% 4000
15,000 3000 4%
3%
10,000 2000 2%
2%
5,000 1000
1% 0 0%
- 0%
FY08 FY09 FY10 FY11E FY12E
Revenue (Rs Mn) EBIDTA Margin PAT Margin Net Revenue (Rs mn) EBITDA Margins
Peer Group Comparison
EBIDTA PAT
Revenue P/E P/B CMP FV
Companies Margin Margin ROE (%)
(Rs. mn) (x) (x) (Rs.) (Rs.)
(%) (%)
Garden silk 25,149 10% 1% 13% 7.8 1.0 129 10
JBF 49,409 10% 4% 24% 5.4 1.3 179 10
Century Enka 12,309 18% 8% 18% 4.2 0.7 196 10
*FY10 Consolidated figures
Peer Comparison
Compared to Garden Silk; Century Enka is operating at higher EBITDA margins mainly on account of lower Q2FY11 witnessed
raw material prices. The raw materials cost pressures, owing to higher international crude prices, have higher revenue &
profitability growth
impacted the FY10 profitability of GSML. The recent strong quarterly result indicates strong profitability due
to passing on of raw material costs to customers. However with strong expansion program planned ahead;
we do expect the margin pressures to alleviate in future.
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5. December 31, 2010
VALUATION
We expect GSML’s revenues grow at a CAGR of 20% over FY2010-12 to Rs 38bn by FY2012. We further
Based on FY12 PE
estimate that the PAT would grow by 22% in FY2012. multiple of 5.8, the fair
Based on FY12 PE multiple of 5.8, the fair value per share for the company works out to Rs. 143. value for the company
works out to Rs. 143
We recommend a ‘HOLD’ rating on the stock.
Financial Analysis and Projections
Particulars (Rs Mn) FY08A FY09A FY10A FY11E FY12E
Net Revenue 16,763 13,316 25,149 31,436 36,152
Other Income 196 156 204 314 362
Total Income 16,958 13,472 25,353 31,751 36,513
Operating Expenditure 15,059 11,769 22,825 28,678 33,260
Depreciation 574 448 726 999 949
EBIT 1,325 1,255 1,803 2,073 2,304
EBIT Margin (%) 8% 9% 7% 7% 6%
Interest 638 555 872 1,031 925
Profit Before Tax 687 700 931 1,042 1,380
Less: Tax 287.4 204.1 298.9 333.6 441.5
Profit After Tax 400 496 632 709 938
PAT Margin (%) 2% 4% 3% 2% 3%
ROE (%) 10% 11% 13% 13% 15%
EPS (Rs) 10 13 17 19 25
BVPS (Rs) 102 114 128 144 165
Valuation Ratios (x) FY11E FY12E
P/E 7.0 5.3
P/B 0.9 0.8
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6. December 31, 2010
Board of Directors
Director Name Current Position Description
Mr. Alok P. Shah is Joint Managing Director and Executive Director of Garden Silk Mills Ltd. He holds B.S. (Stanford
Managing Director University) M.B.A. (University df Chicago, USA). Directorship held in other Public Limited Companies (excluding foreign and
Mr. Alok P. Shah and Executive private companies) are: Garden Finmark Umited Inita PowerCompany Limited Palomarlextiles Limited Bijlee Textiles
Director Limited Jarigold Textiles Limited Rosekamal Textile Umited Wheel &AxleTextiles Limited Amichand Textile Limited
PashahTextiles Umited SPS Silk Limited Prabhat Silk Mills Limited VareliTrading Company Limited.
Mrs. Shilpa P. Shah is Executive Director of Garden Silk Mills Ltd. She holds M,A. (University of California, USA). She is an
Mrs. Shilpa P. Shah Executive Director Industrialist. Directorship held in other Public Limited Companies (excluding foreign and private companies) are: Prabhat
Silk Mills Umited, SuratTextile Mills Limited.
Mr. Sanjay S. Shah is Executive Director of Garden Silk Mills Ltd. He is B.A. from Essex University, U.K. and has experience in
Mr. Sanjay S. Shah Executive Director the field of Yarn Preparatory and Weaving. He possesses experience in overall business management particularly with
regard to textile industry and has more than 16 years of experience in Senior Corporate Management.
Mr. Suhail P. Shah is Executive Director of Garden Silk Mills Ltd. He holds a Post Graduate in Physical Chemistry from The
University of Chicago and a Doctorate in Theoretical Physical Chemistry from The University of Chicago. Mr. Shah has to his
credit various research accomplishments, computational skills and publications at the international level. He has more
Mr. Suhail P. Shah Executive Director
than 10 years of experience in research with various universities of international repute. Mr. Shah has supported the
Company and contributed suggestions in identifying international suppliers, carrying out technical appraisal with them for
finalising the Continuous Polymerisation {CP) Chips Project of the Company.
Mr. Rajen P. Shah is Non-Executive Director of Garden Silk Mills Ltd. He holds M.S. (University of California, USA).
Non-Executive
Mr. Rajen P. Shah Directorship held in other Public Limited Companies (excluding foreign and private companies) are: Surabhi Chemicals &
Director
Investments Limited.
Non-Executive Mr. Yatish C. Parekh is Non-Executive Independent Director of Garden Silks Mills Ltd. He holds B.Com and FCA. His
Mr. Yatish C.
Independent Directorship held in other Public Limited Companies (excluding foreign and private companies) are Surabhi Chemicals &
Parekh
Director investments Limited.
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