S R K Industries Ltd. BSE Scrip Code:

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1 S R K Industries Ltd. BSE Scrip Code: Textiles March 15, 2013 Equity Statistics Current Market Price Rs Week High/Low Rs /2.90 Market Capitalisation Rs. Crores Free Float Rs. Crores 8.52 Dividend Yield % 0.00 One Year Regression Beta Times 0.11 BSE Volumes Trend - Average = 5.70 Thousand Company Summary SRK Industries Ltd previously known as Associated Textile Rubber Products Limited (ASTER) was mainly into manufacturing of Aprons & Cots. These products are used for drawing, drafing and for making yarn with uniform thickness and strength. These consumables form an integral part for producing quality yarn and in turn making quality textile. However, after incurring significant losses in the manufacturing of Cots and Aprons, it changed its nature of operation to textile fabric trading since FY10. Trading of company s shares was suspended in BSE from 7 th February 2002 and was resumed from 13th February The management is also in process of merging Transcend Commerce Ltd with the company with a view to wipe off accumulated losses. In FY12, company reported net sales of Rs crore. Presently the company has discontinued production of its regular products and derives its income largely from textile fabric trading (99% of turnover in FY12) and selling off its inventory of aprons & cots. Going ahead, the company has plans to revive the manufacturing of Aprons and Cots and is also planning to venture into Real Estate sector Relative Returns SRK Industries is currently trading at 57.4 times the adjusted book value S R K Industries Ltd Sensex Returns 1M 3M 6M 1 Yr Absolute 1% 126% 790% 761% Rel. to Sensex 0% 123% 748% 654% Shareholding Pattern 100% 80% 60% 40% 20% 0% Mar `12 Jun `12 Sep `12 Dec `12 Board of Directors Person Role Qualification Rakeshchand M Jain Chairman, MD & Compliance Officer B.Com. S. L. Ojha AD H. P. Choursia AD Kamal S. Jain Director CA Source: AR and CARE Research Note: MD: Managing Director, AD: Additional director Promoter DII FII Others Source: BSE,Capitaline and CARE Research 1 Initiative of the BSE Investors Protection Fund

2 Background Associated Textile Rubber Products Private Limited was incorporated in 1991 and was converted into Associated Textile Rubber Products Limited (ASTER) a limited Company in Later in 1995, ASTER became public raising Rs.2.2 crore. The name of the company was changed from Associated Textile Rubber products limited to S R K Industries Limited in March Trading of company s shares was suspended in BSE from 7 th February 2002 and the same was resumed from 13 th February Initially the company was mainly into manufacturing of Aprons & Cots but, currently the company is involved only into textile fabric trading. Business overview Initially the company was mainly into manufacturing of Aprons & Cots under the brand name 'ASTER' which are consumable for the textile spinning industry. These products are used for drawing, drafing and for making yarn with uniform thickness and strength. These consumables form an integral part for producing quality yarn and in turn making quality textile. However, since company made significant losses in the manufacturing of Cots and Aprons it changed its nature of operation to textile fabric trading since FY10. Presently the company has discontinued production of its regular products and derives its income largely from textile fabric trading (99% of turnover in FY12) and selling off its inventory of aprons & cots. Strengths and growth drivers After incurring huge losses in manufacturing Cots & Aprons the management shifted its operations to trading of textile fabrics which has helped the company to improve its financials. It has been able to earn a net profit of Rs.0.7 lakh in FY12 from a loss of Rs lakh in FY09. The management is also in process of merging Transcend Commerce Ltd with the company with a view to wipe off accumulated losses. The company has significantly reduced its debt obligation from Rs.9.4 lakh in FY08 to Rs.1.5 lakh in FY12. Risk and concerns Raw material accounts for approximately 65-70% of the total operating cost for fabric production. The major raw material for cotton and blended fabric (which represents 64% of the total production) is cotton. The prices of cotton yarn move in tandem with international prices thus affecting the input cost for the fabric manufacturers. In case of 100% non-cotton based fabrics, raw materials used are Purified Terephthalic Acid (PTA), Mono Ethylene Glycol (MEG), etc which petroleum based are and thus their prices are affected by volatility in crude oil prices. The prices of textile fabrics are affected by the volatility of the prices of these key raw materials thereby negatively impacting the demand and thus the trade of such fabrics. Industry is also sensitive to economic cycle and interest rate, as the consumption from end-user industries decreases with a slowdown in the economy. Future strategy and expansion plans With a view to wipe off the accumulated losses and to have positive paid up capital structure, company is in process of amalgamating with Transcend Commerce Ltd. by allotment of shares to the shareholders of latter. Transcend has a paid up capital of Rs.17.5 crore without any accumulated losses. The company has plans to revive the manufacturing of Aprons and Cots business and is also planning to venture into Real Estate sector. Industry outlook The Indian textile fabrics industry plays a significant role in the economy of India as it contributes 4% to the country s Gross Domestic Product (GDP) and 17% to the total exports. The textile fabric in India is classified into cotton fabric, blended fabric, 100% non-cotton and others which include khadi, wool & silk. The fabric sector is skewed towards production of cotton fabric which accounted for almost 51% of overall cloth production in India in FY12 while the 100% non-cotton and blended fabric accounted for 34% & 14% of the total cloth production, respectively in FY12. The fabric production grew at a CAGR of 6% during the period FY06-FY11, primarily supported by small scale, independent power loom segment. The total cloth production touched a peak level of 62,559 million sq. meters in FY11. However the production showed a marginal decline of 3.5% to 60,344 million sq. meters in FY12. The blended fabric registered a CAGR of 4.2% during the period FY06-12, followed by cotton fabric at 3.4% and 100% non-cotton fabric at 1%. Other fabrics such as Khadi, wool & silk put together grew at a CAGR of 2% during the same period. Going ahead, CARE Research expects the domestic consumption of the fabrics to show a moderate growth in the medium term.several factors like growth in the retail sector in India, government allowing 100% FDI in single brands and opening up the of multi-brand FDI is expected to fuel the growth in the fabric sector. 2 Initiative of the BSE Investors Protection Fund

3 Quarterly financials Income statement (Rs. lakh) Q3FY13 Q2FY13 Q1FY13 Q4FY12 Q3FY12 Total income Net sales EBITDA 1.2 (6.6) (1.7) (1.2) (4.1) Ordinary PAT 0.5 (7.3) (2.5) (0.8) (4.1) Adjusted PAT (2.5) (0.8) (4.1) Growth (Q-o-Q) (%) Growth in net sales (37.7) (6.2) Profitability ratio (%) EBITDA margin 0.6 (4.0) (1.1) (0.5) (1.5) Adjusted PAT margin (1.6) (0.3) (1.5) Source: BSE, ACE and CARE Research 3 Initiative of the BSE Investors Protection Fund

4 Financial analysis In FY12, company reported net sales of Rs crore, up 39% y-o-y. Trading of textile fabric forming almost 99.7 percent of the turnover. Although the sales have increased in FY12 the PAT has declined by about 46% YoY due to decline in other income from Rs.6.3 lakh in FY11 to Rs.0.4 lakh in FY12 because of write back of provision in FY11. The total debt consisting of interest free loan as on March 31, 2012 was at Rs.1.5 lakh significantly reduced from Rs.9.4 lakh in FY08. The company has not paid any dividend for last 5 years (period under analysis). Annual financial statistics FY08 FY09 FY10 FY11 FY12 Income statement (Rs. lakh) Total income ,040.8 Net sales ,040.4 EBITDA (1.7) (49.0) 2.9 (1.7) 2.9 Depreciation and amortisation EBIT (5.4) (51.7) 0.9 (4.8) 0.2 Interest PBT (5.2) (48.9) Ordinary PAT 45.8 (48.9) Adjusted PAT 45.8 (48.9) Balance sheet (Rs. lakh) Adjusted networth 33.2 (13.0) (9.6) Total debt Cash and bank Investments Net fixed assets (incl. CWIP) Net current assets (excl. cash, cash equivalents) (89.8) (7.7) (2.0) (8.0) (6.4) Per share data (Rs.) Adjusted BVPS 0.9 (0.3) (0.3) Diluted EPS 1.2 (1.3) DPS Growth (Y-o-Y) (%) Growth in total income NM NM Growth in net sales (71.4) NM Growth in EBITDA NM NM NM NM Growth in adjusted PAT (206.8) (31.3) (45.5) Growth in EPS (206.6) (25.0) (33.3) Key financial ratio EBITDA margin (%) NM NM 0.8 NM 0.3 Adjusted PAT margin (%) NM NM RoCE (%) NM NM NM 0.5 RoE (%) NM NM NM 3.3 Gross debt - equity (times) 0.3 NM NM Net debt - equity (times) 0.3 (0.4) (0.8) (0.1) (0.2) Interest coverage (times) NM NM NM NM NM Current ratio (times) Inventory days NM Receivable days Source: BSE, ACE and CARE Research Note: NM: Not Meaningful, NA: Not Applicable Financial Year (FY) refers to period from April, 1 to March, 31 4 Initiative of the BSE Investors Protection Fund

5 DISCLOSURES Each member of the team involved in the preparation of this research report, hereby affirms that there exists no conflict of interest that can bias the research of the company. This report has been sponsored by the BSE Investors Protection Fund. DISCLAIMER CARE Research, a division of Credit Analysis & REsearch Limited [CARE] has taken utmost care to ensure accuracy and objectivity while developing this report based on information available in public domain or from sources considered reliable. However, neither the accuracy nor completeness of information contained in this report is guaranteed. Opinions expressed herein are our current opinions as on the date of this report. Nothing in this report can be construed as either investment or any other advice or any solicitation, whatsoever. The subscriber / user assumes the entire risk of any use made of this report or data herein. CARE specifically states that it or any of its divisions or employees do not have any financial liabilities whatsoever to the subscribers / users of this report. This report is for personal information only of the authorised recipient in India only. This report or part of it should not be reproduced or redistributed or communicated directly or indirectly in any form to any other person or published or copied for any purpose. PUBLISHED BY CARE Research is an independent research division of CARE Ratings, a full-service rating company. CARE Research is involved in preparing detailed industry research reports with 5-year demand and 2-year profitability outlook on the industry besides providing comprehensive trend analysis and the current state of the industry. CARE Research also offers research that is customized to client requirements. Credit Analysis & REsearch Ltd. (CARE) is a full service rating company that offers a wide range of rating and grading services across sectors. CARE has an unparallel depth of expertise. CARE Ratings methodologies are in line with the best international practices. Head Office: 4th Floor Godrej Coliseum, Off Eastern Express Highway, Somaiya Hospital Road, Sion East, Mumbai Tel: Fax: Regional Offices: New Delhi Kolkata Ahmedabad Bangalore Hyderabad Chennai Pune Jaipur Published on behalf of The Stock Exchange Investors' Protection Fund First Floor, P J Towers, Dalal Street, Mumbai. Tel: /34