Sangam India Ltd (SIL) is the market leader in the Indian PV yarn segment with a market share of 20%. The company is at an inflexion point with new capacity additions, rising exports, value added products and power cost savings at its fore. We expect the company to witness a Top Line and Bottom Line CAGR of 35% and 55% respectively over FY2007-09E.

Investment Argument

SIL is the market leader in the niche PV yarn segment with a market share of 20% in India. The company is expanding its PV yarn capacity to maintain its leadership position and exploit the rising demand for PV fabric.

The company has chalked out a Rs 7.1bn expansion plan to set up new capacities for PV Yarn, Cotton Yarn, Fabric, Processing and Power. These expansions will make SIL an integrated player with presence across the textile chain except for garmenting.

The company has been traditionally operating in the MMF segment and is now diversifying its product range to include cotton as well. The entry into cotton yarn segment will make the company a single sourcing destination for its customers yarn requirement.

SIL has been expanding its export's and has quadrupled its exports over the last two years.The company is targeting to allocate significant portion of its expansion towards exports. We expect the company to scale up its exports at a CAGR of 34% (FY2007-09E).

Valuations

SIL's niche dominance, expansions and value addition are expected to aid earnings growth at CAGR of 54% (FY2007-09E). At CMP of Rs 59 the stock trades at 5.8x and 3.5x our FY2008E and FY2009E EPS of Rs 9.9 and Rs 16.3 respectively. We Initiate BUY on the stock with a price target of Rs 92.