|Current Stock Price||Market Cap
||Fair Value||Long Term Target||Multibagger Potential|
|Rs.28||Rs. 20.1 crores||Rs. 55||Rs. 88||
One of the most undervalued companies on PE basis. Could appreciate from here.
Deepak Spinners is a lesser known Synthetic Blended Yarns using Polyester, Acrylic and Viscose fibres. Its manufacturing units are located in Solan District, Himachal Pradesh and Guna, Madhya Pradesh with a total installed capacity of about 63,552 spindles along with 5.0 MW biomass (rice husk) based power plant used for captive purposes. In FY 2013, it has also commissioned a 2 MW Solar Power plant in Rajgarh, Madhya Pradesh as a measure of diversification.
|Financials (Rs. In Crores Except Ratios)||Historical Stock Performance|
|Year||Revenues||PAT||EPS||EBITDA||Dividend||DEBT||Equity||Debt to Equity||Low Price||High Price||Low PE||High PE|
Currently the stock is available at an unbelievable 1.55 PE (trailing) but given the good pricing for blended yarn, I expect Deepak Spinners to repeat its record performance for this year too. Having said that, its in a pure cyclical business. Thanks to good cotton yarn prices, recently consumers preference have turned to synthetic blended yarn which are comparatively cheaper. Blended Yarn manufacturers like Deepak Spinners, APM Industries appears to be in a sweet spot as their raw material prices are stable but product prices are stronger and hence good margins and record profits.
For the past 3 years, inspite of good profits markets seems to be in denial mood with regards to their profit sustainability or genuineness of earnings as they had also made losses in the recent past and there have been no dividends. But it used to be an average dividend paying company till FY 2007 and only after it started making losses in 2008, 2009 and 2010 it had stopped paying dividends maybe the management might have felt the need to shore up net worth and save resources for expansions.
In the last cyclical boom in stock price, it had traded at a high PE of 4.9 in FY 2004 and FY 2005 and I feel if the markets give similar PE for the record earnings of Rs. 18.04 EPS the long term stock price target comes to Rs. 88. At current market price it is trading at just a PBV of 0.28 which is also attractive enough for a commodity type company. It should over a period of time appreciate back to atleast 0.5 PBV and hence the fair value target of Rs. 55
|Deepak Spinners Multi Year Stock Price Chart|