4 small cap textile stocks with high price momentum

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Cotton prices have been soaring continuously. According to a report published by Fitch Ratings on Dec 15 2010, Cotton prices were rising unusually since August 2010, and as at end-November 2010, prices were hovering at Rs 108-Rs 118 for each kg (up 60%-70%, y-o-y) across common varieties of cotton. Soaring cotton prices have in fact turned out to be a blessing for synthetic textiles players who have benefited, from the rise in cotton prices especially in the mass clothing segment. Shares of such companies have rallied more than 20% over the last 4 months, period (Aug 2, 2010 – Jan 3, 2011).
The stocks…

We at Myiris.com have filtered 4 such small cap textile stockswith high price momentum that is stocks which have rallied more than 20% and have a market cap greater than Rs 500 million. The same are as under:
1. Patspin (India) – Spinning – Cotton Blended:

During the period, shares of the company have gained by 6.51 points or 49.17% to settle at Rs 19.75.
Shares of the company declined Rs 0.8, or 4.42%, to trade at Rs 17.30. The total volume of shares traded was 4,940 at the BSE. The stock has a market capitalization of Rs 536.46 million. (Friday, Jan.14, 2011)
2. Ganesh Polytex – Processing/Texturising:

During the period, shares of the company have gained by 23.70 points or 45.71% to settle at Rs 75.55.
Shares of the company declined Rs 0.3, or 0.45%, to settle at Rs 66.90. The total volume of shares traded was 49,860 at the BSE. It has a market capitalization of Rs 894.45 million and a P/E of 7.18. (Friday, Jan.14, 2011)
3. Prag Bosimi Synthetics – Manmade Fibre – Polyester Filament Yarn (PFY)/ Polyester staple fibre (PSF):

During the period, shares of the company have gained by 1.94 points or 34.58% to settle at Rs 7.55. It has a market capitalization of Rs 542.25 million.
Shares of the company declined Rs 0.34, or 4.66%, to settle at Rs 6.95. The total volume of shares traded was 8,400 at the BSE. It has a market capitalization of Rs 542.25 million. (Friday, Jan.14, 2011)
4. Digjam – Woollen/Worsted:

During the period, shares of the company have gained by 2.80 points or 27.08% to settle at Rs 13.14. It has a market capitalization of Rs 826.27 million and it has a P/E of 1.97.
Shares of the company declined Rs 0.15, or 1.23%, to settle at Rs 12.05. The total volume of shares traded was 36,950 at the BSE. It has a market capitalization of Rs 826.27 million and it has a P/E of 1.97. (Friday, Jan.14, 2011)
Textiles Co`s tilt towards synthetics…
Fitch then believed that cotton prices would remain firm in the current cotton season of October 2010 to September 2011, well above the previous season, due to the huge international demand-supply gap, mainly by China`s increasing domestic cotton consumption, flood-led weak harvests in China and Pakistan, and with India capping its cotton exports to a maximum 5.5m bales to be shipped by mid-December 2010 in order to make cotton available domestically. This was coupled with untimely rains in major cotton producing states in India.
The picture should be clearer after anticipated arrivals into the domestic market over December 2010-January 2011, the peak period for such arrivals, the agency had noted. However, in a recent telephonic conversation with Myiris.com, Tanu Sharma, analyst from the agency noted that things haven`t changed much from that period.
The rise in cotton prices have impacted the margins of the textile companies however according to Tanu Sharma, “ The spinners are in a better position since they have been able to pass on the hike, and their margins are not that impacted cause of the good demand from the down stream sector“.
Exact figures however remained undisclosed. If this was not all, rising cotton prices have forced many companies to increase their polyester production!  In a recent media interview, textile maker, Alok Industries notes that it is going to double its polyester capacity and its new plant would commence operations by January itself, doubling its capacity from 600 tonne a day to 1,200 tonne a day.
Shares of the company declined Rs 0.5, or 1.93%, to settle at Rs 25.35. The total volume of shares traded was 5,007,087 at the BSE on Friday, Jan.14, 2011.
Dicey about this conclusion…

Buy or Not to buy…

While synthetic textile players are in a better position (as regards passing on the raw material costs) than pure cotton players, a careful digging has to be done keeping the valuations in mind!

(Source: http://www.myiris.com/newsCentre/storyShow.php?fileR=20110115172615198&dir=2011/01/15&secID=livenews)

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