Hope you are doing well.
I have been screening for stocks wherein Promoter holding has increased and in the process came across Sportking India Ltd.
The name looked interesting and I thought it will have something to do with sports; however, the company is engaged in the production of yarns.
While the business sounds boring, what’s interesting is that the stock is down from 1,800 odd levels recorded in Oct’21 to 800 odd levels currently. The company has expanded the yarns capacity by 35% and doesn’t foresee major CAPEX over the next 18-24 months. Also, the margins currently are the lowest in the last 8-10 years.
Below, we have shared interesting insights from the Q2 FY 24 con-call of Sportking India to understand the current situation and the outlook for the company.
Before that, if you ever find a good stock in an ignored sector with promoter buying from market and increasing his stake, you should sit up and study the company in greater detail…something good might be brewing.
We recently released our new stock recommendation for Alpha/Alpha + members based on the same framework – for details click HERE
Sportking India – Insights from Q2 FY 24 con-call of the company
– About Company
- Sportking India Limited was incorporated in the year 1989 by late Shri Raj Avasthi
- Company diversified its activities with the installation of 6,000 spindles in Punjab for manufacturing of synthetic yarns in 1993
- As a value addition exercise, the company commissioned in the year 2000, a dye house for dyeing of synthetic cotton fibre yarn
- Over the last 30 years, the company has gradually enhanced its capacity to now almost 3,79,000 spindles as of now
- We at Sportking have 3 state-of-the-art manufacturing facilities in Punjab, with the benefit of our capability being concentrated at a single location
- We also undertook a solar rooftop project. Of the planned 25 megawatt, more than 22 megawatts have already been operationalized with the remaining coming online within next month
- Our product portfolio involves 100% cotton yarns, polyester cotton blended yarns, dyed yarns, acrylic yarns, as well as some fancy yarns
- We have a substantial presence in export markets with countries such as Bangladesh, Europe and China being our prime destination
– Performance details
- In Q1, cotton yarn prices were around INR 297 and the average cotton price was around INR 178
- In Q2, the cotton fibre prices were almost around INR 176 and the cotton yarn prices was INR 282
- The Q2 capacity utilization was almost 96% (on 3,20,000 spindles)
- The volumes in cotton yarn were 12,100 tons and in polyester cotton yarn around 7,000 tons and in total around 20,740 tons as compared to 18,455 tons in Q1
- In Q2, exports share was around 52%
– Industry scenario
- The demand has been very challenging for last six months and continues to remain so
- Exports have had some bump up for last six months, initially led by Chinese demand and recently demand from Bangladesh
- Domestic demand has been very, very tepid for the last four and five months
- Synthetic and blended yarns have been particularly bad for last quarter as it’s mostly dependent on domestic market which has been very bleak for last three months
- Pipelines are getting empty but retailers don’t seem to be in any hurry to fill them up
- The cost side is very supportive. After a long hiatus of almost 18 months, cotton prices have come down very sharply to a level of 56,000 per candy
- Indian spinning mills will definitely benefit the most when the demand comes back, as competing countries are grappling with various challenges
– Savings from Solar Power plant
- 22 MW is operational, not two. Only three is left
- Average saving is around 17-18 crores to be precise in today’s power price
- Capex cycle is over for this round. For next 18 months we don’t have anything in plan
- Top line is something I think we’ll be able to manage. We are pretty confident of keeping up with the run rate of the quantity produced
- Margins is something which is up in the air right now and we expect to at least maintain what we have given in last quarter and may be slightly go better than that
- We expect to cut our costs by at least 100 basis points in the next six months with all the activities we are doing
Disclaimer: This is not a recommendation to buy/sell Sportking India. The securities quoted are for illustration only and are not recommendatory.
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