century enka has showed a loss of 6.84 crs....which is due to raw material....i am sure it will show good results frm next qtr again.....one shld use this fall in the current market as a buying oppurtunity....one shld keep a slightly longer term view on it...many mutual funds are invested in it.
Century Enka is a joint venture between the B K Birla group (to become part of the Aditya Birla group) and the Acordis group (formerly Akzo Nobel) of the Netherlands. The company manufactures polyester yarn, nylon tyre yarn, nylon yarn, and engineering plastics at Bhosari, Pune. In FY 2005, cotton was cheap because of abundant availability. On the flip side, prices of key raw materials for making polyester — PTA and MEG — went through the roof. Because of the available of cheaper substitute, the polyester industry could not pass on the rise in raw material prices to end users. Therefore, the industry suffered in FY2005. Century Enka's margin was down by 500 basis points to 9.5%.Although cotton production is set for another bumper ride, the demand for polyester is also rising rapidly. With all the frontline players expanding their capacities to cater to the international markets, which primarily consumes polyester, the offtake of polyester is increasing.Moreover, prices of PTA and MEG have come down from their peaks. For example, in FY2005, PTA prices were on an average up 22% and MEG 34%. But POY prices were up only 4%, leading to a 34% fall in the gross contribution. In the first half of FY2006, PTA prices have come down 6% and MEG prices by 19%, lifting the gross contribution for POY up by 23%. Going forward, the situation will improve further. Though crude prices may remain high and continue the upward trend, the commissioning of new plants of PTA and MEG in India and China will boost their availability and hold down prices. Thus, the polyester (POY) division of Century Enka, which constitutes nearly 50% of its revenue, is set to get the dual benefit of lower raw material cost year-on-year (y-o-y) and rising offtake. The company has already increased its polyester capacity by 14,600 tonnes to 74,100 tonnes in FY2005. By June 2005, the capacity was raised to 81,000 tonnes.Till July 2004, cheap imports of nylon tyre cord (NTC) from China caused Indian players to suffer. Yet, Century Enka outperformed the industry with its cost-effective measures and its ability to retain clients. After anti-dumping duty was levied in July 2004, the entire industry got a revival. Century Enka has finalised a Rs 160-crore nylon tyre cord (NTC) fabric expansion project to take the installed capacity to 22,000 tonnes. The company plans to complete the expansion by the last quarter of FY 2006.However, cheap imports of nylon filament yarn (NFY) from China continue. As a result, all the industry players as well as Century Enka are suffering. The Indian industry has proposed anti-dumping duty on NFY as well. However, the increase in POY demand, cooling off of raw material prices and the rise in the margin of NTC will more than mitigate the negatives for NFY (which contributes less than 15% of the sales). Once the anti-dumping duty is levied (which is very likely), the industry is set to show a surge in the margin. Century Enka has decided on a scheme of arrangement with its non-resident shareholder Acordis Overseas Investment BV to buy back 30% of its paid-up equity share capital at a price of Rs 122 per equity share, reducing its equity share capital by 30% to Rs 20.05 crore. Acordis will be entitled to tender up to 30% of its 38.24% shareholding.The FY2006 EPS on current equity is expected to be around Rs 23.4. At the current market price of Rs 259 (as on 20/09/05), P/E works out to only 11. Once the equity is reduced, EPS will jump to Rs 33.4 and P/E will fall to just 7.8
Century Enka looks under valued and has a big potential upside. This company will soon come into the management fold of Kumaramangalam Birla, which has a better market perception.
Positive factors
· Equity capital has been reduced to approx Rs. 21 crores from Rs. 28.6 crores as the stake of the foreign partner has been purchased from the reserves of the company. Thus the market capital capitalization is only Rs. 450 crores which is very little for a company with such assets and earnings.
· The annual sales are expected to be around 1000 crores with PAT of Rs. 50 cr. The EPS should be about Rs. 24 on the reduced capital
· The present promoters B K Birla group now only owns about 20 % of the reduced capital, which they would like to increase over time through creeping acquisition.
·This company will soon come into the management fold of Kumaramangalam Birla, which has a better market perception.
· Although POY prices have come down recently due to the market leader Reliance Industries' dropping prices, the input costs re down also.
·The synthetic textile industry prospects in India are bright.
· The stock has hardly participated in the bull market since mid-2003.
· The stock looks under valued and has a big potential upside.
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