Top Undervalued Textile Stocks in India

January 23, 2022

India is among the world’s largest producers of Textiles and Apparel. The textile industry in India has traditionally generated huge employment for both skilled and unskilled labour. It offers direct employment to over 45 million in the country. The domestic apparel & textile industry in India contributes 5% to the country’s GDP, 7% of industry output in value terms, and 12% of the country’s export earnings. India is the 6th largest exporter of textiles and apparel in the world.

Textiles and garments industry is expected to reach USD 190 billion by 2025-26 from USD103.4 billion in 2020-21. A INR10,683-crore Production Linked Incentive (PLI) scheme launched by the government in 2021 is likely to further boost prospects in the industry. In this article, we aim to highlight some promising and undervalued textile stocks in India.

Top 10 undervalued textile stocks in India

#1 Indo Count Industries

The Company is involved in the production of bedding, quilts, pillows, sleeping bags, and preparation and spinning of cotton fibers, including blended cotton. The company has two manufacturing units, one stitching facility in Kolhapur, Maharashtra with 60,000 spindles in the spinning division, and a bed linen manufacturing capacity of 900 lakh metres per annum. The company exports to 50 countries across 6 continents. The US Market accounted for two-third of its total revenue in FY2021. In FY2021, the company announced a capex of INR200 crore for the expansion of the company bed linen capacity by 20% and modernisation of the existing spinning unit.

Its P/E ratio of 14.6 indicates that the company is undervalued while high ROCE and low debt levels point to better financial condition.

Financial Report of Indo Count Industries as on January 2022

P/E: 14.6

ROCE: 23.3%
One Month Return: 9.13%
CMP/Sales: 1.70

Debt/Equity: 0.52
Sales Growth in 3 years: 10.7%
Exports: 94.7%

#2 DCM Nouvelle – An interesting name among undervalued textile stocks

DCM Nouvelle is a leading manufacture and exporter of 100% cotton carded and combed yarn (BCI yarns, Organic yarns, SLUB yarns). The company has a strong presence in domestic markets and exports its products to more than 30 countries. More than 50% of total revenue is from export sales.

As seen in the ratios below, DCM has a lot going in its favor. It has limited debt on its books and revenues are surging while valuations remain attractive. With high contributions and realizations from overseas markets, it appears to be a matter of time before DCM Nouvelle is discovered by the market.

P/E: 4.47
ROCE: 14.5%
One Month Return: 13.0%

CMP/Sales: 0.66
Debt/Equity: 0.27
Export: 51.2%

#3 Maral Overseas

Maral Overseas is another interesting name in the list of undervalued textile stocks in India. Incorporated in1991, Maral Overseas is one of India’s largest vertically integrated textile companies. This export led company is a part of the USD 750 million LNJ Bhilwara Group. Its manufacturing plant is located in Khargone district Madhya Pradesh which is a major cotton-growing region of the country. The company plans to spend INR50 crores in FY2022 out of which INR10 crores will be spent on a new garmenting unit that is expected to commence operations in FY2022 itself.

In terms of valuations, the stock trades in single-digit P/E ratio while its double-digit ROCE and Price/Sales ratios are indicative of its undervaluation. A high ratio of export sales means that the company stands to benefit through better realizations as well as rupee depreciation against other currencies.

Financial Report of Maral Overseas January 2022

P/E: 8.56
ROCE: 12.4%
One Month Return: 47.6%

CMP/Sales: 0.61
Debt/Equity: 1.13
Sales Growth in 3 years: (0.45%)

Export: 42.6%

#4 Deepak Spinners

Deepak Spinners started operation in 1986 with 12,000 spindles and a dye house in Baddi, Himachal Pradesh. Presently, a total of 63,000 spindles are operational at two units along with a dye house. Deepak Spinners offers products made exclusively from the entire range of synthetic fibers including polyester, viscose, acrylic and blends thereof. Its products are exported to Syria, the Middle East, Turkey, Belgium, and the USA. The company spent INR6 crores on upgradation of its manufacturing units during FY2020.

Looking at its sales performance in the last three years, Deepak Spinners may not come across as an undervalued textile stock but let’s not forget that the last couple of years have been difficult for most of the companies. Moreover, the company has posted year-on-year sales growth in each of the last four quarters. Deepak Spinners has managed to reduce debt considerably in recent years and remains undervalued on Price/Sales basis on a low sales base. The stock has already gained 30% over the last month and trades above crucial moving averages.

Financial Report of Deepak Spinners as on January 2022

P/E: 6.96

ROCE: 12.4%
One Month Return: 30.2%
CMP/Sales: 0.52

Debt/Equity: 0.35
Sales Growth in 3 years: (3.37%)
Export: 7.43%

#5 Lagnam Spintex

Lagnam Spintex was founded in 2010 and is engaged in the business of producing high quality ring & open-end yarn for domestic and export markets. In this brief timeframe, Lagnam Spintex has established itself among important textile companies in India. The company has its manufacturing Unit in Bhilwara, Rajasthan with an installed capacity of 1,920 rotors in open end segment and 25,536 spindles in ring spinning segment to produce 35 tons per day. The company spent INR 24 crore in FY2021 for new machineries and technology upgrades.

It exports to countries like Portugal, China, Bangladesh, etc with export contribution of nearly 51%. It has had a significant increase in exports since FY2019 when export contributed only 20% of revenue. While the stock has gained over 90% in the last month, it still trades at a P/E ratio of 6.4, making its entry into the list of undervalued textile stocks quite logical. Its borrowings have increased lately but there has been a consistent sales growth.

Financial Report of Lagnam Spintex as on January 2022

P/E: 6.43
ROCE: 8.41%

One Month Return: 91.0%
CMP/Sales: 0.56
Debt/Equity: 1.71

Sales Growth in 3 years: 34.7%
Export: 51%

#6 Salona Cotspin

Salona Cotspin is engaged in the manufacturing and selling of Cotton Yarn, Knitted Fabrics and Garments. The company caters to both domestic and international markets. Its textile mill is located in Erode District of Tamil Nadu and it has showrooms (company owned & franchised) fulfilled through a network of distributors across the country. Exports are a major part of company’s revenues and accounted for 56% of total sales in FY2022.

Salona Cotspin has a market cap of just INR162 crore and trades at Price/Sales ratio of just 0.35. Salona may appear a misfit in this list of undervalued textile stocks as its debt is at elevated levels. Nevertheless, the company has managed to post high ROCE of 13% and its sales have also grown considerably. This small cap is surely an interesting name among textile stocks.

Financial Report of Salona Cotspin as on January 2022

P/E: 9.77

ROCE: 13.0%
One Month Return: 53.9%
CMP/Sales: 0.35

Debt/Equity: 2.66
Sales Growth in 3 years: 29.2%
Export: 56%

#7 Indo Rama Synthetics

Indo Rama Synthetics started its business in 1989 and has a manufacturing complex at Butibori near Nagpur in Maharashtra. The company offers polyester products such as Polyester Filament Yarn (PFY), Polyester Staple Fibre (PSF), Draw Texturized Yarn (DTY), Fully Drawn Yarn (FDY), Specialty Fibre and Chips. Besides India, the Indo Rama Group has a strong presence in Indonesia, Thailand, USA, Nepal and Sri Lanka. It has several technical collaborations with various technology leaders in Japan, Germany and the USA. In May 2021, the board of directors approved an expansion plan of INR600 crores for the addition of balancing equipment and to diversify into 700 TPD PET resin manufacturing facility.

Indo Rama Synthetics has turned the corner on sales performance in recent quarters and earnings are likely to explode in the coming quarters. The stock has seen a breakout on heavy volumes and has already gained over 50% in the last month, it remains undervalued on P/E and Price/Sales parameters.

Financial Report of Indo Rama Synthetics as on January 2022

P/E: 7.93
ROCE: 11.5%
One Month Return: 54.7%

CMP/Sales: 0.70
Debt/Equity: 1.35
Sales Growth in 3 years: (3.46%)

Export: 21%

#8 Vishal Fabrics

The company is engaged in manufacturing and selling of various textile products like Dyed yarn, Denim Fabrics and job work of textile products. The processing unit of the company is based in Narol, Ahmedabad with an installed capacity of 1,200 lakh mtr / annum. The Denim processing business is situated in Dholi, Gujarat having the capacity of 800 lakh mtr/annum.

Vishal Fabrics largely caters to the domestic market and has shown a spurt in sales volumes lately. Undervaluation on Price/Sales and P/E parameters make it an attractive textile stock in India.

Financial Report of Vishal Fabrics as on January 2022

P/E: 16.2
ROCE: 10.1%

One Month Return: 47.5%
CMP/Sales: 0.64
Debt/Equity: 1.30

Sales Growth in 3 years: 2.80%
Export: 2%

#9 Century Enka – Oldest among undervalued textile stocks

Part of the B.K. Birla group, Century Enka has a long legacy of successful business operations and is among the oldest textile companies in India. It has operates three manufacturing sites and produces Polyester Filament Yarn, Nylon Filament Yarn and Polyester POY etc. Century Enka currently exports green polymer to countries like USA & China where it has a leadership position. In a meeting held in May 2021, the company’s board approved investments to the tune of INR 240 crore for strengthening its position in tyre reinforcement market through enhancing capacity and modernization of its plants. It will also increase the capacity of draw texturized yarn and mother yarn at a cost of INR 23 crore.

To its credit, the company operates with minimal debt and has started posting higher sales. It is a market leader in Nylon Filament Yarn with 25% share in domestic market. Like several others in the list, Century Enka has appreciated quite handsomely in the last month but continues to look attractive with a P/E ratio of just 7.3.

Financial Report of Century Enka Ltd. as on January 2022

P/E: 7.35

ROCE: 8.92%
One Month Return: 40.5%
CMP/Sales: 0.69

Debt/Equity: 0.01
Sales Growth in 3 years: (4.83%)

#10 Banswara Syntex

Banswara Syntex is engaged in the business of manufacturing synthetic blended yarn, wool and wool mixed yarn, fabrics and readymade garments. It is a government-recognized Four-star export house and counts reputed fast fashion brands like Uniqlo, Calvin Klein, Marks and Spencer, Next, etc among its clients.

Banswara Syntex is a dark horse in the list of undervalued textile stocks and yet attractive in terms of valuation metrics like P/E, It has halved its borrowings in the last three years and its Debt/Equity ratio now stands at just 0.61. Meanwhile, sales have started picking up after dipping in FY2021.

Financial Report of Banswara Syntex as on January 2022

P/E: 12.3

ROCE: 7.31%
One Month Return: 31.42%
CMP/Sales: 0.51

Debt/Equity: 0.61
Sales Growth in 3 years: (15.24%)

As one can see, this list of undervalued textile stocks is largely based on sales volumes and financial aspects such as debt, return ratios, and exports. As there is no dearth of textile companies in India, we have kept a focus on mid and small cap textile stocks. This is not a recommendation to buy or sell, please consult your financial advisor.