The Hindu Business Line : Eastern Silk at all-time high on growth prospects

THE Eastern Silk Industries Ltd stock has taken a smooth upward route on the bourses for sometime now and the counter hit its all-time high today at Rs 155 on the BSE and the NSE.

On the BSE, it finished with a 4.41-per cent gain at Rs 145.90. The stock price has improved by about 21 per cent in October so far. Since September 16, the counter has seen a rise of about 45 per cent.

According to market analyst, Mr Mathew Easow of matheweasow.com, the stock is moving up on strong fundamentals and growth prospects.

The stock's earning per share after the first two quarters to September 31, 2004 stands Rs 17. In the last five financial years, the EPS had grown from Rs 12.80 to Rs 21.09.

However, according to him, EPS growth would be smothered in the second half of this fiscal because of enhancement in capital base after merger of a group company - Stella Silk Ltd, a listed entity - with it shortly.

"A conservative estimates suggest that at the end of the financial year 2004-05, the company may report an EPS of Rs 22", Mr Easow commented.

According to analysts, technically the stock appears somewhat overbought, but the future growth curve - particularly in the post-quota regime from 2005-06 onwards - may improve substantially considering its plans for a joint venture in China for yarn sourcing and capacity consolidation.

According to the management, the Chinese joint venture would be operational by December end. The company is also working on a plan to swap debts. As on March 31, 2004, the company's total secured borrowings stood at Rs 71.71 crore.

Company sources maintained that $ 5 million investment in the Chinese joint venture would not be a drag on the cash flow. On the contrary, the total yarn buyback arrangement with the joint venture unit would ensure a steady source of quality raw materials and reduce dependence on imports at open market rates.

The company, which exports around 94 per cent of its fashion fabrics and furnishing items to the US and EU nations, has two weaving and processing plants in Karnataka and a twisting plant near here.