Textile stocks have cut a sorry figure on the bourses in the wake of yo-yoing cotton policies, polyester prices, heavy debt and a worsening market at home and overseas. The stock of S. Kumars Nationwide has lost over half its value in the past year. An exit of the scrip from the futures market last week fuelled the decline — the stock plummeted 20 per cent last week.

The promoter group had, by end-June 2012, pledged almost all its shares; pledged shares as a proportion to total promoter holding stood at 83 per cent in June 2011. The increased pledging now added to volatility worries.

On the business front, S Kumars’ sharpening focus on brands meant that it fell prey to the slackness in demand for apparel. Consumers cut back significantly on apparel purchases, hit by inflation and rising prices of apparel. Sales growth has been steadily decelerating over the past four quarters.

Prices of main inputs polyester, viscose fibre and cotton have only just begun cooling off. Raw material costs as a proportion to sales climbed up to 60 per cent by the March 2012 quarter. However, economies in other expenses helped it maintain operating margins at 20 per cent. With heavy debt (debt-to-equity at 1.6 times), interest costs jumped 50 per cent in FY12. Net profit margins, though, held steady at six per cent due to lower tax outgo.

(This article was published on July 28, 2012)
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