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Shanthi Venkataraman

SHAREHOLDERS can hold on to the stock of Rajasthan Spinning. One of the larger players in the blended yarn segment, the company has been on an aggressive expansion and modernisation drive in preparation for the quota-free regime.

As quotas on textiles and clothing have ceased to exist, the company is now well-poised to increase its exports over the next few years. Its planned foray into readymade garments also augurs well for revenue growth. Earnings growth is, however, likely to be constrained by the spiralling raw material costs, which remains a burden on its operating margins.

Rajasthan Spinning, part of the LNJ Bhilwara group, is a leading manufacturer of polyester/viscose yarn and fabric. It markets a suiting range in the domestic market under the brand `Mayur'.

The company focusses on producing speciality fibres such as Melange and Polynosic. It has the right to dye, weave and process flame retardant fibre from Hoechst, Germany. The fabric is gaining popularity in segments such as hotels, theatres and aviation, to name a few.

Operating margins fell by 200 basis points to about eight per cent in the quarter-ended September 2004, due to rising prices of polyester and viscose-fibres, its key raw materials. Although the prices of polyester fibres are stabilising, the price of viscose is likely to remain firm, which would impact profitability in the near term.

There is, however, room for revenue growth over the long term. The company has been increasing its thrust on exports, which now account for about 35 per cent of its revenues. In the absence of quotas, the ability to deliver large volumes assumes significance.

Rajasthan Spinning is one of the few to ramp up capacity aggressively in the synthetics segment; this has placed it in a comfortable position to cater to the increase in demand.

The acquisition of Rishabdev Textile Mills and, more recently, Jaipur Polyspin, would help it scale up revenues and is also likely to result in cost savings. The company is also implementing a Rs 150-crore modernisation plan that could improve its competitiveness.

Rajasthan Spinning is likely to increase its thrust on fabrics and readymade garments, which are at the higher end of the value chain.

The forward integration into garments is in line with trends in the industry. The integrated nature of its operations is expected to work in the company's favour by reducing lead times and providing it a better check on costs.

The success of its foray into garments hinges upon the ability to compete effectively with pure-play garment exporters, who are better equipped in terms of flexibility in operation.

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