The Hindu Business Line : Ginni Filaments: Weave it in

INVESTORS can subscribe to the seasoned public offer of Ginni Filaments. The price band of Rs 19-22 is at more than 50 per cent discount to the prevailing market price of Rs 35.

At the upper end of the price band, the offer values the stock at 15 times its annualised per share earnings.

As fresh capacities are likely to go on stream by the first quarter of 2007, there is likely to be a significant ramp up in revenues and earnings subsequently.

The company has had its share of ups and downs. However, its recent results suggest a recovery. Its profit in the first half of FY-06 is significantly higher than that of FY-05. The Rs 185-crore Ginni Filaments has a presence in the spinning and knitted fabric business.

It plans to invest Rs 200 crore in expanding its spinning capacities and foraying into non-woven fabrics and garments. The proceeds of the offer would partly fund its expansion plans; the remaining cost of the project would be met by debt.

The foray into non-woven fabrics is a positive as it represents a relatively untapped market.

Non-wovens find application in surgical gowns, gauze, personal-care items such as diapers, and household applications. The demand for non-wovens is greater in the export market. In the domestic market, Ginni is targeting industrial applications. An adverse movement in the price of cotton, the chief raw material, and the likely rise in interest costs, are the principal risks to our recommendation.

Ginni is counting on its easy access to raw materials such as cotton and viscose at relatively low prices to help it secure a price advantage over competing nations in the export market. In the domestic front, it might be better placed to pass on raw material price hikes, as it would still be competitive vis-à-vis imports. The company will also remain debt-heavy, post-expansion, although it enjoys low interest rates. Its interest component, as a percentage of sales, is already a tad on the high side.

Offer details: On offer are 2.52 crore shares. The promoters will subscribe to 20 per cent of the offer and their post-offer stake will be about 48 per cent. The offer opens on December 19 and closes on December 23. The lead manager is SBI Caps.

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