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Sarla Performance Fibers

Sarla Performance Fibers is engaged in the business of manufacturing specialised high tenacity yarns. The yarn manufactured by it is used in the manufacturing of innerwear, narrow fabrics, hosiery, sportswear etc. Company boasts several marquee clients like: Hanes, Gildan, American & Efird, Delta Galin, Coats & Jockey, Vardhaman, SBM, etc as well as it derives around 50% of its sales from export.

Current Market Price on the date of Publishing this report-: 51 Rs

Introduction

Salra Performance Fibers, founded in 1993, began with the production of commodity yarns. Later in its life, the company effectively altered its focus and established itself as a maker of specialised and higher value-added yarns. The company’s fundamental strength is in customising the product to each individual customer’s requirements and specifications.

It is a 100% EOU that manufactures and exports textured, twisted, and dyed polyester and nylon yarns, covered yarns, high tenacity yarns, and sewing thread. The company’s headquarters are in Mumbai, India, while its manufacturing plants are in Silvassa and Vapi, 160 kilometres outside of Mumbai.

Polyester and nylon yarns are produced by the company. It operates in two segments: synthetic yarn manufacture and processing and wind power generating. It has an established capacity of 11,700 tonnes per year for yarn production in Silvassa and 2,400 tonnes per year for a dying plant in Vapi. Polyester, polyamide (nylon), texturized, twisted, dyed, medium/high-tenacity nylon/flat yarns, nylon/monofilament yarns, polyester/nylon, spandex/lycra yarn, and dyed synthetics yarn are the various products manufactured by the company.

SPFL has built a solid customer base with clients in all major nations across the world. SPFL has grown its activities both within India and beyond throughout the years, creating new facilities and expanding old ones, with the primary goal of increasing closeness to consumers in order to provide them with swift and effective services. Several marquee clients like: Hanes, Gildan, American & Efird, Delta Galin, Coats & Jockey, Vardhaman, SBM etc (This may vary, since any direct information about this was not provided from the company)

These are vertically integrated plants from Spinning to the latest technology for high bulk high stretch polyester and nylon muffs and hanks to our own in-house bonding and kingspool winding which all in all allow us to produce more than 250 different varieties of value-added yarns and threads to satisfy our niche and individual customer end applications.

Manufacturing Facilities

The company’s manufacturing plants are at Silvassa, Dadra, and Vapi, which are all roughly 160 kilometres north of Mumbai. SPFL’s principal manufacturing units are located in Silvassa, one next to the other, with a new unit about 10 kilometres distant in Dadra. These are vertically integrated plants that produce more than 250 different varieties of value-added yarns and threads to satisfy its niche and individual customer end applications, ranging from spinning to the latest technology for high bulk high stretch polyester and nylon muffs and hanks to its own in-house bonding and kingspool winding. 

The company’s recently upgraded dyeing facilities are located in Vapi (Gujrat Industrial Development Corporation), 12 kilometres from Silvassa, and are outfitted with the newest equipment to dye the exact colour in any fibre, from stretch nylon to textured sewing thread to high tenacity yarns. SARLA now has the highest capacity in India for air covering, single and double conventional covering. (Source Company website)

With a Color Bank of over 5000 colours, SARLA’s laboratory creates 8 new colours every day on average. The company’s digital colour matching technology and certified colour experts enable it to digitally match a shade and recreate the identical shade with consistency.

Business Products

• Textured Polyester Yarn – It is used in applications such as Sewing Thread, Furniture Upholstery, Automotive Upholstery, Narrow Fabrics, Tapes etc. 
• Textured Sewing Thread – It is used in apparel, swim wear, lingerie, fleece goods, towels and washcloths, table cloths and placemats, sheets and pillow cases.
• High Tenacity Yarns – It is used in applications such as automotive seat belts and trims, automotive air bags, upholstery, dress, casual & athletic footwear, leather goods, soft luggage, saddlery.
• Covered Yarns – It is used in Narrow tapes, hosiery, lingerie, seamless knit wear, medical bandages, knitted and denim fabrics.

Company also manufactures products for some niche sectors such as 

• For Narrow Fabric & Elastic tape Manufacturers
• For Socks & Hosiery Manufacturers
• For Sewing Thread Consumers
• For Dye Houses

Products portfolio 

• Applications: Narrow fabrics, hosiery applications, medical bandages, knitted and denim fabrics, leather goods, soft luggage, automotive seat belts and trims, mops, towels, shoe uppers, automotive air bags and upholstery, among other products. 
• Yarn products: Continuous filament yarns, high tenacity, low shrinkage, covered spandex and lycra yarns 
• Threads: Applications in automobiles, premium footwear and business, high-end apparel and embroidery 

Despite market uncertainties, the Company has seen growth of nearly 70% in 

sales and PBT increased by 66%. To ensure no target deviations, regular monitoring is done coupled with solutions for eliminating blockers.” 

Capex

A high tenancy yarn capacity is likely to be commissioned from the third quarter of the current financial year, which may operate at only 50 per recent capacity utilisation during the next financial year before it delivers its full impact during FY 2024-25. 

Company’s Nylon 66 capacity is being raised from 1 TPD to 3 TPD; the Nylon 6 capacity is being raised from 3 TPD to 8 TPD. These products are fast moving; the Company is a respected brand for these products. Management is optimistic of no or little gestation between the commissioning of these expanded capacities and their rated capacity utilisation, strengthening sales volumes, realisations and margins. 

During the year 2021-2022, the Company invested Rs. 11.60 Crore in equipment modernisation (replacement of legacy assets with modern equivalents). 

During the last five years, the Company invested an aggregate Rs. 87.99 Crore in this regard. The result is that 30% of the Company’s manufacturing equipment was 5 years or less as on March 31, 2022. 

Financials

For the year ended March 2022

• Company reported profitable growth: even as revenues increased 36.93% across the last two years over the pre-pandemic revenue base of FY 2019-20, EBITDA increased 1.07% and profit after tax strengthened by 63%. 
• The Company is repaying the debts to make it debt free and enhancing its net worth. The Company’s debt-equity ratio strengthened from 0.84 at the close of FY 2019-20 to 0.34 at the end of FY 2021-22. 
• From a position more than two years ago when the Company had net debt of Rs. 266 Crore on its books, the Company finished the year under review with net debt of just Rs. 133 Crore 
• In FY 2019-20, the Company generated sales of 11510 Tons, which was followed by 10215 Tons in FY 2020-21 and 13200 Tons in FY 2021-22 
• Company generated 65% of its revenues from customers of five years or more 
• The working capital cycle declined from 149 days of turnover equivalent (FY 2019-20) to 97 days (FY 2021-22); the receivables cycle moderated from 133 days of turnover equivalent to 86 days, strengthening liquidity.
• The Company anticipated to report an EBITDA margin in excess of 20% despite an unprecedented increase in raw material costs that needed to be absorbed from some time – estimated at Rs. 33 Crore in FY 2021- 22 – before they could be passed on to customers.

For Q1FY23

• Net Sales at Rs 117.66 crore in June 2022 up 36.52% from Rs. 86.18 crore in June 2021.
• Quarterly Net Profit at Rs. 9.56 crore in June 2022 down 20.09% from Rs. 11.97 crore in June 2021.
• EBITDA stands at Rs. 21.38 crore in June 2022 down 10.99% from Rs. 24.02 crore in June 2021.
• Sarla Performan EPS has decreased to Rs. 1.15 in June 2022 from Rs. 1.43 in June 2021.
• Sarla Performan shares closed at 49.85 on July 29, 2022 (NSE) and has given -30.08% returns over the last 6 months and 19.69% over the last 12 months.

Management’s comments

• Management expects that these expansions could graduate the Company towards revenues in excess of Rs. 600 Crore at peak utilisation. Considering that all these investments will be funded through accruals, it is expected that the transmission of margins to be attractive. In turn, management expects that this investment will create an adequate surplus to reinvest yet again, creating a sustainable cycle of value creation. 
• In the coming period management expects company to enter larger supply chains in US, assuring consistent offtake that helps amortise its fixed costs more effectively. 
• Management is highly optimistic of making company net cash company in the current fiscal.

Sectorial Outlook

India’s textiles sector is one of the oldest industries in the Indian economy, dating back to several centuries. 

India’s textiles industry has around 4.5 crore employed workers including 35.22 lakh handloom workers across the country. The Indian textile and apparel industry is expected to grow at 10% CAGR from 2019-20 to reach US$ 190 billion by 2025-26. Production of fibre in India reached 2.40 MT in FY21 (till January 2021), while for yarn, the production stood at 4,762 million kgs during same period. 

India is also significant textiles fiber and yarn manufacturer on the world scene, taking on its own a 12% share of the world’s production volume. India ranks on the second place as regards in production of silk and cellulose fiber and yarn whilst standing on the fifth position when it comes to synthetic fiber and yarn. Many manufacturing companies in India are rushing towards expansion and modernization options. Business collaborations with foreign players, creation of buying offices and Government’s effort to enhance quality production and export are many visible signs of Indians coming into force on the global market. 

Therefore, even though the global environment looks challenging, the markets in India look poised to fare much better. The industry-specific support provided by the government, favourable geopolitical equations and the resilience of Indian entrepreneurs will likely hold the Indian economy and the Textiles and Apparel sector in good stead. 

Conclusion

Sarla Performance Fibers engaged in the business of manufacturing specialised high tenacity yarns has went through an extended period of consolidation that was marked by conservative resource reinvestment to enhance liquidity during challenging days. There was a period when the management did not take its share of dividend for two years, preferring to plough it back into the business. That period appears to be coming to an end. This is evident in the decision of the management to announce a payout ratio of 30% from this point onwards. The growth that it foresees is expected to be sustainable with no sharp deviations (upward or downward), strengthening business predictability. Management expects Sarla’s revenue to increase revenues by a minimum 13% in FY 2022-23. Additionally management also expects the company to be Net debt free in the coming period as well. Thus this makes Sarla Performance worth exploring for long term.

Our only concern that remains with this company is increasing/ high account receivable. However based on the managements comments our view is that in order to retire its debt and to fund upcoming/ongoing capex from internal funds, management will be poised to take action to realise the receivables. But we are not sure how this is going to pan out. Therefore users are requested to do their own research before taking any decision.