5 reasons why Sharekhan is bullish on Sangam India shares

Sangam India share price jumped over 6 per cent to Rs 265 on Tuesday. The company is an integrated textile player with its product portfolio ranging from yarn and fabrics to garments.

Sharekhan is bullish on the further movement of Sangam India shares and gave five reasons on why Sangam India shares can give 20-25 per cent return in the next few months.

1) Sangam has reported a compounded annual growth rate (CAGR) of 11 per cent in its revenues and 25 per cent in its net profits over the last five years. In the same period, it has invested close to Rs 300 crore in capex (forward and backward integration) but reduced its debt/equity ratio to 1.43x in FY2015 from over 3.6x in FY2010 due to focus on cash inflows.

2) The return ratios have also improved consistently with return on equity (RoE) and return on capital employed (RoCE) at over 15 per cent in FY2015 from less than 10 per cent in FY2010. The significant improvement and consistency in its financial performance is driven by its efforts to continuously move in backward-forward integration.

3) With an expected high double-digit steady growth rate in earnings over the next couple of years and increasing contribution from branded garments segment (B2C business), Sharekhan see a potential for multiple re-rating of the stock and expect handsome gains over medium to long term. In the near term, the brokerage house believes that the initial success of its garmenting business and strong financial performance could provide 20-25 per cent returns over the next few months.

4) Sangam has forayed into the garment segment by entering into lucrative women’s active and intimate wear category in line with its strengths in PV fabric. At present, the segment is growing at double-digit rates and is highly fragmented with less than 20 per cent market share of organised players. Thereby throwing up a huge opportunity for players like Sangam. This initiative has a potential to add Rs150-200 crore to the top line with relatively higher margins of close to around 20 per cent from 2HFY2016 onwards.

5) It is a dominant player in the domestic dyed poly viscose (PV) yarn market (around 25 per cent share) and is growing strong in the highly fragmented polyester viscose fabric market. At present, yarn contributes 58 per cent to its total revenue, while fabric contributes 38 per cent.