Modis take on textile sector A placebo or reality?
[Editor: Buy Pradip Overseas Ltd at Rs.5.80, T--Rs.12. The textile stocks generally give return in the 3rd and 4th quarter. The company should come up with better results from Q1FY15, as it has completed the restructuring of its loans. The Company has undertaken a project to develop Industrial Hub. After implementation of the same the Company will be able to come out of the present difficult situation. It will take another 1-2 years to get the project completed. The company said in September, 2012, that the government had allowed it to withdraw from the proposed special economic zone (SEZ), for which it raised around Rs.116 crore though an initial public offer (IPO) in March 2010. According to the Smart Investor, 28 September, 2012, the company had proposed to established the SEZ over an area of 109.48 hectares. However, in the wake of tepid response from investors and imposition of minimum alternate tax (MAT) on units in SEZ affecting future prospects of the project, the company decided to scrap its SEZ. The company now has undertaken a project to set up an industrial park (Not only textiles but all types of manufacturing companies is expected to set up their units at the proposed park) at the same location instead, as mentioned earlier.
Now there are BSE/ NSE listed companies, who are having pledged shares with the lenders. Such companies have to pay extra margin money on every share price fall. This erodes the working capital of the business concern and puts pressure on the resources. Now, you would see, the shares of many such companies like Glodyne Tech (Rs.6.85), Shiv Vani Oil and Gas Exploration Ltd (Rs.17.41), Core Projects Ltd (Rs.16.03), etc are moving up. It is because with the rise in share price, the risk of putting more and more margin funding comes down. This gives the companies much more room to play. In such a context, I asked to buy Pradip Overseas, for a slightly longer term perspective, as from FY15, the company is expected to show improved performance.
Debt Restructuring:
In F.Y. 2011-12, Several external factors such as high volatility in the cotton prices (main raw material), meltdown in overseas financial markets, RBI monetary policy, etc. had impacted the company’s ability to repay its debts in a timely manner leading to severe liquidity challenges. As a result, company had filed an application with SBI (lead banker of the loan consortium) to recast its debt obligations which was approved on March 27, 2012. The significant highlights of the package are as under:
i) Effective date for restructuring: 29.02.2012
ii) Under the scheme, debts are restructured as :
(a) Working Capital facilities comprising of cash credit, Letter of Credits, Purchase Bill Discounting and Guarantees of Rs.534 Cr.
(b) Conversion of overdrawn working capital facilities and short term loans amounting to Rs.403.26 Cr to Working Capital Term Loan (WCTL). WCTL carries interest rate of 12.50% p.a.
(c) Interest on WCTL for the first 9 months (from March, 2012 till November, 2012) shall be converted into Funded Interest Term Loan (FITL) carrying interest at 12.50% p.a. Repayment of FITL has started from April, 2013 as per schedule.
(d) The Company has offfered additional security for securing restructured debt]
Now there are BSE/ NSE listed companies, who are having pledged shares with the lenders. Such companies have to pay extra margin money on every share price fall. This erodes the working capital of the business concern and puts pressure on the resources. Now, you would see, the shares of many such companies like Glodyne Tech (Rs.6.85), Shiv Vani Oil and Gas Exploration Ltd (Rs.17.41), Core Projects Ltd (Rs.16.03), etc are moving up. It is because with the rise in share price, the risk of putting more and more margin funding comes down. This gives the companies much more room to play. In such a context, I asked to buy Pradip Overseas, for a slightly longer term perspective, as from FY15, the company is expected to show improved performance.
Debt Restructuring:
In F.Y. 2011-12, Several external factors such as high volatility in the cotton prices (main raw material), meltdown in overseas financial markets, RBI monetary policy, etc. had impacted the company’s ability to repay its debts in a timely manner leading to severe liquidity challenges. As a result, company had filed an application with SBI (lead banker of the loan consortium) to recast its debt obligations which was approved on March 27, 2012. The significant highlights of the package are as under:
i) Effective date for restructuring: 29.02.2012
ii) Under the scheme, debts are restructured as :
(a) Working Capital facilities comprising of cash credit, Letter of Credits, Purchase Bill Discounting and Guarantees of Rs.534 Cr.
(b) Conversion of overdrawn working capital facilities and short term loans amounting to Rs.403.26 Cr to Working Capital Term Loan (WCTL). WCTL carries interest rate of 12.50% p.a.
(c) Interest on WCTL for the first 9 months (from March, 2012 till November, 2012) shall be converted into Funded Interest Term Loan (FITL) carrying interest at 12.50% p.a. Repayment of FITL has started from April, 2013 as per schedule.
(d) The Company has offfered additional security for securing restructured debt]
Modi's interest with regard to textile sector appears promising and the Indian textile sector might experience a major breakthrough internationally if things go as per plans. This formula has already worked for Gujarat and its success has at least given Modi a firsthand experience as to how this and other policies akin to this will work at national level. The textiles and clothing sector is by far the largest employer in South Asia, providing sustenance to over 100 million people. Modi has taken his job to reform textile sector in Gujarat seriously. The expectations from him are palpably high, but, only time will tell if his policies will work at the national level or not.
Source: Fibre to Fashion.com
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