Shri Lakshmi Cotsyn Ltd.

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BUY

Price: Rs. 150                                                               Target Price: Rs. 240

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Consistent financials and Operational Performance….

The financial performance of SLCL is characterized by consistent growth in operations over the years resulting in steady cash flow generation, during FY05- 07A, revenues recorded growth at CAGR of 51% to Rs 6443 mn for FY07A, and for the same period net profit clocked a CAGR of 99% at Rs 405.7 mn.

Major Transformation in Process……

SLCL has chalked out a roadmap for a major transformation, with its three phase expansion program, and Phase I is already completed and Phase II expansion is almost completed. Going forward, company is gearing up for phase III expansion program, with capacity expansion of 12000 MT in Terry Towels and setting up of a 12 MW captive power plant for internal consumption. In addition, SLCL is also planning a grand foray into branded retail line with opening of 500 retail outlets across the country within the next three years through Dealers & Distribution Network, Franchisee Outlets and Exclusive Brand Outlets. We believe, with completion of Phase III expansion and coming on stream of Retail outlets, will give a big boost to company’s brand in the market arena, and augurs well for SLCL future growth prospects.

JV with Armet Armoured, leveraging relationships….

SLCL has entered into a Joint Venture with Armet Armored Vehicles Ltd, UK for manufacturing of bullet proof body made of nylon fabric sheets for armoured vehicles and other ballistic products and assembling of vehicles.

Factoring all this, we are initiating coverage on SLCL with a BUY rating with a target price of Rs 240. P/E is our primary valuation tool as we see it as best capturing the company's earnings growth potential & we assign a target P/E multiple of 9x FY09 Earning of Rs 26.7 per share. On the other hand on Marketcap/sales valuation SLCL is trading at 0.2x FY09 estimates, and on EV/EBITDA multiple SLCL trades at 4xFY09E, which is a steep discount to its peers like Welspun India, Abhishek and Alok wherein, the average Marketcap/sales multiple of these players on FY09E, is at 0.5x and average EV/EBITDA is at 6.8x. Nevertheless, with strong earnings visibility to continue, post expansion plans we consider valuations to be attractive at current level and we recommend a BUY on Shri Lakshmi Cotsyn Ltd. (SLCL) with a 12-M target price of Rs 240.

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