Nakoda: Increasing cotton yarn prices, sustained demand result in encouraging Q1 results

MUMBAI: Increasing cotton yarn prices and sustained demand have changed the fortunes of spinning mills companies in the June 2012 quarter. In the June 2012 quarter, most spinning mills companies have shown encouraging financial performance, indicating brisk business in the quarter.

In the small-size spinning mills companies, the Surat-based Nakoda Ltd has maintained consistent growth in its net profits in the last 15 years. For investors this is very comforting considering the fact that the company has been able to maintain consistent and linear growth in its net profits. Even in the June 2012 quarter, the company's net profits have grown by 21.4% to Rs 14.6 crore on a year on year basis. Also the company's net sales grew by 22% in the June 2012 quarter to Rs 634 crore in comparison with last year's June quarter.

This growth has come on the back of low interest expense, which has been consistently low in the last four years. The company's interest expense as a percentage of net sales has been less than 2% in the last four years, which conserves a substantial portion of its revenues. This works well for the company even in the weak cycle of yarn business.

For investors, a factor that works in the company's favour is its attractive valuations. On the valuation front, the company is trading at a price to earnings of 2 times, which is quite attractive considering its small size and consistent performance. In the last one year, the company's stock has fallen by 28%. This present a good price to buy into the company's stock.