Fundamental picks recommended

Following are the two fundamental picks recommended by the brokerage house SMC Global with a time horizon of 1 year with investment rationale:

Welspun India

Investment Rationale

Welspun has strategically located manufacturing facilities in Anjar and Vapi in Gujarat one of the major cotton-producing states. This helps the company to establish synergies between raw material sourcing and its manufacturing facilities allowing it to achieve superior cost control and improved margins. Further the company has unit in Ciudad de Juarez, Mexico, geographically close to the US market. This benefits the company in terms of cheaper transport costs and faster delivery times to its end consumers in the US.

Welspun has integrated manufacturing facilities which allows it to undertake all the production processes (Spinning, weaving, processing, cut and sew packing and logistics) involved in the manufacture of its products. This helps to exercise control over and make profit from major part of the value chain, starting from the procurement of cotton to the distribution of the company`s products.

WIL plans to spend Rs 3 billion in FY11 mainly to enhance capacity in towels, bed linen and bath rugs. It also plans to debottleneck of existing equipments to enhance productivity. By the end of current fiscal annual towel capacity is expected to increase to 46,000 tons from 41,500 now along with increasing bed linen production to 52.5million metres from 45 million metres and bath rug capacity by 2 million units to 10 million.

At present company sells its products in 32 countries with considerable presence in Europe and U.S. It now plans to tap new markets in Japan, Singapore and the Middle East in the next two years to strengthen its foothold in the Asian continent which offer phenomenal growth opportunities by tying up with local agencies.

Nahar Industrial Enterprises

Investment Rationale

The increased in domestic demand and better export holds out optimism for Indian textile industry. It is expected that this trend will continue to sustain in the coming months.

NIEL`s strategic objective is to capitalize on the growth opportunities that it believes are available in the domestic and global textile industry. At the same time the company recognizes the competitive nature of the industry, especially with established pressure from Asia, company is working on improving the production process to reduce costs.

NIEL`s client base is extremely diverse with no one customer accounting for more than 5% of total revenues. The company`s clients for processed fabric in the domestic markets include Allen Solly, Louis Philippe, Provogue, Pantaloon, etc in domestic market. In the export market, NIEL`s clientele includes names like GAP , Oshkosh, Ann Taylor , M & S, Liz Claiborne, Timberland, Aigle, and Tommy Hilfiger . Some part of the processed fabric is for self-consumption to produce readymade garments - shirts, trousers, jackets etc. It sells its cotton garments under `Cotton County` and `Monte Carlo` brands.

The company has a firm faith in the bright future of textile industry in India. It has planned expansions in spinning and weaving capacities. Net profit of the company rose 2.76 times to Rs 189.3 million in the quarter ended September 2010 as against Rs 68.6 million during the previous quarter ended September 2009. Sales rose 13.08% to Rs 2.79 billion in the quarter ended September 2010 as against Rs 2.47 billion during the previous quarter ended September 2009.