Saral Gyan Hidden Gem - Feb 2016

UNEXPLORED MULTIBAGGER SMALL CAP STOCKS
EQUITY RESEARCH REPORT
ZENITH FIBRES LTD. BSE CODE: 514266
Industry: Textiles - Manmade CMP: Rs. 103.60 (13/03/2016)
Market Cap: 45.82 (INR in Crore) Target Price: Rs. 210
Date: March 13, 2016 Time Period: 12 – 24 months
Saral Gyan Capital Services
An Independent Equity Research Firm
www.saralgyan.in | www.saralgyan.com

HIDDEN GEMS – FEBRUARY 2016
- 2 - SARAL GYAN CAPITAL SERVICES
TABLE OF CONTENT
S.No Content Page No.
1. Company Background 03
2. Recent Developments 04
3. Financial Performance 06
4. Peer Group Comparison 08
5. Key Concerns / Risks 08
6. Saral Gyan Recommendation 09
7. Disclaimer 11

1. Company Background
Zenith Fibres Limited incorporated in the year 1989 and promoted by Aaekay Rungta
Group of Kolkata, is the only company in India manufacturing virtually the entire range of
Polypropylene Staple Fibre (PPSF) from very fine to coarse Denier.
The company is also involved in the marketing of PP Spun and DREF-2 yarn. Its products
are very well established both in the domestic as well as in the international market.
Zenith Fibres is an ISO 9001:2008 Certified Company.
Company with State of Art Technology has set up a plant to manufacture PPSF at village
Tundav, near Baroda, India. It has expanded its production capacity to current level of
8400 MTPA.
Growing Automobile sector, infrastructure development, construction sector and many
other related industries present a huge market potential for PPSF. Apart from servicing
domestic market the company has a significant presence in overseas market. The quality
of PPSF is very well accepted in both domestic and overseas markets.
Zenith Fibres is one of the leading manufacturer and exporter of Polypropylene Staple
Fibre (PPSF) in India. Company manufacture Polypropylene Staple Fibre in denier range
of 2.5 to 40 in different cut length in natural white and 4 to 40 Denier in dope dyed colours
for different applications.
PPSF has wide ranging applications in view of its being a light weight fibre with high
insulation properties and good resistance to abrasion. PPSF is finding new and varied uses
over older and more traditional synthetic fibres. Among all synthetic fibres in the world,
the share of PPSF has increased substantially and the growth trajectory continues.
Company’s product Apolon is the ideal PPSF material for use in a truly wide variety of
areas. Some of these include spun yarn filter fabrics, non-woven filter fabrics, geo-textiles,
floor coverings and carpet backings, furnishing fabrics, blankets, wall-coverings, in
construction industry.
Company is also marketing 100% Polypropylene Spun Yarn by spinning its PP fibre into
yarns of various English counts which is used in weaving good quality filter fabric.
Company also supply PP Dref-2 yarn which is used in filtration candles.

2. Recent Development
India has a large textile manufacturing base and has the potential to become a leading
producer and exporter of nonwoven products. The cooperation between fibre suppliers
and nonwoven fibre producers is an important factor for the growth of the industry.
Unlike Europe and USA, the technical textiles industry in India is still at a nascent stage
and is widely fragmented. This leads to lower production and high cost. Product
knowledge and expertise too are available to a limited extent.
Investment in latest technology for production of nonwoven products is essential for the
sector to chart its own course. Till that time, the industry will have to follow the model
set up by European and US producers.
The growth of the non wovens sector will have a direct impact on the fibre sector,
particularly the polypropylene and polyester fibre segment. However, the share of
polypropylene fibres in nonwovens industries in US and Europe is higher than that of
polyester, while the consumption of virgin polyester/reprocessed polyester fibres is more
than polypropylene fibres in India.
Nonwovens are rapidly growing in the following areas:
 Automobile segment – cars, carpets, acoustic/thermal insulation, backing for tufted
carpets, liner for trunks, storage box, filters, and seat upholstery.
 Hygiene products – Disposable diapers, female hygiene products and adult
incontinence products.
 Civil Engineering geotextiles – Road under lays, erosion control, canal lining, artificial
turfs and pavement overlays.
 Filtration - Dust filters, liquid filters, oil filters, air conditioner filters and filters for
pharmaceutical producers.
 Medical textiles – Disposable and surgical apparel, shoulder pads, gloves, etc.
 Consumer products – Reusable carry bags, vacuum cleaner bags, tea bags, wipes,
carpets and bath mats.
A wide range of fibres – both synthetic and natural are used in the production of
nonwoven fabrics. The traditional fibres are polyester, polypropylene, cotton, rayon and
wool. Hitech fibres like Aramid fibres, Bicomponent fibres, super absorbent fibres,
spandex, glass and nano fibres.

Polypropylene nonwoven fabric has been increasingly gaining acceptance and importance
in the recent past owing to its superior quality over other nonwoven fabric mainly for
manufacturing hygiene products. Polypropylene (fiber and polymer) is the leading raw
material used for manufacturing nonwoven fabric in the world. Increasing birth rate,
mainly in Asia Pacific, has given rise to consumer disposable products such as baby diapers
in the region. This surge in demand for consumer disposable products is expected to
remain a key driving factor for the global market.
PP Nonwoven Fabrics have been gaining market penetration for durable applications in
geotextile, automotive and construction industries mainly in countries such as China and
India. In addition, growing ageing population mainly in the U.S., Western Europe and
Japan has spurred demand for adult incontinence products which further is expected to
boost the demand for PP Nonwoven Fabrics over next couple of years. However, volatility
in raw material prices coupled with stringent regulation imposed on producers on account
of growing environmental concerns regarding the production and usage of PP Nonwoven
Fabric is expected to remain a key challenge for the industry.
Polypropylene is one of the primary petrochemical used for a variety of applications
across numerous end use industries and is obtained via crude oil. In order to overcome
these challenges, the industry has shifted its focus towards developing bio-based
polypropylene which is expected to serve as a major opportunity for market participants
over the next six years
Polypropylene fibres have very good characteristics like hydrophobic, voluminous and
thermoplastic. Polyester fibres are used where strength and mechanical properties are of
prime importance. Bicomponent fibres are used in thermally bonded nonwoven fabrics
and super absorbent fibres are used in hygienic products.
Anticipating more demand for polypropylene fibres from the growing nonwovens sector,
company has doubled and increased its production capacity in June 2012. Currently,
Zenith Fibres has an installed capacity of 8,400 tons per annum, which was doubled from
4,200 tons per year.
The use of geo textiles in major infrastructure projects need policy guidelines, regulations
and standardization, which makes use of polypropylene fibres mandatory in applications
where sturdy and tough fabrics are needed for particular applications in railways, roads,
etc.
Polypropylene staple fibres manufactured by Zenith Fibres are suitable for use in
nonwoven carded needle felt fabrics. Currently, company is selling 70 - 75 percent of its
polypropylene fibres production to the nonwovens sector, while the rest is sold to
conventional textile producers.

3. Financial Performance
Zenith Fibres standalone net profit rises 14.63% in the December 2015 quarter
Net profit of Zenith Fibres rose 14.63% to Rs 1.88 crore in the quarter ended December
2015 as against Rs 1.64 crore during the previous quarter ended December 2014. Sales
declined 23.32% to Rs 12.86 crore in the quarter ended December 2015 as against Rs
16.77 crore during the previous quarter ended December 2014.
Zenith Fibres standalone net profit rises 130.51% in the September 2015 quarter
Net profit of Zenith Fibres rose 130.51% to Rs 2.72 crore in the quarter ended September
2015 as against Rs 1.18 crore during the previous quarter ended September 2014. Sales
rose 7.17% to Rs 18.38 crore in the quarter ended September 2015 as against Rs 17.15
crore during the previous quarter ended September 2014.
1 2 3 4 5 6
Net Sales 17.15 16.77 16.51 14.43 18.38 12.86
Net Profit 1.18 1.64 1.68 1.38 2.76 1.88
17.15 16.77 16.51
14.43
18.38
12.86
1.18 1.64 1.68 1.38
2.76
1.88
0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00
16.00
18.00
20.00
RsinCrores
Sep 14 Dec 14 Mar 15 Jun 15 Sep 15 Dec 15
Last 6 Quarters Net Sales & Profit

Current & Expected Earnings
Quarterly Ended Profit & Loss Account
Zenith Fibres has been growing its sales consistently at a moderate pace of about 10-15%
with operating profit margins varying from 8-13% and net profit margins between 5-9%
over last 10 years.
However during last 2 quarters, company has seen significant improvement in profit
margins on back of fall in raw material prices and increase in value added products by the
company.
Particulars
(Rs in Crores)
Mar
2015
Jun
2015
Sep
2015
Dec
2015
Mar
2016 E
Jun
2016 E
Audited / UnAudited UA UA UA UA UA UA
Net Sales 16.51 14.43 18.38 12.86 14.47 15.68
Other Operating Income 0.08 0.10 0.08 0.06 0.07 0.09
Total Income - Operations 16.59 14.53 18.45 12.92 14.54 15.77
Raw Materials Consumed 10.32 9.73 11.37 8.91 8.49 9.88
Purchase of Traded Goods -- -- -- -- -- --
Increase/Decrease in Stocks 0.48 -0.17 0.05 -1.93 0.50 -0.19
Power & Fuel -- -- -- -- -- --
Employees Cost 1.00 0.69 0.70 0.87 1.09 0.74
Depreciation 0.20 0.18 0.18 0.18 0.18 0.20
Provisions And Contingencies -- -- -- -- -- --
Other Expenses 2.67 2.52 2.83 2.45 2.47 2.61
P/L Before Other Income 1.92 1.58 3.32 2.43 1.81 2.53
Other Income 0.61 0.58 0.91 0.71 0.65 0.51
P/L Before Int., E. Items & Tax 2.54 2.16 4.22 3.14 2.46 3.04
Interest 0.08 0.05 0.06 0.06 0.05 0.05
P/L Before E. Items & Tax 2.45 2.11 4.16 3.08 2.41 2.99
Exceptional Items -- -- -- -- -- --
P/L Before Tax 2.45 2.11 4.16 3.08 2.41 2.99
Tax 0.78 0.73 1.38 1.20 0.84 1.03
P/L After Tax – Ord. Activities 1.68 1.38 2.78 1.88 1.57 1.96
Prior Year Adjustments 0.00 -- -0.02 -- -- --
Extra Ordinary Items -- -- -- -- -- --
Net Profit/(Loss) 1.68 1.38 2.76 1.88 1.57 1.96
Equity Share Capital 5.09 5.09 4.42 4.42 4.42 4.42
Calculated EPS 3.79 3.13 6.16 4.25 3.55 4.43
Calculated EPS (Annualised) 15.16 12.52 24.64 17.00 14.21 17.74
No Of Public Shares Holding 0.22 0.22 0.22 0.22 NA NA
Public Share Holding (%) 49.78 49.73 49.73 49.73 NA NA

4. Peer Group Comparison
PEER GROUP
ZENITH
FIBRES
FILATEX
INDIA
SUMEET
INDUSTRIES
ARORA
FIBRES
CMP 103.60 37.05 11.37 9.90
52 W L/H 52.20/163.90 22.75/59.45 8.72/18.53 8.00/15.40
Market Cap 45.82 118.56 65.99 9.95
Results (in Crores) Dec-15 Dec-15 Dec-15 Dec-15
Net Sales 12.86 298.73 236.79 0.08
PAT 1.88 5.74 5.17 1.43
Equity 4.42 32.00 58.04 10.05
EPS (TTM) 17.41 4.89 2.51 -1.66
P/E 5.95 7.58 4.53 0.00
5. Key Concerns / Risks
i) Being a commoditised product, polyester follows landed cost parity and consequently,
pricing flexibility for companies producing polypropylene fibre is limited.
ii) Stiff competition from fragmented market and established players in textile sector
could impact revenue and profitability of the company.
iii) Any major changes in trends with respect to utility of polypropylene staple fibre can
have a long term impact on the business of the company.

6. Saral Gyan Recommendation
Man-made fibre industry is well poised for reasonable growth despite slow down in
European and certain other markets. Polypropylene (PP) fibre industry was not
growing at the same rate as Polyester fibre because many sectors where PP should be
used is replaced by Polyester because of lower prices. However, certain novel uses
have been found in some sectors where use of PP fibre cannot be replaced and this
augurs well for PP fibre industry and hence expected to show similar growth as other
fibres.
The general outlook for the industry is good, several sectors have been identified
where use of PP fibre will be essential. Besides traditional need in various
infrastructure sector its use has started in fabrics used for soil erosion and collection
of ashes from power plants.
Zenith Fibres is continuously focusing on improving quality, developing new grades of
fibres for certain critical as well as new applications. Management is confident to see
increase in demand of its products going forward. As new developments do take their
own time to be fully absorbed, we expect steady progress towards new initiatives
taken by company.
The company continue to meet international quality standards and product
specifications as required by foreign buyers. All repeat orders are being placed by the
customers in domestic as well as export markets. With established production base
of almost 25 years, company is in a position to maintain production and supply of
quality products smoothly with lower cost of production.
Zenith Fibres is a debt free company with lean balance sheet. Overall, the financial
performance of the company has been good in terms of growth, profitability, return
ratios and cash flows from operations in last 5 years. Company has registered sales
CAGR of 14.51% and profit CAGR of 13.89% during last 5 years with ROE of 15.57%.
Key Financial Parameters Mar 2011 Mar 2012 Mar 2013 Mar 2014 Mar 2015
Return on Equity (%) 12.26 15.89 17.58 11.65 18.11
ROCE (%) 12.57 16.13 17.62 11.34 17.54
Operating Profit Margin (%) 9.56 10.28 10.62 8.29 10.49
Net Profit Margin (%) 6.09 6.83 7.99 5.80 8.44
Debt to Equity (%) 0.01 0.02 0.04 0.12 0.02
Working Capital Days 51 44 45 59 51
As of Dec’15, promoter’s shareholding in the company is at 50.27% without pledging
any shares. Promoters stake in the company was increased marginally from 50.22%
to 50.27% in June’15 quarter. FII and DII shareholding is nil in the company.

Management has rewarded shareholders by paying regular dividend since 13 years.
For last financial year, company has paid dividend of Rs. 2.50 per share and dividend
yield at current market price is 2.42%. Company has been maintaining healthy
dividend payout of 19.27% of its profits. With expected increase in revenue and
profitability in coming years, we expect dividend payout to gradually increase.
YEAR Mar'11 Mar'12 Mar'13 Mar'14 Mar'15
EPS 5.50 8.00 10.06 7.67 13.36
Dividend / Share (In Rs) 1.50 2.00 2.00 1.50 2.50
As per our estimates, Zenith Fibres can deliver PAT of 8.95 crores for full financial year
2016-17, annualized EPS of Rs 20.25 with forward P/E ratio of 5.1X for FY16-17.
Company’s valuation looks attractive with high margin of safety and offer good
investment opportunity for long term investors.
On equity of Rs. 4.42 crore, the estimated annualized EPS for FY 16-17 works out to
Rs. 20.25 and the Book Value per share is Rs. 89.19. At current market price of Rs.
103.60, stock price to book value is 1.16.
Considering company’s increased focus on developing new grades of Polypropylene fibres
for critical and new applications which cannot be replaced by polyester or other man-
made fibre, attractive valuations of the company at current levels and debt free status
with surplus cash reserves, Saral Gyan team recommends “Buy” on Zenith Fibres Ltd at
current market price of Rs. 103.60 for target of Rs. 210 over a period of 12 to 24 months.
Buying Strategy:
 70% at current market price of 103.60
 30% at price range of 90 - 95 (in case of correction in stock price in near term)
Portfolio Allocation: 2% of your equity portfolio.

7. Disclaimer
Important Notice: Saral Gyan Capital Services is an Independent Equity Research Company.
© SARAL GYAN CAPITAL SERVICES
DISCLOSURE WITH REGARDS TO OWNERSHIP AND MATERIAL CONFLICTS OF INTEREST:
a. 'subject company' is a company on which a buy/sell/hold view or target price is given/changed in this Research Report
b. Neither Saral Gyan, it's Associates, Research Analyst or his/her relative have any financial interest in the subject
company.
c. Neither Saral Gyan, it's Associates, Research Analyst or his/her relative have actual/beneficial ownership of one percent
or more securities of the subject company
d. Neither Saral Gyan, it's Associates, Research Analyst or his/her relative have any other material conflict of interest at
the time of publication of the research report.
DISCLOSURE WITH REGARDS TO RECEIPT OF COMPENSATION:
a. Neither Saral Gyan nor it's Associates have received any compensation from the subject company in the past twelve
months.
b. Neither Saral Gyan nor it's Associates have managed or co-managed public offering of securities for the subject
company in the past twelve months.
c. Neither Saral Gyan nor it's Associates have received any compensation for investment banking or merchant banking
or brokerage services from the subject company in the past twelve months.
d. Neither Saral Gyan nor it's Associates have received any compensation for products or services from the subject
company.
e. Neither Saral Gyan nor it's Associates have received any compensation or other benefits from the subject company or
third party in connection with the research report.
GENERAL DISCLOSURES:
a. The Research Analyst has not served as an officer, director or employee of the subject company.
b. Saral Gyan or the Research Analyst has not been engaged in market making activity for the subject company.
Definitions of Terms Used:
a. Buy recommendation: This means that the investor could consider buying the concerned stock at current market
price keeping in mind the tenure and objective of the recommendation service.
b. Hold recommendation: This means that the investor could consider holding on to the shares of the company until
further update and not buy more of the stock at current market price.
c. Buy at lower price: This means that the investor should wait for some correction in the market price so that the
stock can be bought at more attractive valuations keeping in mind the tenure and the objective of the service.
d. Sell recommendation: This means that the investor could consider selling the stock at current market price keeping
in mind the objective of the recommendation service.
LEGAL DISCLAIMER: Nothing published herein or on www.saralgyan.in / www.saralgyan.com should be considered as
personalized investment advice. Although our employees may answer your general customer service questions, they are
not licensed under laws to address your particular investment situation. No communication by our employees to you should
be deemed as personalized investment advice. This document prepared by our research analysts does not constitute an
offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. It
should be noted that the information contained herein is from publicly available data or other sources believed to be reliable.
Neither Saral Gyan, nor any person connected with it accepts any liability arising from the use of this document. This
document is prepared for assistance only and is not intended to be and must not be taken as the basis for any investment
decision. The investment discussed or views expressed may not be suitable for all investors. The user assumes the entire
risk of any use made of this information. The recipients of Saral Gyan material should rely on their own investigations and
take their own professional advice. Each recipient of Saral Gyan should make such investigations as it deems necessary to
arrive at an independent evaluation of an investment referred to in this document (including the merits and risks involved),
and should consult its own advisers to determine the merits and risks of such an investment. Price and value of the
investments referred to in this material may go up or down.

Saral Gyan Hidden Gem - Feb 2016

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