Pick of the Month 06 Sep 2016
RETAIL RESEARCH
Industry
Diversified
HDFCSec Scrip Code CENTEXEQNR
BSE Code
NSE Code CENTURYTEX
Bloomberg
CMP (as on 06 Sep, 16)
Equity Capital (Rs crs)
Face Value (Rs)
Equity Sh Outstanding crs
Market Cap (Rs crs)
Book Value (Rs)
Avg. 52 Week Volumes
52 Week High
52 Week Low
Shareholding Pattern % (June 2016)
Indian Promoters
Institutions
Non Institutions
Total
Fundamental Research Analyst:
Zececa Mehta
zececa.mehta@hdfcsec.com
RETAIL RESEARCH
Century Textiles & Industries Ltd
CMP Recommendation Add on Dips to band Sequential Targets Time Horizon
Rs. 760 Buy at CMP and add on declines Rs. 640-665 Rs. 968-1139 2-3 quarters
Incorporated in 1897, Century Textiles and Industries Ltd (Century) is promoted by Mr. B K Birla, and remains the flagship
company of the B K Birla group. The promoter of the company is the BK Birla Group and this stake is likely to be bequeathed
500040
to Aditya Birla group (owned by Mr. B K Birla's grandson, Mr. Kumar Mangalam Birla) after Mr B K Birla.
CENT IN Investment Rationale
1. Restructuring of various businesses could unlock value
Rs. 760 We feel restructuring at Century Textiles is possible going by the statements given by Mr. B. K. Birla some years ago in June
111.7 2009. He had been quoted as saying that most of his group companies, barring two or three, would be given to his grandson
Mr. Kumar Mangalam Birla. The companies like Century Textiles, Century Enka and Century Extrusions would be given to
10.00
Kumar Mangalam Birla. Even Kesoram Industries is likely to go to Kumar Mangalam Birla.
11.2
8488.8 Also recently the Aditya Birla group has ventured into restructuring of its textiles business by merging Madura Fashion
(branded apparel retail division) and Madura Lifestyle (luxury branded apparel retailing arm of ABNL) into Pantaloons
197.6
Fashion, a listed subsidiary of the group.
1118225
Rs. 763.5 A restructuring process for its cement and Tyre business is on in Kesoram Industries (another BK Birla group company) since
June 2014. While one of the key reasons for the restructuring in Kesoram Industries is to reduce the debt on its books, even
Rs. 403.0 Century Textiles suffers from the same problems with its total debt having risen from Rs.2621 cr in FY11 to Rs.5320 cr in
FY16. Interest costs on this ballooning debt have impacted the PAT for the company which has fallen from Rs.237.5 cr in FY11
to loss of Rs.54.5 cr in FY16. Loss in FY16 was due to increase in interest burden relating to completion of one office building
at Mumbai and expansion of capacity of the plant at the Manikgarh Cement unit in Maharashtra. Further, due to demand
47.75 recession and pressure on selling prices of cement, the financial performance of the cement units has suffered a setback.
22.49 Going by the pressure on financial metrics a restructuring or outright sale of some units/business is only a matter of time.
29.76
During March-April 2015, the stock price of Century had risen on the basis of the news that its paper and cement businesses
100.00 were up for sale, but the management refused the same. However we feel that some restructuring is imminent (the way and
the time is uncertain) given that the reigns of the company would later on be in the hands of Kumar Mangalam Birla.
Also as a part of its efforts to enhance cash inflow, B.K. Birla Group firm Kesoram Industries on 22nd March 2016 sold stakes
worth Rs.428.53 crore in several listed companies, including Aditya Birla Nuvo, Grasim Industries, Aditya Birla Fashion and
Retail Ltd, Ultratech Cement Ltd, Century Enka Ltd, Century Textiles and Industries Ltd, Mangalam Cement Ltd and Mangalam
Timber Products Ltd through open market transactions to Pilani Investments, the holding company of Birla group.
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These deals are believed to be part of Kesoram's ongoing restructuring exercise which would help B K Birla's grandson Kumar
Mangalam to manage Kesoram efficiently, removing it from inefficient business units and group cross-holdings.

Century’s operational business performance so far does not enthuse us much and it is only this restructuring expectation that
has excited us.

Having said that, we see tremendous scope of improvement in the cement division if a new operational management takes
charge. Century’s cement plants are old and less efficient than the industry peers. Cement assets of Century can be sweated
much more if a more professional group like Aditya Birla group takes over the operations of cement business.

Ultratech – past deals of Cement plant acquisition, could be looking to consolidate capacities within the group
Aditya Birla Group’s cement major Ultratech Cement Ltd, has in the recent past acquired couple of cement plants from
Jaypee group. In 2013, it acquired Jaypee’s 4.8 million tonne plant in Gujarat for Rs 3800 crore (US $125/ton). The company
then announced the acquisition of JPA’s 22.4 MTPA cement capacity, during March 2016, at a valuation of US$ 125/t and a
total consideration of Rs. 165 bn. The deal was then (in April 2016) changed to drop Shahabad’s cement plant of 1.2 MTPA in
Karnataka and in July 2016, Ultratech will finally pay Rs. 16,189 crore to buy Jaypee Group's cement operations that have a
total capacity of 17.2 MTPA spread across Uttar Pradesh, Madhya Pradesh, Himachal Pradesh, Uttarakhand and Andhra
Pradesh. In addition, Ultratech will acquire a 4 MTPA grinding unit that is currently being constructed in Uttar Pradesh.
Ultratech will pay an additional Rs. 470 crore for completing the unit.

Grasim/Aditya Birla Nuvo Merger – another step in simplifying the cross-holdings in various operating companies
Kumar Mangalam Birla, chairman of Aditya Birla Group, on 11th August 2016, announced the merger of Aditya Birla Nuvo
(ABNL) with Grasim Industries to create an entity with Rs 60,000-crore annual revenue or about $9 billion. This will be
followed by the demerger of the financial services business into a separate listed company.

ABNL has interests in Aditya Birla Financial Services (ABFSL), telecom (Idea Cellular), textiles and fertilisers, along with new
ventures such as payments banks and solar power through various entities. Its financial services business is seeing high
growth and needs funding. Grasim, on the other hand, has presence in cement, chemicals and viscose-staple-fibre
businesses.

Based on the series of restructuring measures in the group, we think that consolidation of cement capacity of Century and
Kesoram into Ultratech and restructuring of the balance businesses of Century is likely in the near to medium term.

2. International Paper’s acquisition of Andhra Pradesh Paper Mills (APPM) gives indication of best case valuation of
paper business
The world’s largest paper company International Paper acquired 75% stake in Andhra Pradesh Paper Mills (APPM) for around
Rs 1,900 crore in Oct 2011, making it the first global paper and packaging company with a significant position in India's fast-

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growing economy. APPM had a production capacity of about 2.5 lakh tonne a year. International Paper’s production capacity
is over 13 million tonnes annually at present. The enterprise value of APPM was pegged at about 17 times EBITDA, while
other acquisitions have been at typically it has been 6-7.

After this acquisition, there was a rerating of the entire paper industry. Also the investment in a green-field project works out
to about Rs. 1-1.5 lakh for every tonne of annual production capacity — not to speak of the hassles of land acquisition,
establishing a marketing network and starting from scratch. This means that acquisition of paper mills rather than setting up
a greenfield project would be more beneficial for any company. Both the above factors (re-rating and setting up of plant)
tend to benefit Century Textile’s Paper division if it is sold to any other player in Indian or abroad.

In the paper business, Century Textiles has a rayon grade pulp capacity of 31,320 tonnes per annum, writing and printing
paper capacity of 1,97,800 tonnes per annum and capacity of 36,000 tonnes per annum for tissue paper. Century Pulp &
Paper has recently set up a 500-tonnes per day (1,80,000 tonnes per annum) multilayer packaging board plant adjacent to its
existing pulp and paper plant at Lalkua, Uttarakhand. In the board segment, Century caters to the pharmaceutical and fast-
moving consumer goods industries.

PE coated boards, which find applications in the F&B segment for cup manufacturing have benefited significantly from the
changing Indian lifestyle. Growth has also been aided by the expansion of global and regional fast food chains and take-away
eateries. The potential of PE coated board makes it a lucrative market to be in and the current Indian PE coated cup market is
about 6,500 tonnes per month. The market in India is nascent with only one manufacturer supplying PE coated board pan
India and hence makes it a good opportunity for Century Pulp & Paper. The other players in the market are smaller, regional
convertors. Currently, Century Pulp & Paper caters to approximately 15% of the market. Timely ramp-up of operations at this
unit and ability to counter existing competition from market leader, ITC Ltd and newly emerging competition in the board
segment will remain a key monitorable over the medium term.

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Indian paper mills have reported a sharp increase in their profitability in the April-June 2016 quarter, indicating a turnaround
in their fortunes after three years of low margins. Rising demand of writing and printing paper, coupled with a fall in raw
material prices, helped boost margins of Indian paper mills.

While net profit of Tamil Nadu Newsprint jumped 33 per cent to Rs 69.51 crore for the June’16 quarter, that of JK Paper shot
up 79 per cent to Rs 26.66 crore. The June quarter net profit of Seshasayee Paper and International Paper surged 347 per
cent and 91.53 per cent to Rs 24.12 crore and Rs 15.38 crore, respectively.

The growth in demand for packaging paper / board in the country is picking up due to growth in the fast moving consumer
goods and pharmaceutical sectors. Paper mills have implemented operational efficiency measures and are benefitting out of
low wood prices. Most paper stocks are currently trading close to their 52-week highs.

In the case of Century we have seen a small rise in sales in Q1FY17 accompanied by a sharp rise in EBIT.

We think that Century will get commensurate valuation of its paper business (more so if it is demerged into a separate
entity).

3. Textile and Real Estate to remain, Cement and Paper may be hived/sold off
In the textile business, Century has two revenue streams: cotton fabrics and rayon. The Company's 100 % cotton yarn unit
and its denim unit are both situated in Madhya Pradesh. The cotton yarn unit has a capacity of 24,960 spindles and the denim
unit produces 21 million metres of denim fabric per year. The company has a vertically integrated plant at Bharuch (Gujarat;
capacity of more than 100,000 spindles) for manufacturing cotton fabrics. The cotton division of Century is one of the oldest
players in India and manufactures a wide range of premium textiles like suiting and shirting material, denim, fine fabrics, and
household linen, which are mainly exported.

The company has long and established relationships with international players, which include Royale Linen, Ralph Lauren,
DKNY, Belk, and US Polo - USA. The renowned brands and retailers across the globe always prefer to have business with
companies who have in-house stitching facility. Hence, Birla Century has started with new stitching facility with versatile
operations to cater the demands of brands and retailers of bed linen products as well as high premium products with value
addition. The company is equipped with all the latest Cutting and Sewing machines with capacity to stitch 2 lac sets per
month plus latest value addition such as Fegotting and Merrowing, Pintuck and different type of hem treatments. The
process of Home Furnishing starts from post processed fabric stage. This facility is helpful for creating an up market collection
range in bed linen products i.e. Sheet Sets, Duvets, Shams, Bed Skirts etc. This facility has been designed and constructed in
accordance with all the norms of international, technical, social and security compliances. The company has already started
approaching retailers and brands in USA, U.K., and Australia for strengthening the business of bed linen products.

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Century's rayon capacity (26,000 tonnes per annum [tpa]) is located at Kalyan (Maharashtra) - the company is one of the
largest manufacturers of rayon in Asia and is a market leader in India (40 per cent market share). It manufactures viscose
filament yarn (VFY) and viscose tyre yarn (VTY); VFY is largely exported to North Africa, North and South America, and
Western Europe.

We believe given the interests of Mr. Kumar Mangalam in branded apparels, textiles business could continue to function in
the current company or merged with/hived off to Pantaloon Fashion.

In 2010, Century ventured into real-estate development. As per reports, out of the total land of 40 acres in Worli, 10 acres is
under dispute with the Wadia family. Of the remaining 30 acres, the company can develop about 15 acres (remaining
pertains to workers’ colony, etc.) with potential buildable area of 4-5 mn sq ft. Two new office buildings, Birla Aurora,
adjacent to Century Bhavan, and Century Greenspan, on erstwhile Century Mill’s land, are complete and both the buildings
have been partially leased out. All efforts are being taken to fully lease out the buildings. Negotiations with potential tenants
for leasing of buildings at Century Mill land are in progress. The completion of the third building together with related
infrastructure is in progress, the expenditure on which is carried under Capital work in progress. Construction of other
buildings and structures as per the approved plan is yet to begin. The steady generation of lease rentals from the real-estate
business is expected to boost the company's overall cash flows over the medium term. The net present value of the land (at
Worli), as per our DCF calculation of rentals calculation on a conservative basis is ~ Rs.2,500 crore. Once the properties are
leased out entirely, there will be continuous flow of rentals for the company.

A new Division called ‘Birla Estates’ has been set up, which will undertake work related to property development of available
existing land parcels of the Company, as well as new land to be purchased/acquired in the future for the purpose of
development.

In addition to the Worli property, Century also has extra land at Kalyan. We have for the present not included the value of
this land for arriving at the target prices. Century Textiles reportedly also has some land parcels at Pune.

Based on a market feasibility study for each of the existing land parcels, newer projects in commercial, residential or other
segments would be developed, ensuring optimum viability by Century Textiles.

FY16 Review
As far as the financials are concerned, Cement division is the main contributor to Century’s revenue while Textile and Paper
division play a relatively minor role. Real estate has just started to contribute at the top line marginally, but could be a larger
contributor going ahead.

During FY16, EBITDA of the company has shown some improvement as compared to previous year. However, due to increase
in interest burden because of charge of interest to revenue account, relating to completion of one office building at Mumbai

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and expansion of capacity of the plant at the Manikgarh Cement unit in Maharashtra, the company’s net profit has been
adversely affected. Further, due to demand recession and pressure on selling prices of cement, the financial performance of
the cement units has suffered a setback. If investment in infrastructure development, making of smart cities and housing
projects for all is accelerated, then, the demand for cement and prices should improve. The financial performance of the
Textile and Paper segments has been improving and is expected to be better in the coming years. The Indian economy has
witnessed two successive monsoon failures plus damage due to unseasonal rains, which has adversely impacted growth. An
expected normal monsoon in fiscal 2017, will give agriculture a growth kick which will prove good for the Indian economy
and should lift upward, the sagging rural demand and overall GDP growth.

Cotton Textiles, Yarn & Denim

The Indian textile industry market share presently is USD 108 billion, out of which USD 68 billion is domestic consumption
and USD 40 billion is exports, due to which India emerges as the second largest exporter after China having 6% share in the
global trade. India has the potential to double its market size in the long run as China is losing its competitive advantage in
textiles mainly on account of increasing labour & power costs, the appreciating Yuan, and focus on the domestic market with
high value products. The shift from China to India is expected to happen in the long run, to make India a dependable source
of supply for the World.

Costs are increasing due to rising input costs, including labour and power. The fall in the Rupee against the US dollar should
act positively for promotion of exports. Century’s focus is on new product development and value added products.

The technical performance of the Textile unit viz. Birla Century near Bharuch in Gujarat has been steady and there has been
some growth in turnover. Due to a general market recession, the demand and prices for textile products remained weak. In
the Domestic market, with the help of continuous new product development and increasing Value added product supply, the
company is offering a wide range of high quality products to all categories of the customers with continual developments in
blends, weaving structures, designs, finishes, etc. This should enhance the margins in due course inspite of increase in labour
cost, power cost, etc. In exports, due to a globally weak retail sentiment, mainly in the US, the pressure would remain on
sales & prices. The new stitching facility for made ups will provide better opportunities in this segment.

Century Rayon – Viscose Filament Yarn (VFY) [Pot Spun Yarn (PSY) & Continuous Spun Yarn (CSY)] and Rayon Tyre Yarn
Production of VFY mostly remained confined to Asia, with China and India being major players. While marginal capacity
addition has been witnessed in India, China too witnessed capacity addition in CSY. New stringent environmental policy
norms adopted by China have led to the closure of 2 VFY plants in China, having a capacity of 29000 Tons per annum. As a
result, the net capacity has been reduced.

Imports from China have witnessed a declining trend, which enabled domestic producers to offload the inventory. The US
Dollar has strengthened against the Rupee, which has led to a rise in the landed cost of imported material, allowing domestic
producers to increase their prices. However, domestic prices are still lower compared to the Chinese material.

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The emerging trend in the consumption of VFY from fine deniers to super fine deniers continued, with weavers offering more
value added products made out of super fine deniers.

Emerging demand in Super fine deniers has led to a reduction in the production of coarser deniers which reduced Century’s
market share, both in domestic as well as the export market, paving the way for competitors to capture these markets.

Steady demand and consumption of Rayon Tyre Yarn in Europe, Japan and USA have led to full capacity utilization of the
Rayon Tyre Yarn capacity.

With stable demand across all the segments of VFY (PSY, CSY) & Rayon Tyre Yarn, the unit was able to utilize its full capacity
for the second consecutive year.

While introducing a wide range of products is a continuous process at the unit level, the newly introduced products in 30/24
and 75/30 in the CSY segment, have found ready acceptance in the market. The unit is taking further initiatives to introduce
new product variants in CSY, for larger usage, which would create an opportunity to keep competitors at bay.

Commissioning of additional eight CSY machines to produce super fine deniers has paved the way for the unit to consolidate
its presence further in this segment.

Opportunity of expanding the market share by offering more production in the domestic segment, could not be fully tapped
due to capacity constraint. An application is filed by the unit with the MoEF for giving consent to operate beyond 25000 TPA.

Risks & Concerns:

 Textiles:
The US dollar has strengthened continuously against the Indian Rupee and other currencies, due to the turmoil in the
China market and recession in the European market. Due to a demand recession across the globe, increasing prices in
Indian markets has become extremely difficult. The input costs are continuously increasing without commensurate
increase in selling prices. India has already started losing its markets and export orders, and countries like Pakistan,
Bangladesh, Sri Lanka and Vietnam which have duty-free access, are now grabbing the market share in developed
markets like the US, EU, Canada, Australia. Further prices of cotton, VSF and PSF and their respective parity impacts
the demand/supply situation and margins of textile players.

A representation made by the unit through Association of Man-Made Fibre Industry of India (AMFII) for
reconsideration of the proposed new environmental norms for the man-made fibre industries, are at the hearing
stage. If imposed, it would be difficult for the industry to meet the new environmental norms without huge capital
investment. The biggest concern for the industry is the review of the Anti-dumping duty on imports emanating from

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China which is due for re-validation in May 2017. The Industry through its Association (AMFII) has already appointed
an agency and constituted a committee to take up the matter with the requisite authorities.

 Cement:
Despite the initiatives announced by the government, cement demand did not pick up as anticipated. Many projects
/ policies were announced / initiated by the government to support and aid the growth of the industry. However the
pace of investment and construction activities continued to remain low. Expectations and ground realities are yet to
converge. With substantial surplus capacity, the cement industry is relatively at a low level of capacity utilization.
Both, coal quality and prices are a matter of concern. Increase in “Clean Environment Cess” on coal, from Rs. 200 per
ton to Rs. 400 per ton and levy of Krishi Kalyan Cess @ 0.5% on services, will have a negative impact on the
profitability. High incidence of taxes and duties is a matter of concern for the industry.

 Paper:
Domestic supply of wood is and continues to remain the biggest source of concern for Indian paper manufacturers.
Bagasse supply has also become unpredictable with competition from other industries and sugar mills which use
bagasse for co-gen purposes. Also the availability of bagasse is mainly dependent on adequate rain and growth of
sugarcane. Reduced import duties and surplus paper capacities in the neighbouring countries have led to cheaper
imports, resulting in pressure on domestic prices. New medical regulatory norms introduced by the developed
countries, in relation to export of pharma products from India, have adversely impacted demand for paper board
used by Pharma Industries.

 Century's moderate operating efficiency and sub-par return on capital employed, and its moderate financial risk
profile, marked by a leveraged capital structure and sub-par debt protection metrics

 Century’s susceptibility to intense competitive pressures and cyclical business conditions: Century's key businesses
cement, paper and textiles, besides being intensely competitive, are heavily commoditized in nature. Further all
three businesses are cyclical, exposing the company's performance to volatile demand conditions in addition to
variations in input and freight costs.

 Any delay or less value unlocking restructuring could result in delay in the upside of stock price or a less than
expected run up in the stock price. Further if any of the businesses undergoes a bad patch in the interim due to local
or global factors, then the stock price may react adversely.

 Any onerous conditions imposed by the Competition Commission of India while approving the restructuring that
involves sale/merger of these units with Ultratech Cement.

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Company Overview
Century has a diversified business risk profile and has presence across three core business segments, namely, cement,
textiles and, pulp, paper and paper board. Furthermore, each of the business segments has a sizeable scale and annual
revenue in excess of Rs.15 billion. Its cement division is the largest revenue contributor- 52% in 2015-16, followed by paper
and pulp (22.2%) and textiles (24%). All of its businesses have witnessed a steady growth, leading to overall revenue
registering a compound annual growth rate of 14.5% between 2011-12 and 2015-16.

Sector Divisions Products

Birla Century Cotton Textiles: Shirting, Suiting, Fancy and finer varieties, Bed linen
Century Yarn Cotton Yarn
Century Denim Denim
Textiles Cottons by Century Cotton Apparel
Viscose Filament Yarn (VSY)
Century Rayon Continuous Spun Yarn (CSY)
Rayon Tyre Yarn and Chemicals
Century Cement
Cement Maihar Cement
Manikgarh Cement Cement
Sonar Bangla
Pulp and paper Century Pulp & Paper Pulp and paper

Century has been in the domestic cement business for over 40 years, and has an established brand, 'Birla Gold'. It has a total
manufacturing capacity of 12.8 million tonnes per annum spread across central and eastern India: in Chhattisgarh, Madhya
Pradesh, Maharashtra, and West Bengal. The company has its own captive limestone mines and around 80 per cent of its
power requirement is catered to through its captive power plants (137 megawatt capacity), which helps keep power costs
under control.

Century has a well-established dealer network of more than 5000 stockists. Its recently commissioned capacities (Manikgarh
cement unit II of 2.8 million tonnes per annum capacity cement plant along with single length pipe conveyor longest in the
country (7.5 km) has been commissioned during the year 2014-15) in Maharashtra and West Bengal enjoy fiscal benefits,
which will aid profitability as utilisation levels are ramped up. All the main assets like Kiln, Raw Mill, Coal Mill and Cement
Mills including 60 MW captive thermal power plant are performing at optimum level in conformity to the technology and
expectations envisaged at the design stage.

Century Textiles has two associates namely Industry House Ltd (at Churchgate reclamation) in which it holds 35.28% stake
and Bander Coal Co. Pvt. Limited (at Century Bhavan, Worli) in which Century Textiles holds 37.5% stake.

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Shareholding Pattern and changes.
Particulars (%) Jun-16 Mar-16 Dec-15 Sep-15 Jun-15
Promoters 47.75 47.75 50.21 45.22 45.22
Mutual Funds 8.14 9.06 7.50 7.70 5.93
FIs/Banks 3.09 3.09 3.23 3.52 3.48
Insurance Companies 1.11 1.16 1.20 1.42 1.42
FIIs & FPIs 10.13 9.00 9.72 10.46 10.95
Corporate 11.61 11.85 9.96 11.33 10.91
Public & Others 18.17 18.09 18.18 20.35 22.09
Totals 100.0 100.0 100.0 100.0 100.0
Total No. of Shares 111695680 111695680 111695680 101515680 101515680

On 19th June 2014, Century Textiles had allotted warrants on preferential basis to Aditya Marketing & Manufacturing Limited
– 75,00,000 warrants and IGH Holdings Private Ltd – 1,11,50,000 warrants aggregating to 1,86,50,000 warrants at the rate of
Rs 354.89 per warrant. These companies belong to the Aditya BIrla group.

In March 2015, the two companies namely Aditya Marketing & Manufacturing Private Ltd and IGH Holdings Private Ltd (two
investment companies owned by KM Birla) have exercised their right of conversion of 34,00,000 warrants and 50,70,000
warrants respectively into equal number of equity shares of the FV of Rs. 10. During Sept-Dec 2015, all the balance warrants
were converted into shares and now the fully diluted equity capital stands at Rs. 111.7 crore.
Mar-16 Dec-15 Mar-15 Dec-14
Name of the Shareholder No. of % of total no. No. of % of total no. No. of % of total no. No. of % of total no.
Shares held of shares Shares held of shares Shares held of shares Shares held of shares
Pilani Invst & Inds. Corp. 34220520 30.64 34220520 30.64 34220520 33.71 34220520 36.78
Kesoram Industries Ltd - - 2746100 2.46 2746100 2.71 2746100 2.95
Aditya Mktg & Mfg Ltd 7560900 6.77 7560900 6.77 3460900 3.41 60900 0.07
Prakash Educational Society 128000 0.11 128000 0.11 128000 0.13 128000 0.14
Birla Educational Institution 44000 0.04 44000 0.04 44000 0.04 44000 0.05
Manav Investment & Trading Co 11950 0.01 11950 0.01 11950 0.01 11950 0.01
Padmavati Investment Ltd 16700 0.01 16700 0.01 16700 0.02 16700 0.02
Basant Kumar Birla 199800 0.18 199800 0.18 131900 0.13 131900 0.14
Sarala Devi Birla - - - - 67900 0.07 67900 0.07
Ramavatar Makharia 1110 0 1110 0 1110 0 1110 0
Ravi Makharia 3620 0 3620 0 3620 0 3620 0
Laxmi Devi Makharia 3440 0 3440 0 3440 0 3440 0
IGH Holdings Pvt Ltd 11150000 9.98 11150000 9.98 5070000 4.99 0 0
Total 53340040 47.74 56086140 50.20 45906140 45.22 37436140 40.23

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Though Kumar Mangalam Birla is already on Board of Century Textiles since Feb 2006, Rajashree Birla, his mother and one of
the promoters of the Aditya Birla group, joined the Century Textiles board on as a promoter director in May 2015.

Aditya Birla (AB) group has emerged as its significant shareholder in the near term. Century also offers huge synergies to the
AB group with its geographical presence in the cement industry and its leadership position in the VFY business, since these
businesses are sizeable and are of strategic importance to the AB group.

Valuation & Recommendation

Century Textiles and Industries Limited was incorporated in 1897 as a Public Limited Company with its Registered Office at
Mumbai. Till 1951, the Company operated only one cotton textile mill at Mumbai. Thereafter, the Company has made rapid
progress in expanding and diversifying its activities. Later on it diversified into cement and paper and pulp and now has
interests across three core business segments, namely, cement, textiles and, pulp, paper and paper board. Furthermore, each
of the business segments has a sizeable scale

Though the financial performance of the company has been lackluster and it has build up a lot of debt on its books over the
years, we feel that under the present circumstances a restructuring of its divisions (including hive off/sale) is likely in the near
to medium term. As said earlier, we are enthused by the possible restructuring which can happen at the company level and
have valued the businesses accordingly. However, the chief concern is its Cement division’s restructuring. The manner in
which it would be done and the time uncertainty at this point are the two major risks involved in our valuation.

We have chosen EV/EBITDA method to value the Textile and Paper divisions, EV/Tonne for Cement division and DCF method
for rentals in case of the Real estate segment. We have valued these businesses on trailing basis i.e. as per FY16 numbers.

Business Segments Rs. Per Share (on fully diluted basis)

Cement 881
Paper 209
Textiles 120
Real Estate 223
Total 1433
Long term Debt as of FY16 -294
Valuation (Rs per share) 1,139
Conglomerate discount @ 15% 171
Target Price (Rs. per share) 968

Business Segments Method Assumptions

Cement EV/Tonne $115/tonne
Paper EV/EBITDA 8 times

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Textiles EV/EBITDA 7.5 times
Real Estate DCF of Rentals 5 mn sq ft @ 12% discounting factor with gradual letting out

Textile and Paper Industries Peers Valuation Matrix

Companies Industry CMP as on No. of Eq FY16 Figures in Rs. in Cr EV/EBITDA
060916 Shares EBITDA Mkt Debt Cash EV
(Rs.) cap
Vardhman Textiles Ltd Textiles 1012 6.4 1403.4 6441.4 2778.2 309.4 8910.2 6.3
K.P.R. Mill Ltd Textiles 1104 3.8 492.5 4159.9 886.9 45.7 5001.1 10.2

International Paper APPM Ltd Paper 290 4.0 169.8 1153.3 476.5 10.1 1619.7 9.5
West Coast Paper Mills Ltd Paper 100 6.6 207.3 660.5 743.9 12.6 1391.8 6.7
Tamil Nadu Newsprint & Papers Ltd Paper 335 6.9 596.0 2318.5 2459.1 16.2 4761.4 8.0

We think that investors could buy the stock at the CMP and add on declines to Rs. 640-665 band for target of Rs. 968 over 2-3
quarters. However, if all goes well, the stock can reach Rs. 1,139 if the market ignores the conglomerate discount.

Financials
Profit & Loss – Standalone
Particulars FY11 FY12 FY13 FY14 FY15 FY16
Net Sales 4677.2 4789.2 5863.5 6516.0 7300.8 7652.5
Other Operating Income 82.9 83.6 86.0 159.1 258.5 335.1
Total Income 4760.0 4872.8 5949.5 6675.1 7559.3 7987.6
Total Expenditure 4100.9 4447.2 5371.7 5948.8 6879.2 7259.4
Raw Material expense 1561.6 1563.2 1987.4 2409.9 2634.8 2740.9
Employee expense 362.1 424.7 492.9 501.5 616.3 646.5
Stores and spares consumed 251.1 242.5 258.9 311.3 324.9 300.5
Power & Fuel 961.1 1187.3 1411.1 1386.9 1658.1 1668.5
Freight, forwarding, octroi, etc 626.2 697.4 819.3 899.5 1138.1 1311.8
Other Expenses 338.9 332.2 402.2 439.7 507.0 591.2
Operating Profit 659.1 425.6 577.8 726.4 680.1 728.3
Other Income 42.0 27.2 26.9 19.1 20.0 46.9
PBIDT 701.1 452.8 604.7 745.4 700.1 775.1
Interest 118.3 172.1 320.0 362.8 484.6 567.7
PBDT 582.9 280.7 284.7 382.6 215.5 207.4
Depreciation 239.7 258.1 356.0 354.6 249.2 287.8
PBT 343.2 22.6 -71.2 28.0 -33.7 -80.4
Tax (including DT & FBT) 105.7 0.4 -36.7 25.3 -49.2 -26.0

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Reported Profit After Tax 237.5 22.1 -34.5 2.7 15.5 -54.5
(Source: Company, HDFCSec)
Segmental Performance - Standalone
Segment Revenue FY11 FY12 FY13 FY14 FY15 FY16 Q1FY17 Q1FY16
Textiles 1160.67 1296.92 1593.95 1664.04 1744.25 1817.22 428.63 445.09
Cement 2478.78 2685.27 3047.99 3310.98 4127.22 4253.53 1180.18 1117.24
Pulp & Paper 1092.14 870.46 1281.89 1726.37 1738.24 1966.23 497.35 461.96
Real Estate 0 0 0 9.21 20.35 35.78 10.97 8.23
Others 95.5 104.51 115.51 130.52 117.18 110.98 30.04 28.84
Total 4827.09 4957.16 6039.34 6841.12 7747.24 8183.74 2147.17 2061.36
Less: Inter Segment Revenue 149.93 167.93 175.89 325.13 446.49 531.27 122.77 116.98
Net Sales 4677.16 4789.23 5863.45 6515.99 7300.75 7652.47 2024.4 1944.38

Segment Results
Textiles 8.59 -35.28 74.48 144.23 108.15 136.29 41.78 35.55
Cement 434.31 296.96 349.23 238.15 273.54 166.82 48.05 35.96
Pulp & Paper 19.07 -61.13 -188.56 -3.46 77.95 191.84 63.02 27.7
Real Estate 0 0 0 5.12 1.78 12.25 -8.94 2.84
Others 10.78 13.11 20.84 26.51 11.68 9.66 7.81 3.31
Total 472.75 213.66 255.99 410.55 473.1 516.86 151.72 105.36
Less: Int and Financial chgs 118.27 172.08 319.95 362.8 484.62 567.72 141.72 148.92
Less: Other Unallocable exp (net) 9.2 22.63 6.55 20 24.23 27.79 4.59 8.07
Add: Intersegment Profit/Loss -2.08 3.6 -0.7 0.25 2.06 -1.83 -1.54 -0.9
PBT 343.2 22.55 -71.21 28 -33.69 -80.48 3.87 -52.53

EBIT Margins (%)

Textiles 0.7 -2.7 4.7 8.7 6.2 6.8 9.7 8.0
Cement 17.5 11.1 11.5 7.2 6.6 7 4.1 3.2
Pulp & Paper 1.7 -7.0 -14.7 -0.2 4.5 4.5 12.7 6.0
Real Estate - - - 55.6 8.7 12.5 -81.5 34.5
Others 11.3 12.5 18.0 20.3 10.0 15 26.0 11.5
(Source: Company, HDFCSec)
Balance Sheet – Standalone
Particulars (Rs in Cr) FY11 FY12 FY13 FY14 FY15 FY16
Equity & Liabilities
Shareholders’ Funds 1953.1 1898.9 1805.0 1747.4 1973.9 2206.8
Equity Share Capital 93.0 93.0 93.0 93.0 101.5 111.7
Reserves & Surplus 1860.1 1805.9 1711.9 1654.4 1872.4 2095.1

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Non-Current Liabilities 1797.1 2579.5 3945.6 3718.8 4446.2 4158.2

Minority Interest 0.0 0.0 0.0 0.0 0.0 0.0
Long Term borrowings 1240.1 1977.1 3148.2 2810.4 3567.3 3296.2
Deferred Tax Liabilities (Net) 263.9 262.7 242.9 266.8 204.6 179.4
Other Long Term Liabilities 17.0 20.1 191.2 235.6 239.8 250.5
Long Term Provisions 276.1 319.6 363.3 406.0 434.5 432.1

Current Liabilities 2637.6 2813.7 2511.1 3825.4 3567.2 3551.8

Short Term Borrowings (Working Cap) 1381.5 1444.8 1212.5 1659.3 1268.6 1419.1
Trade Payables 411.7 307.6 359.6 503.5 450.7 545.1
Other Current Liabilities 764.4 968.8 836.6 1570.3 1731.4 1473.1
Short Term Provisions 80.0 92.5 102.4 92.3 116.4 114.5

Total Equity & Liabilities 6387.7 7292.1 8261.7 9291.6 10077.6 9916.8

Assets
Non-Current Assets 4736.6 5595.1 6328.8 7030.2 7572.2 7701.3
Fixed Assets 4397.5 5221.1 5943.6 6605.6 6649.3 6079.6
Gross Block 4804.6 6704.1 7172.3 7649.0 9460.3 9709.1
Depreciation 2409.6 2600.1 2943.1 3275.6 3525.7 3788.8
Net Block (Tangible Assets) 2395.0 4104.0 4229.3 4373.4 5934.6 5920.3
Intangible Assets 3.7 3.5 3.1 3.58 4.8 3.2
Capital Work-in-Progress 1998.7 1113.7 1711.2 2228.7 709.9 156.1
Non-Current Investments 68.4 69.3 73.8 96.3 495.0 1091.4
Deferred Tax Asset 0.0 0.0 0.0 0.0 0.0 0.0
Long -term Loans and Advances 265.8 288.0 291.7 262.3 253.3 191.1
Other Non-Current Assets 5.0 16.7 19.6 66.0 174.5 339.2

Current Assets 1651.1 1697.0 1932.9 2261.4 2505.4 2215.5

Current Investments 0.0 2.1 0.0 0.6 0.0 0.0
Inventories 1070.7 1095.2 1203.8 1300.4 1423.9 1298.8
Trade Receivables 307.2 333.5 408.0 525.8 659.0 529.2
Cash & Cash Equivalents 40.6 50.1 53.5 72.9 94.6 101.8
Short Term Loans & Advances 201.6 198.9 237.8 319.4 272.8 175.0
Other Current Assets 31.0 17.3 29.9 42.4 55.1 110.8

Total Assets 6387.7 7292.1 8261.7 9291.6 10077.6 9916.8

(Source: Company, HDFCSec)

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One Year Price Chart

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Fundamental Research Analyst: Zececa Mehta (zececa.mehta@hdfcsec.com)

HDFC securities Limited, I Think Techno Campus, Building - B, "Alpha", Office Floor 8, Near Kanjurmarg Station, Opp. Crompton Greaves, Kanjurmarg (East), Mumbai 400 042 Phone: (022) 3075 3400 Fax: (022) 2496 5066 Website:
www.hdfcsec.com Email: hdfcsecretailresearch@hdfcsec.com.
____________________________________________________________________________________________________________________________________________________________________________________________

"HDFC Securities Ltd. is a SEBI Registered Research Analyst having registration no. INH000002475."

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