SPORTKING trade ideas
SPORT KING Long TerrmScrip probably has made its bottom and trend is trying to reverse towards upward journey. Risk /Reward ratio is 1:4.6 till previous all time high weekly close and 1:9.7 if it breaks previous all time high weekly close. From current price it has potential to give return of 110% and if it gives break out than 240%.
I have tried to plot probable moves in future based on past price movements. However, price movement is subject to market conditions and any unforeseen events.
Sportking India Limited, a part of the Sportking Group, is a textile manufacturing company engaged in the production of Yarns (Cotton Yarn, Synthetic Yarn, Blended Yarn), fabrics and garments.
The Co. successfully commissioned a 10 MW Rooftop Solar Power Project at the Bathinda Unit for in house consumption. It has installed additional 40800 Spindles (first phase) at Bathinda Unit for production of polyester cotton yarn (Compact) at a cost of Rs. 190 Crs. Phase 2 expansion project of installing 63,072 spindles for manufacturing of cotton compact yarn commenced its commercial production in the Q4 FY23.
Marquee Clientele
The Co.’s customer base includes Zara, H&M, Ikea, Jockey, Marks & Spencer etc.
I kindly request your valuable feedback on the accuracy and validity of my learning and research. Furthermore, I would greatly appreciate any suggestions on areas where I can enhance my skills and knowledge.
DISCLAIMER:
The perspective I am providing may possess inherent bias. My family members and me may and may not have financial investment in aforementioned scrip. Consequently, it is within my prerogative to engage in the purchase or sale of said scrip at my discretion, contingent upon prevailing market conditions and the occurrence of specific events.
I am not a registered financial advisor and the information provided by me should not be considered as financial advice. It is highly recommended that you consult with your financial advisor and do your due diligence before making any investment decisions.
Investing in the stock market is subject to market conditions and any unforeseen events. Also involves risk and can result in both profit and loss. You should be aware of the risks involved in investing in the stock market before making any investment decisions.
Please note that any investment decision you make based on the information provided by me is at your own risk, I will not be held responsible for any of your losses or damages, financial or otherwise, resulting from your investment decisions.
Sportking India Ltd Investment callSportking, incorporated in February 1989, is a part of the Sportking Group. The company manufactures cotton, synthetic and blended yarn in counts ranging from 20s to 46s. It has manufacturing units in Ludhiana and Bathinda, both in Punjab. The company has large size capacity of 2.75 lakh spindles and dyeing capacity of 20 tonne per day. It manufactures value-added yarns, such as compact, sustainable and contamination-free cotton yarn, which provide higher realisations than normal cotton yarn.
Products: -
The Yarn business is the largest strategic business unit of the company which manufactures Cotton Yarns, Poly-Cotton Yarns, Fancy Yarns, Acrylic Yarns and Polyester Yarns. The Co also supplies knitted fabric (Single Jersey, French Terry, Fleece etc.) and manufactures garments for Men, Women, Girls and Boys that are made available to customers through their own Retail Outlets.
Geographical Split: -
Domestic (India): 53% in FY21 vs 52% in FY20
Exports: 47% in FY21 vs 48% in FY20
The major exporting destinations of the Co are Bangladesh, China, Hongkong & Singapore.
Associated Brands: -
The Co is associated with brands like Zara, H&M, Ikea, Jockey, Marks & Spencer etc. Its top five clients accounted for 24% of total revenues in FY21.
Manufacturing Facilities: -
The Co has seven manufacturing facilities in India spread across the states of Punjab and Himachal Pradesh. The present total installed capacity of the Co is 2.72 lakh spindles for the manufacturing of Gray/Dyed Cotton/Cotton Blended/Synthetic Yarn. The Co also owns 100 Retail Garment Stores spread across India. The capacity utilization in FY21 stood at 95%.
CRISIL Ratings has upgraded its ratings on the bank facilities of Sportking India Limited (Sportking) to ‘CRISIL A/Stable/CRISIL A1’ from ‘CRISIL A-/Stable/CRISIL A2+’. Excerpts from the rating report are as follows: -
Key Rating Drivers: -
Strengths:
Sportking has a strong market position in the compact cotton yarn industry, with total spindle capacity of 2.75 lakh and revenue estimated at over Rs 2,000 crore in fiscal 2022. The company has established a strong position in several export markets, such as Bangladesh, China, Egypt and USA. The company also has longstanding relationships with international garment retailers in the USA and Europe and, thus, benefits from its diversified geographic reach. In fiscal 2022, export demand improved with increased competitiveness of Indian spinners in the global market on account of lower domestic cotton prices compared with global prices and supply disruptions amid Covid-19 pandemic. Performance is likely to remain at higher level than historical trends on account of structural changes in export market.
The company consumes about 4 lakhs bales of cotton every year and is, therefore, one of the largest buyers of cotton in India. Large-scale procurement will keep the bargaining power high over the medium term. The company is focusing on de-risking its exposure to basic cotton yarn products and emphasizing on value-added yarns, such as contamination-free cotton yarn, sustainable cotton yarn and multi-twist cotton yarn, which fetch higher margin.
Sportking had a healthy capacity utilisation of over 95% in the last three years, and has therefore, planned additional capacity expansion of 40,800 spindles expected to be commissioned by September’2022. This should further strengthen the business profile of the company.
The company has also approved the installation of the Rooftop Solar Power Project of 20 MW Capacity at its Existing Factory Units for captive consumption in Oct 2021. The project is likely to be implemented in the next 6-8 months. Timely execution of the capex within budgeted cost and achieving expected ramp up will be key monitorable.
Improved spreads between prices of raw cotton and cotton/ synthetic yarn and benefit of operating leverage should help sustain the operating margin at above 15% over the medium term.
TOL/TNW is expected to improve to less than 1 times in medium term despite additional term debt to be availed for capex plans. Adjusted interest coverage ratio expected to be over 15 times in fiscal 2022 because of increase in profitability and is expected at above 8 times in fiscal 2023, driven by better spreads between prices of raw cotton and cotton/ synthetic yarn and healthy capacity utilisation.
Financial flexibility is healthy, as reflected in moderate bank limit utilisation. Adequate liquidity and comfortable financial flexibility will continue to support the debt obligation. Any larger than expected debt funded capex or higher dividend payout resulting in weakening of capital structure will remain key monitorable.
Strong liquidity position: -
Unutilised bank lines stood at Rs 169 crore as of Feb 2022 (bank limit utilisation averaged 65% over the 12 months ended Feb 2022). Net cash accrual, expected over Rs 400 crore in fiscal 2022 and over Rs 200 crores in next 2 fiscal years which will be sufficient to cover debt obligation of Rs 30-40 crores in next 2 years. The company has well spread capex plans over the next three years.
Company financials: -
• Market capitalization at 1528 crore.
• Average Roe for last 10 years 32%.
• 10-year CAGR of sales at 11% and 10-year CAGR of profit at 33%.
• 5-year CAGR of sales at 16% and 5-year CAGR of profit at 80%.
• Debt to equity at 0.70 (less than 1 is good), Interest Coverage at 20.2 (greater than 3 is good), Current ratio at 1.70 (greater than 1.5 is good), FCF to CFO at 46.8%.
• March quarter sales growth at 43.54% end March quarter profit growth at 77.19%.
• TTM sales growth at 65% and TTM profit growth at 310.65%.
• The promoters have increased their shareholding in the Co by 5% between June 2020 and Sept 2021.
• The Co issued bonus equity shares in the ratio of 3: 1 to the eligible shareholders in Sept 2021.
Risks: -
• The company derives over 90% of its total revenue from the yarn sales, which is susceptible to volatility in cotton and cotton yarn prices. As a result, the operating margin fluctuated between 10% - 28% over the last 10 fiscals through 2022. Demand for cotton and yarn is driven by international demand-supply dynamics. In the past decade, the industry has seen five cycles (fiscals 2012, 2015, 2018, 2020 and 2021) wherein demand spiralled and then fell rapidly. Additionally, as Sportking derives close to half of its revenue from the overseas markets, it is susceptible to any significant volatility in forex rates, which is mitigated through foreign exchange forward contracts/ availment of working capital limits in foreign currency.
• Operations are working capital intensive, as reflected in gross current assets estimated at around 165 days as on March 31, 2022, driven by stocking of raw cotton bales being a seasonal product leading to high reliance on debt. On account of high investment in inventory and debtors, working capital loan remains sizeable.
Why is this a good investment??
Stock is trading below its 10-year average PE of 5.9 (current PE 3.72).
Near term demand zone between 970 and 1030.
Sportking India Ltd : Darkhorse with Flag and Pole PatternBSE:SPORTKING
Flag and Pole Detail Explanation:
Flag Pattern is one of the most popular chart patterns, formed by price action, which is contained within a small rectangle or a channel in the shape of a flag.
Flags are short-term continuation patterns that mark a small consolidation before the previous move resumes.
What is 'Flag' Pattern?
A flag chart pattern is formed when the market consolidates in a narrow range after a sharp move.
Usually a breakout from the flag is in the form of continuation of the prior trend.
Flags give very high risk reward ratio which means relatively small risk and high and quick profits.
Flag patterns are an integral part of technical analysis, but successful traders combine it with other forms of technical analysis to maximize their odds of success.
A flag can be used as an entry pattern for the continuation of the established trend.
Formation of the Flag Pattern
> There are pressure areas in a stock chart, which may be a minor support or resistance, or it may even be a minor target point. In this zone some traders book profit; however the trend remains unchanged. This may result in a small swing or the price may remain flat. Both the support and resistance lines are either horizontal or sloping downwards in an uptrend or sloping upwards in a down trend, forming flag.
> These patterns are usually preceded by a sharp advance or decline with heavy volume, and mark a midpoint of the move.
> The pattern has a “flag” appearance because the small rectangle is connected to the pole (the large and swift move).
> The move which precedes the flag portion of the pattern (the pole) must be a sharp move, nearly vertical.
> Flags are often considered continuation patterns, meaning that the breakout tends to theoretically occur in the direction of the preceding move.
> The formation usually occurs after a strong trending move that can contain gaps.
> The pattern usually forms at the midpoint of a full swing and consolidates the prior move.
Trading with Bullish Flag
> Flag Buy Signal - When the price has moved higher and prices have consolidated, creating a channel of support and resistance, a potential buy signal is given when prices penetrate and close above the upward resistance line.
> The pattern has completed when the price breaks out of the containing trend lines in the direction of the prevailing trend, at which point it will likely continue its course.
> Targets: The length of the flagpole can be applied to the resistance line of the flag to estimate the advance or target area.
Trading with Bullish Flag Pattern
The sideways period is often followed by another sharp rise.
This is where the trading opportunity comes in.
Once the flag pole and a flag or have formed, traders watch for the price to breakout above the upper flag/trend line.
When this occurs, enter a long trade.
Entry : After Flag breakout
Sporking stands very important Demand zone.When Stock breakout trendline or sustain Demand zone then we confirmly say that stock is ready for going up . currently stock was deciding where to go. It very important time to decide the trend because currently we see that stock is in down trend & this is a time when trend is changing .
