Stock Pick From Textiles Sector

Choice Scrip is a fundementally strong stock pick that is expected to give returns within a 1 year horizon. The recommendation is based on a fundamental analysis of the company. Hence DSIJ has selected a stock with a good 
fundamental base.


Here Is Why

Strong expansion plans through Vividha stores in near term

Doubling manufacturing capacity at Surat

Robust financial performance and a low debt company

The Cabinet Committee of Economic Affairs cleared the amended technology upgradation fund scheme (ATUFS) for the textile sector. The government's move tends to positive headwind towards the industry and would encourage investment in the sector. According to Indian Brand Equity Foundation, textile sector contributes 14 per cent to industrial production and 4 per cent to GDP. The industry accounts about 13 per cent of total exports of the country. Healthy macroeconomic conditions will help Visagar Polytex (VPL).

VPL operates in the textile manufacturing and trading business segments. The company is also engaged in wholesale, retail and trading business. It deals in ethnic wear like sarees, lehengas and suits; interlining goods as well as a variety of fabrics. VPL has over 14 retail showrooms retailing designer sarees under its brand Vividha. The company operates its manufacturing and wholesale facilities at Kolkata and Surat. It operates in over 15 locations across the country.

VPL also operates shop4Saree.com, which is an online business of the company. Apart from retail, the company also manufactures interlining material at Surat on contract manufacturing basis. It also trades grey cotton fabrics sourced from local power looms at Bhiwandi in Maharashtra. VPL also manufactures twills, such as interlining materials for travel bags, suitcases, ladies purse and wallets, among others.

During the month of October, VPL launched its 14th retail showroom and first showroom in Mumbai. The company also launched its Home Based Opportunity Scheme (HBO) for aspiring women entrepreneurs, an initiative to empower women, promote and enable successful home based business. VPL's new move will eliminate the need for wholesale channel and empower members with credit period, exchange and refund benefits on the products which are included in the deal.

VPL has plans to expand its retail outlets by adding about 200 stores in next three fiscal years. The company is looking to expand in Gujarat, Maharashtra, Madhya Pradesh and Uttar Pradesh.

According to company management, it is looking at adding around 40 retail outlets by FY16,70 outlets in FY17 and remaining 90 retail outlets in FY18. VPL is following an asset light model and the expansions would be mostly through franchisee route and will also increase our wholesale presence to 2500 stores. The company is also doubling its manufacturing capacity at Surat from 0.5 billion stitches per day to 1 billion stitches per day.

Considering latest financial result, VPL's revenue increased by 11.95 per cent to Rs 22.48 crore in Q2FY16 as compared to same period in previous fiscal year. Company's EBITDA also rose by 29.66 per cent to Rs 1.53 crore in Q2FY16 on yearly basis. Its EBITDA margin expanded by 93 basis points to 6.81 per cent in Q2FY16 as compared to same period in previous financial year. VPL's PAT boosted by 61.64 per cent to Rs 1.18 crore in Q2FY16 on yearly basis. Company's PAT margin expanded by 161 basis points to 5.25 per cent in Q2FY16 as compared to same period in previous financial year.

VPL's revenue increased by CAGR of 2.36 per cent during last five financial year and stood at Rs 61 crore in FY15. The company's EBITDA too increased by CAGR of 21.84 per cent during the past years. It's PAT also rose by CAGR of 12.58 per cent over the last five years and stood at Rs 1.7 crore in FY15. VPL is a low debt company and has total debt to equity ratio at 0.38 as of FY15. Hence we recommend our readers to buy this stock.