Recommendation From Fabrics and Garments Industry
This section gives a recommendation of a stock having stock price below Rs 100 with sound fundamentals and expected to give handsome returns over a one-year time horizon.
VISHAL FABRICS LTD - SPINNING A GOOD GROWTH CURVE
HERE IS WHY
✓ Huge growth opportunities
✓ Dominant player in denim market
✓ Strategic business location
Incorporated in 1985, Vishal Fabrics Ltd. (VFL) is a flagship company of Chiripal Group that operates in the textile industry wherein it mainly manufactures denim along with other range of fabrics. It is a well-known company for dyeing, printing and processing of denim and other fabrics. The fabric composition is primarily cotton-based. VFL is popular for producing top-notch stretchable denim fabric. Its total capacity for dyeing and fabric processing is 105 MMPA and for denim fabric processing it is 80 MMPA. The company has its base in Gujarat which is considered the textile hub of India.
The company reported net sales of Rs. 967.54 crore in FY21 compared to Rs. 1,296.8 crore in FY20, implying de-growth of nearly 25.3 per cent. Even though the top-line growth is negative, it is still a reasonable set of numbers given the challenging times. The EBIDTA stood at Rs. 90 crore in FY21 as against Rs. 105.7 crore in the previous year. That is a decline of over 14.8 per cent. Also, the PAT decreased by 40 per cent from Rs.30 crore to Rs. 18.1 crore from FY20 to FY21, respectively. The pandemic hit hard on the company. However, denim has been popular in the Tier I and II cities while also gaining traction in Tier III and IV regions.
The management is aiming to make denim a casual daily wear, which is why there is huge headroom for growth in the market for Vishal Fabrics. Meanwhile, a decline of nearly 27 per cent can be seen in the company’s cash flows from operating activities decreasing from Rs. 46.6 crore in FY20 to Rs. 34 crore in FY21. The YoY quarterly results have seen triple-digit growth in every key param eter. Net sales were at Rs. 294.93 crore in June FY22, down by 24 per cent QoQ. EBITDA exclusive of other income was at Rs. 30.9 crore, down by 24.7 per cent on QoQ basis. The company’s quarterly net profit stood at Rs. 10.24 crore, which too declined by 26.7 per cent sequentially.
The ROE stood at 7.08 per cent while ROCE stood at 10.5 per cent. The trailing twelve months PE multiple was at 19.52. The debt-to-equity ratio is a bit high at 1.3. However, the company has set a goal to be debt-free by 2023. It is aiming to reduce the current debt by Rs. 40 crore this fiscal. The company has associations with the likes of H and M, Lee, Zara, Levi’s, Wrangler, and others, which are all highly reputed brands in the clothing and fashion market. Its strategic location in Gujarat has numerous advantages. These include various subsidies from the central as well as state governments.
In addition, it gains from proximity to fabric dealers and low cost of production due to easy availability of raw material, namely, yarn. It aims to explore new geographies through increased exports, thereby diversifying its customer base. It plans to increase the share of valueadded products from the current level of 50 per cent to 60 per cent in the next couple of years. In India, the denim apparel market is expected to grow at a CAGR of 12.7 per cent. There are many unbranded players in the market capturing 60 per cent share. The company is focused on taking on the opportunity to increase its market share. Considering all such factors, we recommend our reader-investors to BUY the scrip.