Recommendation from Textile Sector

Recommendation from Textile Sector

This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year.

 

VARDHMAN TEXTILES .:SPINNING GOOD PROFITS

HERE IS WHY
✓Strong balance-sheet
✓Robust financial growth
✓Strong market presence

Vardhman Textiles, a flagship company of the Vardhman Group, is among the leading textile conglomerates of the country. Headquartered in Ludhiana, Vardhman Textiles was set up in 1965 and has emerged as an integrated textile powerhouse, manufacturing yarns, fabrics, acrylic fibre, sewing threads, garments and alloy steel. The company’s comprehensive business model further helps it to achieve better operational efficiencies and better margins with greater product quality. The company’s state-ofthe-art plants equipped with modern technology, customer-driven innovation model and relentless focus on excellence have made it one of the largest exporters of cotton yarn to some of the growing markets of EU, USA and the Far East.

Currently, the company is running at 100 per cent yarn capacity utilisation. The company reported net sales of ₹9,622.3 crore in FY22 compared to ₹6,139.9 crore in FY21. That is a growth of nearly 56.7 per cent. The EBIDTA stood at ₹2,498.4 crore in FY22 as against ₹1,015.4 crore in the previous year and witnessed a jump of over 146 per cent.

Also, the PAT saw a boom of 276 per cent with an increase from ₹401.8 crore to ₹1,511.5 crore from FY21 to FY22, respectively. For the last five years, the net profit has grown with CAGR of 18.93 per cent.

A multi-fold expansion of nearly 760 per cent can be seen in the cash flows from operating activities increasing from ₹168 crore in FY21 to ₹1,445 crore in FY22. In Q4FY22, revenue grew by 39.04 per cent YoY to ₹2,707.11 crore from ₹1,947.07 crore in Q4FY21. On a sequential basis, the top-line was up by 3.99 per cent. PBIDT excluding other income was reported at ₹499.24 crore, up by 26.66 per cent as compared to the year-ago period and the corresponding margin was reported at 18.44 per cent, contracting by 180 basis points YoY. The rising cotton prices per candy have put forward a concern for the whole textile industry.

The raw material which was priced at around ₹40,000-45,000 last year has more than doubled to ₹1 lakh per candy which has eaten up margins to some extent. However, a good monsoon season is expected to normalise the prices in the future. PAT was reported at ₹309 crore, up by 26.88 per cent from ₹243.53 crore in the same quarter for the previous fiscal year. The PAT margin stood at 11.41 per cent in Q4FY22, contracting from 12.51 per cent in Q4FY21. Looking at some of the key indicators, the ROE and ROCE stood at 21.8 per cent and 23.7 per cent, respectively.

The company has a strong balance-sheet such that the short-term assets can take care of borrowings. The debt-to-equity ratio stood at 0.20 times. On the relative valuation front, the stock is trading at an attractive price-to-book multiple of 1.06 times and PE multiple of 5.22. This is slightly cheaper than the industry average of 6.45. It has a dividend yield of 2.4 per cent. The company has announced capex of around ₹3,000 crore to expand its yarn capacity over a period of three years which would be funded through a mix of debt and internal accruals. We expect the company to perform even better in the medium to long-term period with good cotton yield in the country and price normalisation. By virtue of all these factors, we recommend our readerinvestors to BUY this scrip.

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