Hold Vardhman Textiles; target of Rs 275: ICICIdirect.com

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Hold Vardhman Textiles; target of Rs 275: ICICIdirect.com

ICICIdirect.com has recommended hold rating on Vardhman Textiles with a target of Rs 275, in its May 12, 2011 research report.

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ICICIdirect.com has recommended hold rating on Vardhman Textiles with a target of Rs 275, in its May 12, 2011 research report.

"Vardhman Textiles' (Vardhman) Q4FY11 revenues were marginally lower than our estimates. However, the operating margin & PAT came as a positive surprise. In Q4FY11, Vardhman's revenues increased 18.4% YoY to Rs 896.0 crore (I-direct estimate: Rs 1,070.8 crore). EBITDA margin increased from 22.3% in Q4FY10 and 27.7% in Q3FY11 to 29.7% in Q4FY11 on the back of strong realizations. Expansion in operating margin and lower tax outgo led to an 84.4% YoY growth in PAT to Rs 139.5 crore. On a consolidated basis FY11 revenues, EBITDA and PAT increased 31.9%, 61.0% and 100.9% respectively to Rs 4,418.5 crore, Rs 1,135.3 crore and Rs 525.3 crore respectively. FY11 was an exceptionally good year for the company backed by increased realizations and expanded margins due to low cost inventory held. However, we expect dual pressure on the operating margin in FY12 due to correction in cotton and yarn prices and the high procurement cost of cotton. Accordingly we have revised our FY12E estimates downwards and have introduced our FY13E estimates forecasting a consolidated EPS of Rs 51.5."

"The topline growth in Q4FY11 and FY11 was aided largely by price hikes as volumes remained more or less flat. Vardhman's Q4FY11 EBITDA margin expanded 733 bps YoY to 29.7% on the back of improved realizations in the yarn and fabric segment. Over the next two years Vardhman has outlined a capex plan of Rs 1,000 crore. From this ~ Rs 600 crore will be utilized towards adding 1,40,000 spindles taking the company's total spindlage to 10,10,000 spindles by FY12E. The company also plans to add looms and an additional line of dyeing capacity from these funds."

"At CMP, the stock is trading at 6.1x and 5.1x its FY12E and FY13E EPS of Rs 43.1 and Rs 51.5 respectively. We maintain a HOLD rating on Vardhman Textiles with a revised target price of Rs 275 (based on an average arrived at by assigning a multiple of 0.8x FY13E book value and 4.5x FY13E EPS)," says ICICIdirect.com research report. 

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