Q3FY2022 performance was boosted by high domestic and export demand. Strong revenue growth of 50.3% y-o-y to Rs. 2,275.7 crore can be attributed to robust performance by both textile and advanced materials (AMD) divisions, which grew by 57.3% and 41.6% y-o-y. Higher cotton prices stressed gross margins (that dropped 449 bps y-o-y to 45.4%). The Denim, Woven and Garmenting divisions registered strong volume growth. Better operating leverage and price hikes helped OPM improve by 121 bps sequentially to 10.4% (though it declined marginally by 30 bps y-o-y). The company reduced debt by Rs. 226 crore as compared to March 2021 and net debt stands at Rs. 1,724 crore as of Q3FY22-end.
With strong performance momentum continued Q3, we expect the company to meet the target of sales volumes of 90 million metres in the denim segment, 125-128 million metres in the woven segment and 48 million-50 million pieces in the garments business in FY2022. Increased revenue, a steady improvement in OPM, and reduction in debt would result in strong improvement in return ratios. The stock is currently trading at an attractive valuation of 5.7x/4.6x its FY2023E/24E EV/EBIDTA. We maintain a Buy on the stock with a revised price target of Rs. 183 (rollover to FY24).
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