ICICI Direct is bullish on Filatex India recommended buy rating on the stock with a target price of Rs 33 in its research report dated October 01, 2020.
ICICI Direct's research report on Filatex India
Filatex India (FIL) is among the top cost efficient manufacturers of manmade yarns in India with a diversified product portfolio. Globally, polyester is becoming a preferred fibre given its unique characteristics (highly durable, wrinkle resilient), inherent limitations of growth of cotton fibre (MMF dominates global textile fibre consumption with 70:30 ratio). FIL is one of the top five manufacturers of manmade yarns that over the years has gradually scaled up its presence in value added segments (FDY, DTY) with its share of revenue rising from mere 10% in FY13 to ~ 65% in FY20. The same has enabled FIL to post EBITDA CAGR of 32% in FY14-20. Given the enhanced focus, capacity addition of value added products, we expect the share to get further augmented to 75% by FY22E giving fillip to margins. Another key lever for margin enhancement is its captive power plant that is expected to be commissioned by April 2021 (leading to annual cost savings of Rs 45-50 crore). We expect revenues to be flattish (since final product prices that are directly linked to RM prices have trended downwards) but with dual margin accretive initiatives, we expect EBITDA margin to expand 270 bps to 10.7% in FY20-22E.
Hence, we pencil in EBITDA CAGR of 18% in FY20-22E. Further, with no major capex to be incurred in FY22E, we expect the company to generate strong FCF leading to debt reduction to the tune of Rs 55 crore by FY22E (D/E: 0.9x). Subsequently, we expect RoCE to be augmented by 400 bps to 18.0% in FY20-22E. We ascribe a BUY rating to the stock with a target price of Rs 33 (5.0x FY22E EPS).
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