ICICI Direct is bullish on Vardhman Textiles has recommended buy rating on the stock with a target price of Rs 1220 in its research report dated November 15, 2018.
ICICI Direct's research report on Vardhman Textiles
Revenues for the quarter grew 10.6% YoY to Rs 1685 crore (I-direct estimate: Rs 1618 crore). Revenues from the textile segment grew 10% YoY to Rs 1591.8 crore while acrylic fibre reported healthy revenue growth of 28% YoY to Rs 117.5 crore Gross margins for the quarter improved 659 bps YoY to 50.8% (I-direct estimate: 48.9%) mainly on account of low cost cotton inventory. Subsequently, EBITDA margins improved 667 bps YoY to 19.6% (I-direct estimate: 17.0%, Q1FY19: 17.2%). Absolute EBITDA grew 67% YoY to Rs 331 crore (I-direct estimate: Rs 274.0 crore). On segmental front, EBIT margins for textile and acrylic fibre expanded 570 bps and 620 bps YoY to 17.8% and 11.7%, respectively Lower other income (down 18% YoY to Rs 42.1 crore) coupled with high taxation rate (30.6% vs. 19.7% in Q2FY18) stemmed the PAT growth. Resultant PAT grew 47.5% YoY to Rs 196.4 crore (I-direct estimate: Rs 146.8 crore)
The management’s focus would be on converting more yarn to fabric, which would lend better stability to EBITDA margin. Factoring in the better margin in Q2FY19 and the management reiterating that the EBITDA margin is likely to remain in the range of 18-22%, we marginally upgrade FY19E, FY20E earnings estimates. We have a BUY rating on the stock with a target price of Rs 1220 (PE of 9x FY20 EPS).
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