Emkay Global Financial's research report on Vardhman Textiles
Vardhman Textiles reported a sharp drop in EBITDA for the quarter (down 46% YoY and 32% QoQ) on account of 9% YoY lower sales and gross margin contraction. Gross margin declined to 37% from 52% YoY and 43% QoQ because of the sharp drop in yarn prices along with inventory of high-cost cotton. Consequently, EBITDAM stood at ~7.3% in Q3FY23 vs. 24.2% YoY and 14.6% QoQ. This is the lowest quarterly EBITDAM in the past almost 10 years, barring Q1FY21 (Covid lockdown period).
Outlook
We maintain our BUY recommendation with Dec-23 TP of Rs440 (from Rs455 earlier), as we believe earnings have bottomed and there are clear signs of improvement with lower cotton price and improving yarn-cotton spread.
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