Vardhman Textiles (VTL) revenue for the third quarter of FY21 fell 4% year-on-year to Rs. 1,750 crore. The 340 basis points year-on-year improvement in gross margin to 48.3% and lower electricity costs (down 120 basis points year-on-year to 9.9%) led to an increase of the EBITDA margin of 421 basis points year-on-year to 15.8%. EBITDA increased 31% year-on-year to Rs. 276 crore. As a result, PBT rose 31% year-on-year to reach Rs. 219 crore. However, PAT fell 13% to Rs. 175 crore due to the deferred tax adjustment during the base quarter.

Assessment and outlook

VTL’s yarn business is experiencing strong demand while the recovery in demand for the fabrics segment accelerated in Q3FY21. Management indicated that the profitability of the yarn business has improved thanks to higher yarn spreads, the impact of which could be visible in the coming quarters. The yarn industry has also faced supply constraints due to the shutdown of around 6-7% of capacity due to the stress faced by small players, which could benefit larger players. like VTL. Vardhman is one of the few textile companies that has managed to maintain a debt ratio of less than one despite the continuous increase in their capacities. We expect VTL to capitalize on the emerging demand scenario due to its strong balance sheet and long-standing relationship with reputable clients. Improving margins on a sustainable basis is essential for improving financial performance. We maintain the HOLD rating with a revised target price of Rs. 1100 (7x FY23E earnings) (old TP: Rs. 740).

For more details, click on the link below: https://www.icicidirect.com/mailimages/IDirect_VardhmanTextiles_CoUpdate_Jan21.pdf

Shares of VARDHMAN TEXTILES LTD. was last trading on BSE at Rs.1050 from the previous close of Rs. 1057.75. The total number of shares traded during the day was 923 in more than 215 trades.

The stock hit an intraday high of Rs. 1,065.65 and an intraday low of 1,039.65. The net turnover during the day was Rs. 970,540.

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