Hold Vardhman Textiles; target of Rs 1230: ICICI Direct

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ICICI Direct's research report on Vardhman Textiles

Revenues grew 17% YoY to Rs 1763 crore driven by 17% growth in the Textiles segment to Rs1703 crore. Acrylic segment declined by 3% YoY to Rs 79 crore. On account of spike in raw material price (cotton), gross margins declined by 392 bps YoY to 45.1%. However lower other expenses as a percentage to sales (down 190 bps YoY), aided EBITDA to a certain extent. Subsequently, EBITDA margins declined by 223 bps YoY to 14.9% (I-direct estimate: 16.7%). Absolute EBITDA grew 2% YoY to Rs 263.5 crore (I direct estimate: Rs 274.1 crore). On the segmental front, EBIT margins for textile segment and acrylic segment contracted by 51 bps and 127 bps YoY to 14.9% and 9.8%, respectively. Higher other income aided PAT growth which grew by 9.6% YoY to Rs 179.4 crore (I direct estimate: Rs 173.5 crore).

Outlook

We expect the EBITDA margin to be range bound at 17-18% for FY20E, FY21E. We have a HOLD rating on the stock with a target price of Rs 1230 (PE of 8x FY21 EPS).

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