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Vardhman Textiles (NS: VART ) is one of the flagship companies of Vardhman Group and has a market capitalization of INR 10,550 crores. This Ludhiana-headquartered company is India’s largest vertically-integrated textile manufacturer that is engaged in manufacturing cotton yarn, synthetic yarn, woven fabric, sewing thread, acrylic fiber, tow and garments. It is also one of the largest exporters of cotton yarn to the US and the EU.
In its yarn business, it has a spindle count of 1.2 million, providing it a production capacity of 670 MT per day. Its cutting-edge spinning technology sourced from global leaders makes it a preferred choice of customers worldwide, owing to the quality of products and flexibility for product customization. It is also one of the first movers in the manufacturing of recycled yarns in India.
The company reported net sales of INR 9,622.3 crores in FY22, which was significantly higher than the previous year’s sales of INR 6,139.9 crores. EBITDA shot up 144.98% to INR 2,538.11 crores in the same period which consequently led to massive profit growth of 273.33% to INR 1,546.89 crores in FY22. Due to massive profit growth, the stock is trading at the highest-ever EPS of INR 54.94.
However, the profit margins took a hit, all thanks to the mind-boggling price rise of cotton per candy. The rising cotton prices put forward a major concern for the entire industry. To put it in perspective, cotton prices per candy stood around INR 40,000 - INR 45,000 a year ago which soared to over INR 1 lakh during the year. But this worry seems to be fading away as cotton prices have come down significantly since May 2022. The impact would be reflected in Q2 FY22 numbers. PAT margins which stood at 11.64% in Q4 FY22 contracted a bit to 11.57% in Q1 FY23.
The company’s balance sheet is quite strong with the debt-to-equity ratio at 0.2 and free cash flows also improved, from negative INR 75.34 crores in FY21 to INR 925.51 crores in FY22. On the valuation front, the stock seems to be trading at a mouth-watering level. The current P/E ratio of 6.82 is far better than peers such as Trident (NS: TRIE ), KPR Mill Ltd (NS: KPRM ), and Welspun India Ltd (NS: WLSP ) all of which are trading at a P/E of 22.87, 23 and 13.4, respectively. The P/B ratio of the company stands at only 1.35, compared to the sector’s average of 5.95.
All this combined with the company’s expansion plans of over INR 3,000 crores over the course of three years to expand its yarn capacity is making these valuations even more attractive.
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