Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Rising raw-material prices and lack of funding under the TUFS
scheme pose headwinds to earnings growth for Vardhman
Textiles (VTEX) during FY12-13. We lower our earnings
estimates for FY12-13 by ~6%, mainly to reflect the likely
compression in yarn margins and slower volume growth due to
delayed capacity ramp-ups. Accordingly, we reduce our target
price to Rs311.
Cotton prices zoom ahead of yarn: Domestic cotton prices are up
27% QoQ despite the restrictions on cotton exports, whereas global
yarn realisations are up only ~15% QoQ as global demand growth for
textiles remains tepid. While VTEX benefited from low-cost inventory of
cotton during FY11 (which, we reckon, will support an estimated
EBITDA margin of ~24% in FY11 vs historical average of ~18%), fresh
cotton buying at current prices will bring its margins closer to historical
average levels during FY12. Additionally, uncertainty on regulatory
changes (ie, restriction on yarn exports) will be an added overhang on
FY12 earnings growth, in our view. We lower our EBITDA margin
estimates by 50bps for FY12 to factor in the higher raw-material prices.
Uncertainty on TUFS to prolong capex: Under the TUFS scheme
(which is valid till March 2012), no fresh loan sanctions have been
forthcoming. Prospects for extension of the scheme beyond March
2012 also appear bleak. Management indicated that its planned capex
could stretch over a longer period than it had estimated earlier, should
no fresh loans be available. Accordingly, we lower our FY12–13
volume growth estimates from 7-8% to 5-6%.
De-merger of steel to marginally lower earnings: With the demerger
of the steel company (effective 1 January 2011), VTEX’s stake
in the steel company will reduce to ~33%, thereby lowering the steel
unit’s earnings contribution by ~2%. However, the economic interest
of VTEX’s shareholders will remain unchanged, as their stake in the
steel company will mirror that of their stake in VTEX.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Rising raw-material prices and lack of funding under the TUFS
scheme pose headwinds to earnings growth for Vardhman
Textiles (VTEX) during FY12-13. We lower our earnings
estimates for FY12-13 by ~6%, mainly to reflect the likely
compression in yarn margins and slower volume growth due to
delayed capacity ramp-ups. Accordingly, we reduce our target
price to Rs311.
Cotton prices zoom ahead of yarn: Domestic cotton prices are up
27% QoQ despite the restrictions on cotton exports, whereas global
yarn realisations are up only ~15% QoQ as global demand growth for
textiles remains tepid. While VTEX benefited from low-cost inventory of
cotton during FY11 (which, we reckon, will support an estimated
EBITDA margin of ~24% in FY11 vs historical average of ~18%), fresh
cotton buying at current prices will bring its margins closer to historical
average levels during FY12. Additionally, uncertainty on regulatory
changes (ie, restriction on yarn exports) will be an added overhang on
FY12 earnings growth, in our view. We lower our EBITDA margin
estimates by 50bps for FY12 to factor in the higher raw-material prices.
Uncertainty on TUFS to prolong capex: Under the TUFS scheme
(which is valid till March 2012), no fresh loan sanctions have been
forthcoming. Prospects for extension of the scheme beyond March
2012 also appear bleak. Management indicated that its planned capex
could stretch over a longer period than it had estimated earlier, should
no fresh loans be available. Accordingly, we lower our FY12–13
volume growth estimates from 7-8% to 5-6%.
De-merger of steel to marginally lower earnings: With the demerger
of the steel company (effective 1 January 2011), VTEX’s stake
in the steel company will reduce to ~33%, thereby lowering the steel
unit’s earnings contribution by ~2%. However, the economic interest
of VTEX’s shareholders will remain unchanged, as their stake in the
steel company will mirror that of their stake in VTEX.
No comments:
Post a Comment