Profitability at Peak; Revenue growth intact on Capex Vardhman Textiles :: Karvy

Profitability at Peak; Revenue growth intact on Capex
Vardhman Textiles (VTEX) sales, EBITDA and net income grew 18%, 51%
and 103% YoY respectively during Q4FY13 while sequential growth was
reported at 5%, 19% and 38% respectively.
The Company’s top‐line grew 18.1% YoY to Rs. 11,463 mn (our expectations
Rs. 11,039 mn) during Q4FY13, while sequential growth was registered at
4.9%. Yarn sales grew 24.2% YoY to Rs. 9,933 mn, while revenue from fabric
grew 30.8% YoY to Rs. 4,046 mn during the quarter.

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VTEX’s EBITDA registered a growth of 51.3% YoY to Rs. 2,683 mn (our
expectations Rs. 2,307 mn), with sequential growth of 18.8%. EBITDA
margins for the quarter expanded by 513 bps over a corresponding quarter to
23.4% on the back of better spread on yarn and fabric. India is enjoying
competitive edge over China due to cotton price disparity; where procuring
cotton is around 10%‐15% expensive than India. Net Income for Q4FY13
grew 103.3% YoY to Rs.1,153 mn, while sequential growth was at 37.8%.
Volume & Realizations: Volume for Q4FY13 grew 11%, 15% & 27% YoY for
Yarn, Grey fabric and processed fabric respectively while realizations grew ~
21% for yarn and ~12% for fabric. Refer Exhibit‐3 for volume details.
VTEX is undergoing capex of Rs. 9.5bn in FY14, adding 230 looms and ~1.4
lac spindles to reach total capacity of 1320 looms and 1.1mn spindles which is
expected to start commercial production in two phases from June’13 &
Dec’13 onwards. Thus FY15 is likely to witness full benefits of ongoing capex.
While 190 looms added during FY13 is likely to push fabric capacity by ~20%.
Outlook & Valuations
We expect VTEX revenue and net income to grow at a CAGR of 13% and 4%,
respectively over FY13‐15E. We believe VTEX to maintain high profitability
for H1FY14 while going forward; China’s cotton policy and coming cotton
season would be crucial. At CMP of Rs. 277, the stock trades at the multiple
of 4.6x and 3.9x FY15E earnings and EV/EBITDA respectively. We maintain
our “BUY” recommendation and target price of Rs. 335 per share, valuing at
5.5x FY15E EPS, having an upside potential of 21%.