Vardhman Acrylics Ltd - Strong Cash Generation Company::Edelweiss report link

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Vardhman Acrylics Limited (VAL) was set up in 1999 as a subsidiary of Vardhman Textile Limited. The parent company holds 70% shares of the subsidiary. VAL is engaged in the business of manufacturing Acrylic Fiber, which is used in Hand-knitted Yarns, Blankets, Jerseys, Sweater, Saris, Upholster, Carpets etc. The manufacturing plant is located at Jhagadia, Gujarat in collaboration with Marubeni & Exlan of Japan. The capacity of the plant is 20,000 MT. The wet spun technology employed to spin the fiber is sourced from Japan Exlan Co. Ltd. Products are marketed under the brand name VARLAN. Approximately 74% of the company`s revenue comes from selling finished goods, while the rest comes by trading Acrylic Fiber and Acrylonitrile.

Core business EBITDA at INR 51 cr; Available at Mcap of INR 62 cr (ex-cash)

VAL`s market capitalisation is at INR 252cr and net cash at INR 190 cr. Core business, which is doing EBITDA of INR 51 cr and sales of INR 468 cr are available at INR 62 cr Mcap (ex-cash).

ROCE of the business is at 30%

VAL`s core ROCE is at 30% (past 5-year average). The company has operated at 90% plus utilization in the last five years with no capacity expansion in the last decade.

Falling crude to boost margins

The main raw material in producing Acrylic Fiber is Acrylonitrile (ACN), which is a crude derivative. Around 80-90% of the raw material cost is ACN. Hence, falling crude oil prices will boost margins consequently improving profitability of the company.

LINK
https://www.edelweiss.in/research/Vardhman-Acrylics-Ltd--Strong-Cash-Generation-Company/10005348.html