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Centrum Wealth
Vardhman Textiles
(Accumulate)
CMP: ₹1,355.95
Target: ₹1,641
Vardhman Textiles (VTL) is a leading textile manufacturing company having presence across a wide spectrum — from manufacturing yarns to fabrics. The company has expanded its product portfolio (forayed into fabric & threads) and has entered into strategic alliances with leading global textile players.
Valuation and view: With an aim to cater to the increasing demand and add more value to its products, VTL is currently expanding its capacity mainly in the fabric segment. The company enjoys steady EBITDA margins (about 20 per cent), low debt to equity (about 0.6x) and decent return profile — RoE (about 16 per cent). Although the topline for FY17 is likely to be subdued owing to full capacity utilisation and demonetisation impact on domestic market, the same is likely to pick up FY18 onwards.
Risk factors: 1) Lack of government policies (domestic and international); 2) Volatility in raw material prices; 3) Slower offtake in demand; and 4) Lack of availability of skilled labour.
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