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Centrum Wealth
Vardhman Textiles
(Accumulate)
CMP: ₹1,317.40
Target: ₹1,482
The onset of the new cotton season and the expectation of favourable cotton prices could have led to Vardhman Textiles (VTL) touching its 52 week high of ₹1,565 (on 3 January 18), post our Q2FY18 result update click here (15 November 17 @ ₹1,266, Rating Accumulate). With the recent market correction, the stock is currently down about 16 per cent from its 52 week high at ₹1,309 (about 3 per cent return since the update). In line with our expectation, Q3FY18 EBITDA margins continued to witness pressure on the back of higher cotton prices. Given the 9MFY18 EBITDA margins of 13.6 per cent, we have lowered our FY18E estimates to 14.5 per cent (versus 15.5 per cent earlier). We believe some benefits of the softening of cotton prices and better revenue from the fabric division could aid margin expansion in FY19/20. We maintain our Accumulate rating. We have introduced FY20 numbers and value the stock at 11x FY20E EPS giving a target price of ₹1,482.
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