Vardhman Textiles Q3 Results Review - Gradual Demand Recovery Visible: Systematix

Systematix Research Report

Vardhman Textiles Ltd.’s Q3 FY23 revenue dropped 9% YoY to Rs 23.7 billion, 12% below our estimate. We attribute the fall in revenue to 8%/11%/16% YoY lower volumes in yarn, grey fabric and processed fabric, respectively, impacted by weak demand.

Gross margin contracted 1,537 bps YoY to 37% due to the high-cost inventory. Ebitda margin contracted 1,626 bps YoY to 7.5%, and was below our estimate of 15.1%, due to lower gross margin and lower operating leverage, as plants operated at lower utilisation.

Vardhman Textiles' Ebitda fell 71% YoY to Rs 1.8 billion, lower than our estimate of Rs 4.1 billion. Reported profit after tax slumped by 78% to Rs 951 million, below our estimate of Rs 2.3 billion.

We expect demand to recover in the coming quarters, albeit at a slower pace, afflicted by high-channel inventory along with inflationary and recessionary pressures.

We have factored in weak nine months-FY23 performance and have cut our FY23/24E earnings by 32%/28%. We introduce FY25E and roll forward our valuation to FY25E.

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