Vardhman Textiles Q4 Review — Easing Of Raw Material Prices To Enable Gradual Margin Recovery: ICICI Direct

ICICI Direct Report

Vardhman Textiles Ltd. reported a QoQ increase in revenues though revenues remained lower YoY. Easing of raw material cost led to QoQ improvement in gross margins and Ebitda margins.

On a QoQ basis, sales increased 5% to Rs 2486 crore (YoY decline of 8%).

Vardhman Textiles' gross margin improved 147 basis points QoQ to 38.5% (YoY decline of 987 bps). Ebitda margin improved 300 bps QoQ to 10.5% (YoY decline of 790 bps). Profit after tax was up 55% QoQ to Rs 158 crore (YoY decline of 51%).

Key triggers for future price performance:

• The key factor for enhanced competitiveness and improvement in profitability will be price parity of Indian cotton prices with global cotton.

• Stress witnessed by competing countries like Pakistan owing to varied internal factors can be beneficial for Indian cotton spinners, which can lead to increased order flow from global clients.

• China plus one strategy of global retailers and government initiatives like free trade agreements would provide sustainable long term growth opportunity.

• We expect revenue compound annual growth rate of 6.3% (FY23-25E) and margins to improve towards the lower band of the normal long term range of 18-22% in FY25.

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