Shares of textile manufacturing company Vardhman Textile Limited (VTL) have more than doubled investors’ money in the last 12 months. In the past one year, the share price jumped from Rs 1,138.5 to Rs 2,574, logging around 126 per cent return in this period.
An amount of Rs 5 lakh invested in this multibagger stock a year ago would have turned into Rs 11.3 lakh today.
Long-term investors have made big gains by investing in this mid-cap stock as it has zoomed over 1,000 per cent in the last ten years.
With a market capitalisation of more than Rs 14,000 crore, the shares of the largest strategic business unit of the Vardhman Group stand higher than 20 day, 50 day, 100 day and 200 day moving averages but lower than 5 day moving averages.
The stock plunged 4 per cent amid a brutal sell-off on Dalal Street on Tuesday. However, the brokerage house HDFC Securities believes that investors could buy the stock in Rs 2580-2620 band and add on dips to Rs 2,230-2,270 band (8.5x Dec-23E EPS) for base case fair value of Rs 2,770 (10.5x Dec-23E EPS) and bull case fair value of Rs 3,030 (11.5x Dec-23E EPS) over the next 2 quarters.
“We are positive on the future earnings growth trajectory of VTL. We expect revenue/EBITDA/PAT growth of 20/40/53 per cent over FY21-FY24 driven by strong demand and increased capacities gradually coming on stream. EBITDA margins are likely to compress from the current unsustainable levels but would remain at the upper end of the 18-22 per cent guidance given by the management,” it said.
HDFC Securities highlighted that the company is well placed to benefit from the strong demand uptick for cotton yarn post the ban imposed by the US on China’s Xinjiang region. Importing companies in the west are also looking to diversify away from China, which is beneficial for textile companies in India.
It further added that the long-term demand outlook remains positive as global retailers seek additional sourcing partners to diversify their supply chains. The ban has also resulted in strong demand for fabrics, which resulted in 100 per cent utilisation of fabric capacity for VTL in Q3FY22.
The demand for cotton yarn and fabrics is likely to remain strong for the coming few quarters as producing countries enhance their capacities to meet the disruption caused by the ban.
The brokerage house also noted that the company reported strong performance in Q3FY22 with revenues increasing by 49 per cent YoY to an all-time high level of Rs 2,603 crore driven by higher yarn and fabric realisation and improved capacity utilisation. It added that the fabrics division, which has been a laggard in the last few quarters, reported 100 per cent utilisation for the first time.