400-2700% Dividends Paid: 2 Textile Stocks Have Potential For 22-25% Upside Amid Q3 Results; PAGE, KPR Mills

The Q3 earnings season has kicked started and even though the textile industry is expected to register a mixed performance, amidst the case, brokerage Elara Capital has recommended either buying or accumulating two dividend-paying stocks. These are PAGE Industries and KPR Mills, while the brokerage also likes Vardhman Textiles, and Arvind however the latter two have met its target. These four stocks paid dividends in the range of 57.50% to as high as 2700% in 2023.

In its preview note, the brokerage said, "Expect Elara Textiles universe to post revenue growth of 1.8% YoY (2.6% QoQ) in Q3FY24E, led by volume recovery on favourable base, which may be offset by price deflation. KPR Mill may lead the pack, with the sharpest increase of 8.4% YoY in revenue. Volume growth may be muted YoY for garment players, whereas spinning volumes may inch up."

However, a sequential improvement in volumes is expected with orders kicking in from export markets, as Indian cotton prices turn favourable against international prices and domestic demand remains resilient.

Elara's note further added that Q3E EBITDA may grow 19.9% YoY (up 5.1% QoQ), led by a favorable cost structure compared with Q3FY23. Q3E APAT may improve 23.8% YoY (up 4.2% QoQ), percolating from EBITDA growth.

In the case of operating profit margins, Elara said, "We expect Vardhman Textiles to post an EBITDA margin of 9%, on improved utilization in both fabric and yarn segments. KPR Mill may witness a 20% margin, led by improved revenue mix and favorable input costs."

Overall, Elara expects mixed performance in Q3 as garment demand was muted, yarn demand improved slightly sequentially on a favorable cost structure, and home textiles continued to perform well.

It also expects Q3 profitability to improve led by slight demand improvement amid a sharp correction in cotton prices and Indian cotton turning competitive in the global market. Further, green shoots in export demand and a decline in input cost inflation may aid performance. Domestic demand started improving at the end-Q3.

Moreover, the brokerage's note added, that Indian companies turned competitive in the global markets led by a stable demand scenario and gradually improving cotton price scenario.

"We prefer integrated firms in the sector, with the ability to cushion profitability via aggressive cotton buying at lower prices and currency movement. KPR Mill and Arvind are our top picks in the sector. Key monitorables are cotton price movement, domestic and export demand, debt reduction and execution/announcement of capex plans," the brokerage said.

Here's what the brokerage has recommended for the PAGE, KPR stock prices:

PAGE Industries: BUY for a target price of Rs 46,304. This will imply a nearly 25% upside from its current market price of Rs 37,148.60. The company paid up to 2700% amounting to Rs 270 per share in 2023. Currently, its dividend yield is at 0.67%.

KPR Mills: Accumulate for a target price of Rs 949, which implies a potential upside of 22.5% from its current market price of Rs 774.45 apiece. KPR paid up 400% dividends aggregating to Rs 4 per share in 2023 and currently has a dividend yield of 0.52%.

While Vardhman Textiles and Arvind have already met Elara's target price.

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author or Greynium Information Technologies. The author, the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.