Buy This Multibagger Textile Stock For A Target Price of Rs. 385: ICICI Securities

Faze Three Ltd, a textile company with a market cap of Rs. 746.47, falls into the small-cap category. The company is one of India's largest automotive seat fabric manufacturers, as well as a manufacturer and supplier of auto fabrics and home textiles with a worldwide influence. On the NSE, the company's shares have risen from Rs. 64.25 on March 12, 2021 to Rs. 306.95 on March 3, 2022, 12:22 pm IST, marking a multibagger return of +242.70 (377.74 percent) in a year. On a year-to-date (YTD) basis the stock is up by +17.65 (6.10%) and in the last 6 months, the stock is up by +79.80 (35.13%). The stock is down by -43.75 (-12.48%) in the last 1 month and is up by +22.95 (8.08%) in the last 5 days. ICICI Securities has issued a buy call on the stock with a target price of Rs. 385 following the company's 9MFY22 result.

9MFY22 result of Faze Three (FTL) as per the brokerage

• For YTDFY22, it displayed a superior performance.
• Revenue grew robustly by 60% YoY largely driven by volume growth.
• EBITDA margins improved significantly by 120 bps YoY to 16.2%.
• PAT grew 2x YoY to Rs 35.3 crore (PAT margin: 10.2%).

Key investment rationale for Faze Three according to ICICI Securities

• It is currently operating at peak utilisation levels and has a healthy order book for the next two quarters.
• Embarked on brownfield capex and outlined capex of Rs 80 crore across product lines, categories like rugs, bathmats and top of the bed segments.
• The aforesaid capex expected to generate incremental revenue worth ~Rs 800-1000 crore (asset turnover: 8-10x). Value accretive capital deployment to enhance RoCE to 25%+ in the next three to four years.
• Visible shift by large retailers of sourcing to India from China across the company's product categories to create sustained demand.
• We build in revenue, earnings CAGR of 27%, 41%, respectively, in FY21-24E.
• US, UK/Europe regions contribute ~90% of its overall revenues. Top 15 customers comprise very large retail chains such as Walmart & Target.
• Vertically integrated business model with in-house capability of design & development. FTL's order book is mostly backed by customer commitments.

Buy for a target price of Rs. 385

ICICI Securities has claimed that "Over the past five years, the impact of FTL's improved financial performance has been visible in upward momentum in stock price, which has grown at ~19% CAGR over the period. We initiate coverage under I-Direct Nano format with a BUY rating. We value Faze Three at Rs 385 i.e. 13x FY24E EPS of Rs 30."

As per the brokerage "The share price recorded a strong breakout from a multi-year consolidation phase (2005-20) in CY21 indicating a structural turnaround from a long term perspective. The key observation in the entire rally from CY20 lows has been that stock price has consistently attracted elevated buying demand in the vicinity of 100-day EMA indicating robust price structure."

The brokerage has also noted "At the current juncture, the stock price has corrected from its lifetime high of Rs 413 and is currently hovering around 100-day EMA around Rs 280. Structurally, shallow pace of retracement of preceding strong rally indicates inherent strength in the stock."

Disclaimer

The stock has been picked from the brokerage report of ICICI Securities. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.