Buy This Multibagger Textile Stock For A Target Price of Rs 625: ICICI Securities

The domestic brokerage firm ICICI Securities has placed a buy call on Vardhman Textiles Ltd (VTL) for a target price of Rs 625 and a target period of 12 months. According to the brokerage "Shares of the company have been split on March 24, 2022 (ex-date) pursuant to the shareholder approval granted for sub-division of shares in its meeting held on March 11, 2022. The record date for the same has been fixed as March 26, 2022. Subsequently, the shares of the company have been split with existing face value of Rs 10 being subdivided into five equity shares of Rs 2 face value each." On the NSE, the stock has risen from Rs 48.26 on March 26th, 2021 to Rs 542.50 on March 25th, 2022, 3:30 pm IST, showing a one-year multibagger return of 1,024.17 percent. By year to date (YTD), the stock has returned 443.26 percent, and in the previous six months, it has climbed by 648.07 percent. The stock has returned 430.41 percent in the last month and 3.50 percent in the previous five days.

Key investment rationale for Vardhman Textiles Ltd (VTL) according to ICICI Securities

• Global retailers are looking at de-risking their supply chains and VTL is expected to be a beneficiary in the yarn and fabric segment.
• Strong demand coupled with supply constraint owing to closure of ~5-6% of capacities due to the impact of the pandemic is expected to result in stronger spreads in the yarn business.
• Owing to strong demand from customers the company is expanding its yarn spindle capacity by installing 1,65,000 spindles with capex of Rs 1400 crore. Further, it is expanding capacity by 70000 spindles with capex of Rs 600 crore.
• We model revenue and earnings CAGR of 22% and 57%, respectively, in FY21-24E with RoCE of ~16% in FY24E.

Buy for a target price of Rs 625

According to the brokerage "Despite being in the cyclical textile business, VTL's stock price has appreciated at 16% CAGR in the last five years. We continue to remain structurally positive and maintain BUY rating. We value VTL at Rs 625 i.e. 11x FY24E earnings."

Pandemic led restrictions can lower sales and high RM cost can subdue margin remains key risks for the stock as per ICICI Securities.

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.