Buy This Small Cap Textile Stock For 25% Upside Recommends ICICI Direct

Indian markets in line with Asian markets after Federal Reserve's Chair comments that he is inclined to propose as well as support a 25 basis point rate hike has been trading flat with a positive bias. At the time of writing this copy, Nifty has been moving higher by 21 points at 16626.

Meanwhile, ICICI Direct has given a 'Buy' call on the textile stock saying it to be a niche play on home textile exports.

About Faze Three- The company given a ‘buy’

Owing to the company's differentiated product offerings as well as business model, the company Faze Three stands out from other domestic textile companies. The company is into manufacturing as well as exports several home textile products other than bed sheets etc, with rugs and bathmats being the major category contributing over 80% of revenues. The company's top retail clientele include Walmart.

Company's 9MFY22 Performance as per the brokerage:

For YTDFY22, it displayed a superior performance. Revenue at the company recorded good 60% YoY increase owing to 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%).

Stock price trajectory and valuations

Given the company's improved financial performance, the stock price of the company also has registered 19% CAGR over the 5 year period. The brokerage value Faze Three at Rs. 385 i.e. 13x FY24E EPS of Rs. 30. Given the current price of 306.95, this implies possible upside of 25%.

Rationale for investment in Faze Three as per the brokerage

 As per the brokerage, the possible triggers for the stock's performance going ahead are that the company currently operates at peak utilisation levels and also commands a good order book for the next 2 quarters. "The company also 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). Also, "Value accretive capital deployment to enhance RoCE to 25%+ in the next three to four years. Furthermore 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", notes the brokerage.

 

 

Disclaimer:

The stock has been picked from the brokerage report of ICICI Direct. Investing in equities poses a risk of financial losses, especially as we are seeing volatile markets now. 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.