Hold Vardhman Textiles; target of Rs 740: ICICI Direct

ICICI Direct's research report on Vardhman Textiles

Vardhman Textiles reported a recovery on the revenue front with revenues in Q2FY21 declining YoY marginally by 2.3% to Rs 1625 crore. However, gross margins fell 940 bps YoY to 38.5%, which led EBITDA margin to decline 612 bps YoY to 8.9% in spite of 267 bps reduction in power & fuel cost. EBITDA fell 42% YoY to Rs 144.7 crore. EBITDA was impacted by hedging loss on cotton derivative contracts to the tune of Rs 26 crore. Consequently, PAT declined 49% to Rs 61.6 crore.

Outlook

An improvement in the same is critical for enhancement of financial performance. We maintain HOLD rating with a target price of Rs 740 (~6x FY23E earnings).

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