Buy Filatex India; target of Rs 33: ICICI Direct

ICICI Direct's research report on Filatex India

For Q2FY21, Filatex reported mixed results wherein it saw a revival in volumes to pre-Covid levels (mainly on the back of strong growth in polyester chips) while profitability was impacted negatively. Volumes in Q2FY21 were at 75234 tonnes (Q1FY21: 20439 tonnes), down marginally by 1.1% YoY. On the segmental front, volumes for polyester chips doubled YoY to 6284 tonnes while volumes from yarn segment de-grew 5.7% YoY to 68951 tonnes. Owing to lower chips/yarn prices, blended realisations de-grew 24.5% YoY to ~Rs 67.5/kg. Hence, revenues fell 25% YoY to Rs 507.8 crore. Owing to unfavourable product mix (polyester chips yields lower margins), spreads fell 14% to Rs 16.1/kg. Absolute gross profit de-grew 15% YoY to Rs 121.0 crore. Filatex has rationalised fixed overheads with employee, other expenses falling 12%, 16% YoY to Rs 16 crore, Rs 60.4 crore, respectively. Hence, EBITDA de-grew 13% YoY to Rs 44.5 crore (EBITDA/kg: Rs 5.9). Higher finance cost (up 2x YoY to Rs 18.9 crore), lower other income, further impacted PBT growth (down 62% YoY to Rs 12.7 crore). PAT de-grew 85% YoY to Rs 9.4 crore (base quarter had deferred tax credit of Rs 33 crore).

Outlook

Subsequently, we expect RoCE to be augmented by 400 bps to 18.0% in FY20-22E. Also the recent announcement of Production Linked Incentive for Man-Made fibre segment by government augurs well for the company. We reiterate our BUY rating on the stock with an unchanged target price of Rs 33 (5.0x FY22E EPS).

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