About the company

Vardhman Textiles Ltd a part of the Vardhman Group is the largest listed, integrated textile manufacturing company in India. Vardhman has evolved in the course of time from a small beginning in 1965 into a modern textile major. Vardhman Textiles and its subsidiaries have 25 manufacturing plants all over India and employ more than 26,000 people. The group has one of the biggest spinning capacity in India (9,60,000 spindles including 4488 rotors) and is amongst the biggest yarn manufacturer in India with a capacity of approximately 1mn spindles including 7,188 rotors. Vardhman Textiles a fully integrated textile player is present across the textile value chain ranging from threads, yarns, fibre to fabrics and garments. It is one of the top exporter & manufacturer of cotton yarn in India and the 2nd largest producer of sewing threads and hand knitting yarn in India. Vardhman Textiles has 60% of total income coming from yarn products; within the yarn products the focus is on non-commoditized products.

Vardhman Textiles exports its products to more than 25 countries and has a strong presence in markets like the USA, EEC, Canada, Japan, China, Korea, Mexico, Mauritius, Brazil, and Middle East.

VTL has forged global alliances with leading textile companies such as American & Efird (A&E) USA, Marubeni, Japan and Nisshinbo, Japan.

Vardhman Textiles Ltd is in the list of Multibagger stocks in Dynamic Levels, the share price has touched a 52 week high of Rs. 1028.50 on 09-May-2016 and a 52 week low of Rs.602 on 04-Jun -2015.

Business

Yarn- Under this segment, Vardhman manufactures wide range of yarn such as Grey Acrylic, Grey Cotton, Hank Dyed Acrylic, Crayons, Gassed Mercerised Cotton, Vardhman Knitting and many more. Company has a manufacturing capacity of 1mn spindle with manufacturing facilities at Himachal, Madhya Pradesh and Punjab.

Fabric-Vardhman manufactures fabric for shirting and bottom weights. It produces fabrics of various types namely 100% Polyester cotton, Cotton, Chief Value Cotton and Cotton Stretch. Current capacity is 1320 looms, with manufacturing facilities at Madhya Pradesh and Himachal Pradesh.

Acrylic Fibers- The product finds use in manufacturing of blankets, hand knitted yarns, sweater, jerseys saris, carpets, upholster, etc. This plant, set up in alliance with Marubeni & Japan Exlan of Japan. Company has a manufacturing capacity of 20,000 TPA with manufacturing facilities at Gujarat.

Garments - Vardhman Textiles Limited has entered into alliance with Japan based Nisshinbo Textiles Inc. for production of shirts (both for sale in India as well as exports to US, Europe & Japan). Vardhman Textiles has a manufacturing capacity of 1.8mn pieces per annum with manufacturing facilities at Punjab.

Sewing Threads - the Company manufactures wide range of threads such as polyester, cotton core spun, Trilobal polyester embroidery thread, lubricated nylon and bonded nylon thread including specialized threads like bead fusing , button fusing, and anti wicking, button shanking, indigo dyed and so on. Current capacity is 41 TPD across 4 plants at Punjab, Tamil Nadu & Himachal Pradesh.

Financial

On quarterly basis the company’s the operating profit stood at Rs. 274.94 crore in this quarter compared to Rs 211.44 crore in Q4FY15 an increase of 30%. The profit after tax for the quarter stood at Rs. 172 crore compared to Rs. 122.85 crore an increase of 40% from last year in same period.

For the year ended March 31, 2016 Vardhman Textiles reported net profit of Rs. 578.62 crore compared to Rs.400.21 crore FY2015 registering growth of 44.57% YOY.

Government policies and regulations

State Subsidy: Some state governments also provide additional incentives. Madhya Pradesh Textile policy lays down a 5% interest subsidy for standalone textile units whereas 7% interest subsidy on composite textile units on loans taken against TUFS compatible investments. Gujarat gives 7% subsidy on spinning and 5% on other than spinning for 5 years and Maharashtra reimburses whole of interest over and above the TUFS, subject to investment in specified backward districts.

TUFS: A new scheme (A-TUFS) has been launched by the central government from 13th Jan, 2016. This provides a capital subsidy which is 15% of eligible machinery on garmenting, 10% on weaving, 10-15% on composite units depending on their composition. This is further subject to an overall ceiling of 20-30 crores depending on project type and subsidy previously availed under RR-TUFS

Free Trade Agreements – Bangladesh is one of the largest export market for Indian Trade. Under the Bangladesh FTA India has allowed Free trade of 61 items and most of them are related to textiles. This will impact negatively the small garment manufactures in India, but this in return can help the Fabric exporters

Conclusion

India is the second largest global producer of textiles and garments. The plentiful availability of raw materials (cotton, wool, silk and jute) and a skilled workforce have taken India into a global sourcing center, employment driver and net foreign exchange earner. The most important change in the Indian textiles industry has been the start of man-made fibres (MMF). India has successfully found a place for its new range of MMF textiles in almost all countries. Despite this, cotton textiles continue to form the base of the industry.

The Indian textile industry could grow from US$ 108 billion to US$ 500 billion by 2025, catalysed by government support. This could attract US$ 200 billion in investments, generating 35 million jobs.

Demand drivers

India’s growing population has been a main driver of textile consumption. IMF expects India’s population to touch 1.34 billion by end- 2019 against 1.24 billion in 2013. India’s young population is influenced by evolving preferences and a growing incidence of women workers. India’s rising incomes have been a key determinant of demand growth, catalyzed by rural incomes as well.

As per our estimate, the stock at CMP of 885 is trading at P/E of 10.14, with market cap of 5890.03 crore. The debt equity ratio of the company is 0.56. The return on equity is 11.85%

On the basis of above factors we recommend a buy in Vardhman Textiles for long term with a target of Rs.1100.