Shares of Vardhaman Textiles Ltd. hit a new 52-week low of ₹245 in Monday's trade. The stock is down 55% from its all-time high of ₹576, reached in March 2022.
In 2021, the stock gave a multi-bagger return of over 200%. The stock price went from ₹149 to ₹512 in just one year.
In the last six months, the stock gave a negative return of 44.63%. It is down 50 per cent year to date.
The company is engaged in the manufacturing of cotton yarn, synthetic yarn, and woven fabric. Yarn constitutes the largest business for Vardhman Textiles with over 11 lakh spindles and has a capacity to manufacture over 588 MT of yarn per day.
The textile industry was hit by all-time high cotton prices. Domestic cotton prices have risen 90% year-on-year to ₹272/kg. Yarn prices, which were already trading at higher levels, inched up further by ₹38% YoY to an all-time high of ₹385/kg in May-June 2022. Yarn players, who had recorded one of their best EBITDA margins in FY22, are now reeling under pressure as yarn spreads have shrunk from an all-time high of ₹110/kg to ₹40/kg, according to an ICICI Securities report.
This is expected to negatively impact margins for yarn players in H1FY23 as cotton prices are expected to remain elevated owing to a supply deficit till the start of the next cotton season, which begins in October 2022.
Adding to the challenges, Indian textile players witnessed a decline in market share in the US. Also, India’s apparel export data in May 2022 has seen a receding trajectory. The US is one of the key textile markets for India, accounting for 50% of home textile exports and 28% of apparel exports. Hence, reduced purchasing power in key export markets would negatively impact the order books of Indian exporters.
According to the study by Motilal Oswal, China and Pakistan are chipping away at the market share of Indian cotton imports in the US. China and Pakistan gained about 5% of the market share each. In the Terry Towels segment, India’s share has fallen by 300bp to 40% in 4QFY22 (v/s 43% in 4QFY21), while China/Pakistan’s share remained constant at 20%/23%. The main reason behind the fall in the market share was that companies were facing challenges in terms of passing on higher prices of yarn and fabric internationally.
Meanwhile, the Pakistan rupee depreciated by 21% as against a 6% depreciation in the USD/INR from Sep'21 to May 22. This helped Pakistan to gain market share in the US and in Europe as buyers saw better pricing for its products, said Motilal Oswal.
Vardhaman Textiles reported a 50 per cent increase in its standalone profit after tax to ₹322.7 crore for the quarter ended March 31, 2022. The company reported a profit after tax of ₹214.8 crore in Q4FY21.
The revenue for the quarter stood at ₹2,690.1 crore, a 44 per cent jump over the corresponding quarter last year. The company reported revenue of ₹1,862.2 crore in Q4FY21.
The company delivered an ROE of 20.07% in the year ending March 31, 2022, outperforming its five-year average of 12.5%.
ICICI Securities has maintained its 'hold' rating on Vardhaman Textiles with a target price of ₹285/share, implying an upside potential of 11.8% from the current market price.
An average of 04 analysts polled by MintGenie have a 'buy' call on the stock.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.
