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24 Mar 2019

STOCK MARKET--Multibagger Stocks For 2019/read and try it--

Textile Sector On An Upswing
The textile sector of India is one of the oldest sectors of the economy. The sector has witnessed a hard time post demonetization and GST transition phases. However, post enough correction in the stocks, sector seems to be much more attractive. With the government's supportive policies and favourable demand scenario, the sector is expected to create many multibaggers. Here are some of the key pointer which could emerge this sector as a gem.
1. The rising domestic demand environment remains one of the key factors for the robust future of the textile sector. The Strong rise in the private consumption expenditure would aid the industry in FY19.
2. An 11% increase in cotton crop production coupled with the rising acreage at 19% is expected to moderate the cotton prices in the upcoming year. In the near terms, the industry has faced cotton pricing hurdles due to pink bollworm issue. The softening of cotton prices would ultimately aid the operating margins.
3. The government of India has raised the basic customs duty from 10 to 20% on almost 500+ textile products. The move is expected to boost Make in India and indigenous production.
4. Textile exports are also expected to see a robust growth in the upcoming years. The rupees depreciation remains the key reason behind the export growth. Moreover, the government's progressive policies to promote exports are expected to bode well ahead.
Stocks to watch - GHCLVardhman Textiles
Why GHCL And Vardhman Textiles?
1) Key Highlights
GHCLs Q3FY19 revenue grew 21% yoy to Rs8.70bn (Emkay estimate: Rs8.06bn), driven by 11.5% yoy growth in Soda-ash and 42% yoy growth in the Textile segment which was largely driven by capacity expansion and realization improvement in the spinning business. EBITDA stood at Rs2.05bn, up 49% yoy on stable performance in the Soda-Ash segment and the Textile segments turnaround. EBITDA margin expanded 439bps yoy to 23.6%, driven by a price hike in Soda-Ash and better utilization in Textiles. PAT rose 44% yoy to Rs1.02bn. Interest cost stood at Rs272mn, down 21% qoq and 3.4% yoy, while depreciation increased 14% yoy to Rs289mn due to the commissioning of newer capacities. The silver linings during the quarter were the sequential turnaround in Home Textiles EBITDA, stable Soda-ash pricing outlook, and tight soda-ash supply situation globally.
2) Inorganic Chemicals realization and growth outlook remains firm
Inorganic Chemicals business revenue grew 11.5% yoy to Rs5.48bn, driven by better realizations. Volumes were down 1% yoy to 2.30 lakh MT, while overall realization increased 13% yoy and 8% qoq on a price hike. The next round of capacity addition in Soda ash should come at the end of Q4FY19. We expect Soda-ash revenue to grow 10% yoy and 7% yoy in FY20/FY21E.

3) Textiles delivered strong operational performance
Revenue of the Textiles segment increased 42% yoy to Rs3.2bn, led by better performance from the spinning business and the recovery in Home Textiles. The prolonged weakness in the segment seems to be a thing of the past with positive performance in the last three quarters. EBIT margin improved to 7% from -3% in Q3FY18. Management is positive on the Home Textiles business, and we expect positive EBIT performance (vs. negative estimate), with 6%/10% yoy revenue growth in FY20E and FY21E.
4) Outlook remains positive
The Soda-ash business witnessed an uptick in realization along with healthy volume growth outlook on periodic capacity expansion. We expect the benefit of increased realizations to fully percolate in 2HFY19 and FY20E. The tight global supply situation and steady demand in Asia comfort us on the stability in the Soda-Ash realization going forward. Further, the ongoing recovery in the Home Textiles segment is likely to become better, thanks to a decline in cotton prices and weak INR.
Vardhman Textile Ltd
1) Key Highlights
Revenues for the quarter grew 10.6% YoY to Rs. 1685 crore (I-direct estimate: Rs. 1618 crore). Revenues from the textile segment grew 10% YoY to Rs. 1591.8 crore while acrylic fibre reported healthy revenue growth of 28% YoY to Rs. 117.5 crore. Gross margins for the quarter improved 659 bps YoY to 50.8% (Idirect estimate: 48.9%) mainly on account of low cost cotton inventory. Subsequently, EBITDA margins improved 667 bps YoY to 19.6% (I-direct estimate: 17.0%, Q1FY19: 17.2%). Absolute EBITDA grew 67% YoY to Rs. 331 crore (I-direct estimate: | 274.0 crore). On segmental front, EBIT margins for textile and acrylic fibre expanded 570 bps and 620 bps YoY to 17.8% and 11.7%, respectively. Lower other income (down 18% YoY to Rs. 42.1 crore) coupled with high taxation rate (30.6% vs. 19.7% in Q2FY18) stemmed the PAT growth. Resultant PAT grew 47.5% YoY to Rs. 196.4 crore (I-direct estimate: Rs. 146.8 crore).
2) New yarn and fabric capacity to be fully operational in Q2FY20
FY18 was a subdued year for VTL with revenue growth of 3% owing to subdued demand and various regulatory changes like GST negatively impacting revenue growth. We expect revenue growth in FY19 also to remain moderate owing to capacity constraints as the new capacity would come in phases while the revenue impact would only be visible from H2FY20. VTL is focussing on increasing the share of fabrics in the overall revenues and expanding its fabric capacity from 140 million metre to 180 million metre by start of Q2FY20. Also, the company is adding 100,000 spindles, of which ~ 30,000 are expected to commence operation in March 2019 while remaining 70,000 are expected to be operational by June 2019. The management indicated it would incur a capex of | 1400 crore in next two years with 50% to be spent on fabric capex and the remaining for expanding yarn capacity.
3) Outlook and Valuation
FY18 was a tough period for Vardhman due to various issues like high cost cotton inventory and GST related issues, which led to a decline in margins. We expect revenues to grow at a CAGR of 9.1% in FY18-20E to | 7442 crore in FY20E as the expanded capacity is likely to come onstream in Q2FY20. In spite of being in a capital intensive business, Vardhman has continuously maintained debt equity ratio below 1. The focus of the management would be on converting more yarn to fabric, which would lend better stability to EBITDA margin. Factoring in the better margin in Q2FY19 and the management reiterating that EBITDA margin is likely to remain in range of 18-22%, we marginally upgrade FY19E, FY20E earnings estimates.

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