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Vardhman Textiles - Stock split ex-date on March 24, 2022

ICICI Securities 21 Mar 2022

What’s Buzzing

Vardhman Textiles has fixed a record date of March 26, 2022 for the purpose of sub-division/stock split of Rs 10/-per equity share of the company into equity share of Rs 2/- each.

Context

On the ex-date (March 24, 2022), the share price would be reduced to one fifth of the stock’s market price.

Our Perspective

The stock split would improve the liquidity for the company’s share and could enable the entry of new investors. Vardhman Textiles (VTL) is part of the Vardhman Group, a large textile conglomerate with a presence across the textile value chain. Vardhman is among few textile companies that have been able to maintain a debt equity ratio below one despite continuous capacity addition. Healthy cash flows have enabled VTL to reduce debt by ~Rs 152 crore in FY21 (D/E: 0.3x in FY21). We expect D/E ratio to stay at ~0.3x in FY24E. Global retailers are looking at de-risking their supply chains and VTL is expected to be a beneficiary in the yarn and fabric segment. Strong demand coupled with supply constraint owing to closure of ~5-6% of capacities due to impact of pandemic is expected to result in stronger spreads in the yarn business. Owing to strong demand from customers the company is expanding its yarn spindle capacity by installing 1,65,000 spindles with a capex of Rs 1400 crore. Further, it is expanding capacity by 70000 spindles with capex of Rs 600 crore. The 1 lakh spindles are expected to be operational from October 2022. The other expansions projects are expected to be operational in phases by FY24. The enhanced capacity would enable VTL to benefit from the strong demand scenario for cotton textiles exports, garner higher share in the global market and improve its revenue growth trajectory over the next few years.

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