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  • 31 Oct 2022
  • ICICIdirect Research

VARDHMAN TEXTILES REPORTS SUBDUED OPERATING PERFORMANCE

VTL - 496 Change: 0.90 (0.18 %)

News:

 Vardhman Textiles (VTL) reported a decline in revenues for Q2FY23 on a QoQ basis. Higher input cost led to gross margin being lower QoQ, which led to a decline in EBITDA margin QoQ. YoY sales increased marginally by 4% YoY to Rs 2470 crore (QoQ decline of 12%). Gross margin declined 1250 bps YoY to 43.4% (QoQ decline of 292 bps). EBITDA margin declined 1390 bps YoY to 14.5% (QoQ decline of 420 bps). Absolute EBITDA (on a high base) declined 47% YoY to Rs 358 crore ((QoQ decline of 32%). Consequently, PAT was down 57% YoY to Rs 205 crore (QoQ decline of 38%)

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 VTL’s yarn sales volumes (including internal transfer) declined 10% QoQ at 51536 metric tonnes (MT), whereas fabric sales increased by 2% to 818 lakh metres. Lower yarn volumes amid slack demand in key markets owing to buyers expecting a decline in the prices may have affected the sales. Fabric demand appears to have sustained which led to Vardhman fabric volumes remaining steady on a QoQ basis. The elevated cotton prices and the consequent inability of yarn players to fully pass on the increased input cost has led to yarn players margins being lower than in the last four quarters. Vardhman’s management had indicated that the yarn margins in the first three quarters of FY22 were not sustainable as during this period the company had the benefit of low cost inventory with Q2FY22 EBITDA margin at alltime high of 28%. In Q2FY23, EBITDA margin is below the normal range of 18-22%. Cotton prices have corrected from their peak levels in the last few months which should gradually aid the margin trajectory from hereon. From a medium to long term perspective, the demand for yarn is expected to increase and large companies like Vardhman will be able to capitalise on China + 1 strategy of global retailers

Impact:

Neutral