- 23 May 2022
- ICICIdirect Research
Vardhman Textiles margins moderate from peak levels amid high input cost inflation
VTL - 495 Change: -7.75 (-1.54 %)News: Vardhman Textiles reported subdued operational performance for Q4FY22 on a QoQ basis with EBITDA margin being lower than the preceding three quarters amid increased raw material cost (cotton). Sales increased by 39% YoY to Rs. 2707 crore (QoQ growth of 4%). Gross margin declined 478 bps YoY to 48.4% (QoQ decline of 403 bps). EBITDA margin declined 180 bps YoY to 18.4% (QoQ decline of 722 bps). EBITDA was higher by 27% YoY at Rs. 499 crore (QoQ decline of 19%). Consequently, PAT grew by 29% YoY to Rs. 322 crore (QoQ decline of 25%).
Views: The continuous surge in 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 three 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. In Q4FY22, the yarn margins appear to have normalised to long term average levels for Vardhman (between 18%-22%) owing to increased input cost due to purchase of cotton at current elevated levels. However, the yarn demand continues to be good and players like Vardhman will be able to capitalise on China + 1 strategy of global retailers. Vardhman due to its strong balance sheet (FY22 debt/equity of 0.25x) is better placed than peers to benefit from the current market scenario.
Impact: Neutral