Buy Filatex India Ltd For Target Rs.125 - ICICI Direct
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Decent performance in tough operating scenario…
About the stock: Filatex India (FIL) is among the top cost efficient manufacturers of manmade yarns in India with a diversified product portfolio. FIL, over the last decade, has transformed its product mix with enhanced focus on value added products with its share increasing from 10% in FY13 to 78% in FY21.
* Despite being capital intensive in nature, FIL has maintained a capital efficient business model with stringent working capital policy (NWC days: 17) and high asset turn (2.0x), generating healthy RoCE of 22%
* Healthy cash flows have enabled it to reduce debt by ~ | 140 crore (D/E: 0.8x in FY21 vs. 1.2x in FY20). We expect further deleveraging to result in D/E of ~0.2x in FY23E
Q1FY22 Results: The company managed to operate at above 80% utilisation levels and reported reasonable revenue and profitability in a tough operating scenario.
* Revenue de-grew 18% QoQ (3.8x growth YoY) to | 698.9 crore
* Gross spreads, which were significantly higher in Q4FY21, fell 22% QoQ to | 29.3/kg with gross margins down ~560 bps QoQ (up 1380 bps YoY) to 28.4%
* Subsequently, EBITDA margins were down 760 bps QoQ to 14.5% (Q1FY21 -4.3%), with absolute EBITDA down 46% YoY to | 101.1 crore (EBITDA/kg: | 14.9 vs. | 24.3 in Q4FY21)
* Ensuing PAT came in at | 52.1 crore vs. | 118 crore in Q4FY21.
What should investors do?
The stock price of FIL has appreciated at 50% CAGR in the last five years.
* We continue to remain structurally positive and maintain BUY rating
Target Price and Valuation: We value FIL at | 125 i.e. 7x FY23E EPS
Key triggers for future price performance:
* Commissioning of 130 TPD capacity of POY and DTY by Q1FY23 to provide thrust to revenue growth
* Commencement of captive power plant in Q2FY22 to reduce power cost
* We expect share of value added products to increase from 64% in FY20 to 81% in FY23E
* Improved operational performance to lead to RoCE improvement to 32%
Alternate Stock Idea:
Apart from FIL, in our textile coverage we also like KPR Mill
* KPR Mill is among select vertically integrated textile players in India that has displayed consistent operating margins with strong return ratios
* BUY with target price of | 2310
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