Stocks To Watch – Vardhman Polytex Ltd

Vardhman Polytex Ltd. (BSE Code : 514175)

Belong to Oswal family, Ludhiana based VPL is engaged in production of cotton and cotton-blended yarns. VPL has installed capacity of 1,65,000 spindles and dyeing capacity of 15 tonnes per day. Company exports around 25% of its total production and balance is sold in domestic markets. In 2008, every industry in India had been affected adversely due to global slowdown and textile industry had suffered more severely due to high raw material prices on one hand, and lower realisation on other hand. Exports had also been adversely affected due to wave of protectionism & trade defence measures adopted by certain countries.

As a result , VPL had made loss in 2008-09 although it had made cash profit during same period: Although at Net level VPL made Loss of 7.72 cr. However, Company made cash profit of 20.70 cr during the year, translating into Cash EPS of 19.40. However, VPL has made a smart recovery in 2009-10, particularly in Q4. Share price has been lying low as company has shown loss of 22.38 cr in 200-10 after providing 35.74 cr as extra-ordinary provision (winding up of some overseas subsidiary). However, before extra-ordinary provision, its performance of trailing 4 quarters is as under:

VPL had made loss in Q1 and reported small profits in Q2 and Q3. However, Q4 was spectacular with profit of 10.04 cr and CashProfit of 17.31 cr. EPS and Cash EPS in Q4 alone works out to 9.41 and 16.33 respectively. This was made possible mainly due to better realisations due to robust demand in domestic market.

Current Year Prospects: Yarn prices have risen further in current year and rise in raw material prices is less than proportionate We estimate that Profit in Q1 alone should be more than Rs 12 cr and thus, Q1 EPS can be nearly Rs 10. Once Q1 results are out in next 2 weeks, share price of VPL can spurt sharply. Stock is trading at just 2.53xFY11E Eps and 1.35xFY11E Cash EPS. Scrip is available at tempting valuations. Investors may buy large quantity as share price can go up by 40% in less than 3 months and by 80% in less than 9 months Buying strongly recommended.

No related posts.