Buy Filatex India; target of Rs 85: ICICI Direct

ICICI Direct is bullish on Filatex India has recommended buy rating on the stock with a target price of Rs 85 in its research report dated January 14, 2021.

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ICICI Direct’s research report on Filatex India

Driven by favourable spreads and improved product mix, Filatex India (FIL) reported its highest ever quarterly EBITDA in Q3FY21. Steady increase in demand for downstream textile sector led the company to run at 90% capacity utilisation in yarn segment. Revenue for the quarter fell 2% YoY to Rs 721.6 crore, with volumes for yarn increasing 3% to 86141 tonnes. Gross spreads increased substantially by 57% YoY to Rs 25.0/kg, with gross margins expanding ~1000 bps YoY to 30.0%. Commencement of additional DTY capacity also contributed to higher margins. Subsequently, EBITDA margins expanded significantly by 910 bps YoY to 16.7%, with absolute EBITDA more than doubling YoY to Rs 120.7 crore (EBITDA/kg: Rs 14 vs. Rs 6 in Q3FY20). Ensuing PAT came in at Rs 66.0 crore vs. Rs 18.6 crore in Q3FY20. We expect margins to stay strong in H2FY21E driven by improved demand scenario (both domestic, export) and capacity constraint due to 5-6% of industry capacity being not functional owing to fire at one of major manufacturer’s production facility. The supply shortfall is expected to continue as restarting the manufacturing facility would take four to six quarters that would enable better realisations to other players in the industry.

Outlook

We reiterate our BUY rating on the stock with a revised target price of Rs 85 (8.0x FY22E EPS, previous target price: Rs 55).

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