Recommendation from Textiles - Manmade

This section gives a recommendation of a stock having a stock price below Rs 150 with sound fundamentals and expected to give handsome returns over a one-year time horizon.

FILATEX INDIA LTD.: MAINTAINING AN IMPRESSIVE LEAD IN TEXTILES

HERE IS WHY
✓ Value-added products
✓ Debt reduction
✓ Profitability improvement

There are some specific factors that help the shares of a company to outperform and one of them is the improving return ratio. Filatex India, engaged in the manufacturing and trading of synthetic yarn and textiles, is witnessing such a trend. The product offering of the company consists of polyester chips, drawn textured yarns, partially oriented yarns, fully drawn yarns, air textured yarns, polypropylene multifilament crimp yarns and narrow woven fabrics. It also produces some specialty products such as Filigree, Ocean, Chubby Yarn, Cotslon, Soie FIL, Flexi FIL, etc. The production capacity of the company is 400,320 tonnes per annum. Filatex India has a presence in 45 countries across five continents.

The company has focused on improving its value-added product portfolio in the last 5-6 years. The expansion in drawn textured yarns and fully drawn yarns production capacities over the years has resulted in an increase in their revenue share as well as improved the blended margins. The company caters to diverse end-users including home textiles and furnishings, outdoor clothing and athleisure, wide range of apparels, women inner wear and industrial use cases. Despite the lingering effects of the pandemic, the company managed to achieve an all-time high production volume of 341,480 metric tonnes in FY22 by utilising 100 per cent of its yarn capacity

Initiatives undertaken by the Indian government to boost the textile sector and the release of pent-up demand for textiles have aided this increase. To improve the financial standing of the company, Filatex India decided to use this opportunity to prepay a large share of its term loans, resulting in a reduction of its debt to equity ratio to 0.33 times from 0.77 times. Return on equity (ROE) also improved from 24.43 per cent in FY21 to 32.76 per cent in FY22 and return on capital employed (ROCE) improved from 21.01 per cent in FY21 to 31.16 per cent in FY22. In view of the company’s strong performance, the Board of Directors approved a buyback offer for an amount of ₹59.50 crore

The Board of Directors also recommended a final dividend of 10 per cent per equity share for FY22. Consistent growth in operating margins along with a focus on long-term debt reduction has resulted in significant improvement in the company’s interest coverage ratio. The interest coverage ratio increased from 7.73 times in FY21 to 24.47 in FY22. Positive macroeconomic factors along with judicious decision-making, prudent strategy and a conscious decision to focus on value-added products have resulted in improving the profitability of the company over the years. The profit after tax was ₹302.73 crore in FY22 compared to ₹165.83 crore in FY21, an increase of 82 per cent.

The company has generated a profit of ₹4,152 crore during the course of the previous 12 months. The operational margin for the company is 13.9 per cent and the net profit margin is 7.9 per cent. The revenue for the three months ending June 2022 increased by 46 per cent quarter over quarter to reach ₹1,023 crore, while the net profit for the quarter totalled ₹43 crore for the company. The company’s operations brought in a total of ₹304 crore in cash during FY22. The price-to-earnings ratio of the company at the moment is 7.68 times. Due to its strong fundamentals, improved performance and positive future outlook, we recommend BUY.