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.
Valuation & Outlook
The outlook for the polyester industry appears to be better owing to enhanced government focus on the sector with support for the sector through production linked incentive (PLI) scheme. Also, withdrawal of anti-dumping duty on PTA (key raw material for polyester) from February 2020 is positive for the sector as yarn manufacturers are now able to procure PTA at international price parity that is expected to improve their margin profile. The enhanced demand for polyester based products would improve FIL's utilisation levels and will further augment the margin profile. Factoring in better-than-expected performance in Q3FY21 and positive industry outlook with improved product margins, we revise upwards our revenue, earnings estimates for FY21E, FY22E, respectively. Hence, we expect RoCE to get enhanced by 1000 bps to 24% in FY20-22E. 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).
For details, click on the link below: https://www.icicidirect.com/mailimages/IDirect_Filatex_CoUpdate_Jan21.pdf
Shares of FILATEX INDIA LTD. was last trading in BSE at Rs.64.7 as compared to the previous close of Rs. 67. The total number of shares traded during the day was 48650 in over 451 trades.
The stock hit an intraday high of Rs. 68.9 and intraday low of 64. The net turnover during the day was Rs. 3202649.