Stock Tales - Filatex India - ICICI Securities

Filatex India (FIL) is among the top cost efficient manufacturers of manmade yarns in India with a diversified product portfolio. Globally, polyester is becoming a preferred fibre given its unique characteristics (highly durable, wrinkle resilient), inherent limitations of growth of cotton fibre (MMF dominates global textile fibre consumption with 70:30 ratio). FIL is one of the top five manufacturers of manmade yarns that over the years has gradually scaled up its presence in value added segments (FDY, DTY) with its share of revenue rising from mere 10% in FY13 to ~ 65% in FY20. The same has enabled FIL to post EBITDA CAGR of 32% in FY14-20. Given the enhanced focus, capacity addition of value added products, we expect the share to get further augmented to 75% by FY22E giving fillip to margins. Another key lever for margin enhancement is its captive power plant that is expected to be commissioned by April 2021 (leading to annual cost savings of Rs. 45-50 crore). We expect revenues to be flattish (since final product prices that are directly linked to RM prices have trended downwards) but with dual margin accretive initiatives, we expect EBITDA margin to expand 270 bps to 10.7% in FY20-22E.

Expanded capacity to be utilised for value added products

FIL has been able to maintain high capacity utilisation in range of 70-95% in FY13-20 owing to sustained domestic, export demand that has led to strong sales volume CAGR of 15% in the same period. In FY20, FIL's net production capacity rose from 328000 MTPA in FY19 to 383000. Incremental capacity will be mainly used for production of drawn textured yarn (DTY) that is expected to commence from H2FY21. On average, DTY commands ~20%+ premium realisation over partially oriented yarns (POY) and yields higher margins. We expect overall capacity utilisation to be low at 70% in FY21E (amid near washout in Q1FY21) but revert back to 90%+ levels by FY22E (volume CAGR: 10% in FY20-22E).

Large global market provides sustainable export opportunity

Increased value added products have enabled FIL to penetrate global markets. Export revenues have grown at 57% CAGR in FY13-20 with share of exports rising from ~ 1% in FY13 to 14% in FY20. Post resumption after lockdown, FIL has received enquiries from newer export markets as global brands are looking to shift their supply chains to countries other than China.

Valuation & Outlook

Despite being capital intensive in nature, FIL has maintained a capital efficient business model with stringent working capital policy (NWC days: 15) and high asset T/O (2.0x), generating healthy RoCE of 14%. While revenue growth is expected to be flattish in FY20-22E (owing to lower realisations), FIL's strategy of focusing on high value added products and reduction in power cost will translate into enhancement in EBITDA margins over medium to longer term. Hence, we pencil in EBITDA CAGR of 18% in FY20-22E. Further, with no major capex to be incurred in FY22E, we expect the company to generate strong FCF leading to debt reduction to the tune of Rs. 55 crore by FY22E (D/E: 0.9x). Subsequently, we expect RoCE to be augmented by 400 bps to 18.0% in FY20-22E. We ascribe a BUY rating to the stock with a target price of Rs. 33 (5.0x FY22E EPS).

For details, click on the link below: https://www.icicidirect.com/mailimages/IDirect_Filatex_StockTales_Oct20.pdf

Shares of FILATEX INDIA LTD. was last trading in BSE at Rs.25.45 as compared to the previous close of Rs. 24.9. The total number of shares traded during the day was 12948 in over 120 trades.

The stock hit an intraday high of Rs. 25.45 and intraday low of 22.5. The net turnover during the day was Rs. 317404.

Source : Equity Bulls

Keywords