The Hindu Business Line : Vardhaman Spinning remains steady in volatile market

The counter, which ended the day marginally weak in keeping with the broad market trend, is being viewed as attractively valued at the current levels. "Sound fundamentals, in terms of steady margins and a stable growth trend make the stock attractive at these levels,'' a broker said.

Vardhman Spinning is a focussed cotton yarn player, offering wide range of yarns with sales of around Rs 590 crore, of which exports constitute 25 per cent. Traditionally, the company is touted as a pioneer in cotton management. "The company has maintained healthy operating margins (16-19 per cent), despite fluctuating trends in its key raw material cotton. It enjoys good pricing power in yarn, as the price is always marked up against cotton prices to arrest any volatility,'' an analyst tracking the company said.

As part of its exports, the company sells yarn to large textile players and garment makers that service domestic and global labels such as GAP, WalMart, Tommy Hilfiger, Zodiac and Colour Plus.

"Of late, better yarn prices supported by good growth in demand from domestic and export markets have brought stability and sustainability in margins. Further, as indicated by the International Cotton Advisory Committee, cotton prices may soften in CY2004, with expected 20 per cent increase in production," market sources reasoned.

According to analysts, the company's export volumes are poised to increase with the removal of quota. "The domestic market is also growing at 8 per cent with increasing purchasing power and population. To this extent, the company is rightly poised to take advantage of this by increasing its processing capacity," an analyst added.

Vardhman has a spinning and weaving/processing capacity of 1.57 lakh spindles and 30 million metres, respectively. Keeping in mind the company's growth trajectory, analysts expect the company's topline to grow at 13 per cent compounded annual growth rate (CAGR) for the next three years with intact margins. "This will mean an earnings growth of 38 per cent CAGR for the next three years," an analyst with an institutional brokerage said.

The stock closed at Rs 128.05, down 1.12 per cent on the NSE. On the BSE, the stock ended at 127.70, down 2.48 per cent.