Vardhman Textile share price is currently trading at discount to its intrinsic value.
This is a reasonably good company to watch out for investing.
How this company came to my notice?
One day I was recently preparing a report for my blog post on the topic of PEG ratio on India stocks.
In this list I noticed Vardhman Textile Limited.
The PEG ratio of Vardhman Textile Limited w.r.t to past years EPS growth rates was very low.
Stocks whose PEG is below 1 is interesting.
Hence, I thought to do a more detailed analysis of Vardhman Textile Limited share price.
Vardhman is like a household name in India.
I still remember watching ads of “Vardhman Knitting Yarns” being displayed on TV.
But I did not expect that the same old company is now a Rs.7,000+ Crore worth company (Market cap).
After looking into the Annual Report of the company, it was clear that the core business of Vardhman is “Yarn and Fabric“.
In the past, Vardhman has diversified its business in Threads, Fibres, Garments and Steel.
But now the company is focusing more on Yarn and Fabric which has been its core since last 50 years.
It was also very interesting to see the competition posed to Vardhman Textile Limited (VTXL) by its rival companies.
Basically I was surprised to see the competitive edge that is enjoyed by Vardhman Textile.
Have a look yourself:
The nearest rival of Vardhman is Trident. But note the difference between Trident and Vardhman:
- Market Cap – Vardhman is 67% bigger than Trident.
- Sales Turnover – Vardhman is 22% bigger than Trident.
- Net Profit – Vardhman is 197% bigger than Trident.
Competitive advantage…
Vardhman Textile Limited is enjoying a reasonable competitive advantage in India.
Vardhman Group (textile spinning mill and general mill) started production in year 1965 in Ludhiyana, Punjab. The founders of Vardhman was Mr. V.S Oswal & Mr. Ratan Chand Oswal.
Presently Mr. Paul Oswal is the Chairman of Vardhman Textile Limited.
Sachit Jain, Suchita Jain, and Neeraj Jain is the Joint managing Directors of the company.
- Adishwar Enterprises LLP (19.89%),
- Vardhman Holdings Limited (24.51%), and
- Devakar Investment &
- Trading Company Private Limited (10.79%)
…are the main promoters of VTXL.
Total shareholding of the Promoters in VTXL is 61.84% as declared in their FY16-17 annual report.
Mutual Funds have 11.48% holding, and Foreign Portfolio Investors have 11.02% holding in VTXL.
How do they make money? They generate income mainly from sale of products (97%).
Their line of business is as below:
Out of this, they are now considering the sale of yarn and fabric as their core business.
Vardhman Textile Limited has its corporate headquarters in Ludhiana, Punjab.
Vardhman Textile Limited Share Price & other details..
The price history of VTXL is decent. Apart from the general price volatility, the growth trend shown by its market price is robust and consistent.
This type of price trend generally favours the long term investors.
But what makes Vardhman Textile Limited share price special is, it has always been backed by its business fundamentals.
It was hard to find a period where Vardhman Textile Limited share price has become unreasonable.
This is probably because VTXL is still a mid cap stock.
But there is something in this mid cap stock that I found very interesting (in its annual report).
It was related to its percentage sales it generates from the export market (38.5% export / 61.5% Domestic).
Not many Indian company can boast of such export figures.
The Chairman of VTXL says in his annual report that, in the global textile sector, USA and European Nations are the major buyers of textile.
The countries who supply textile to USA and Europe is China, India, Bangladesh and Vietnam.
But China may loose its preference soon because of the increasing labour and production cost in China.
If China loses its edge, India will surely benefit.
So, a mid cap stock, who is generating 38.5% of its sales revenue from export must be given due diligence by long term investors.
Moreover, if the export component of VTXL is going to go further up, this is a company which automatically becomes a MUST WATCH.
Lets do a detailed fundamental analysis of Vardhman Textile Limited.
#1. Growth Rates:
I personally like stocks which show’s consistent growth in its past.
It becomes particularly interesting for me when I see a double digit growth rates. Vardhman Textile provides just that for me.
The financial parameters that like seeing grow in a stock are as below:
- Free Cash Flow Growth
- Reserves Growth
- Income Growth
- Profit Growth
- Dividend Growth &
- EPS growth (my favorite)
I use my stock analysis worksheet to quantify all these values. This is the result for Vardhman Textile:
Download PDF Copy – Share_Price_Analysis_Vardhman Text.pdf
#2. Financial Ratios
The use of financial ratios helps users to comprehend the numbers easily. It helps to compare apple to apple.
Financial ratios also helps us to make the first impression about the stocks, before digging into the details.
The ratios that my worksheet highlights prominently are as below:
- Price Valuation
- P/E – Price to Earning Ratio.
- P/B – Price to Book Value Ratio.
- P/S – Price to Sales Ratio.
- P/FCF -Price to Free Cash Flow.
- Profitability
- Return on Equity (ROE)
- Return on Capital Employed (RoCE)
- Cash Returned on Invested Capital (CROIC)
I use my stock analysis worksheet to quantify all these values. This is the result for Vardhman Textile:
Download PDF Copy – Share_Price_Analysis_Vardhman Text.pdf
#3. Important Miscellaneous Data
Before investing, it is important to look at a few indicators that gives a rough idea about the current position of the stocks price.
What are these few indicators?
- Current price compared to its 52W high and Low price.
- How much the price changed in last 30 days and 12 months.
- What is the market cap.
- Compared to the Industry P/E, what is the P/E of stock.
- What is the price growth in last 3Y, 5Y and 10Y.
- What is the average dividend yield in last 3Y, 5Y and 10Y.
I use my stock analysis worksheet to get quick answers to these questions.
This is the result for Vardhman Textile:
Download PDF Copy – Share_Price_Analysis_Vardhman Text.pdf
#4. Price Chart of Last 10 Years
Why I like to see price chart?
Frankly speaking price charts tell very less about a stock (unless you are a technical analyst).
But I still like to give it a glance. Why?
It gives an idea of how the current price is placed compared to last 10 years trend.
There can be few scenarios here:
- If price is only bullish – current price can be overvalued.
- If Price is remaining modest – poses a question why price is not growing fast enough?
- When price is falling – current price can be undervalued or business fundamentals may be weakening.
I use my stock analysis worksheet to generate the 10 Year price chart.
This is the result for Vardhman Textile:
Download PDF Copy – Share_Price_Analysis_Vardhman Text.pdf
#5. Quarterly Trends
Why to look at quarterly results?
For long term investors, long term trends are more valuable.
But it is also essential that the investor should not miss noting the short term trends.
If in short term term, the income, earnings are falling, it poses a risk.
Investor must get the answers for the Why’s before proceeding.
The quarterly trends that I refer are as below:
- Total Income – TTM data verses last FY data (if rising or falling).
- Net Profit – TTM data verses last FY data (if rising or falling).
- Earning Per Share (EPS) – TTM data verses last FY data (if rising or falling).
I use my stock analysis worksheet to get pictorial chart for the above important informations. This is the result for Vardhman Textile:
Download PDF Copy – Share_Price_Analysis_Vardhman Text.pdf
#6. What is the Intrinsic Value of this stock?
This worksheet may not be accurate, but it attempts to estimate Intrinsic value of stocks.
I believe that, even if it is a rough estimation of intrinsic value, it is still worth doing it.
Because investing in a stock without comparing its intrinsic value with its current price is a big mistake.
Based on the knowledge that has been gathered, this worksheet attempts to estimate the intrinsic value of its stock.
There are several ways to estimate intrinsic value of a stock. But I rely more on the following methods.
I have incorporated all of my favourite method in my worksheet to estimate intrinsic value of stocks.
An intelligent formula the generates the net intrinsic value of the stock derived from all these individual methods:
- DCF method
- NCAPS method
- Absolute PE method
- Reproduction cost method
- Benjamin Graham’s Formula
- Earning Power Value (EPV)
I use my stock analysis worksheet to estimate intrinsic value of stock.
This is the result for Vardhman Textile:
Download PDF Copy – Share_Price_Analysis_Vardhman Text.pdf
#7. What is the final conclusion?
After considering almost all aspect of stocks as discussed above, my worksheet helps its user to arrive at a final conclusion.
What is the ultimate question in stock investing?
The stock is good or bad? How to arrive at this conclusion?
My stock analysis worksheet does this very nicely for me. Based on the following parameters, it generates an overall grade for its stock.
If the generated grade is above 85%, the stock is considered good.
Lets see what grades are generated for Vardhman Textile:
- The Overall grade for Vardhman Textile is 4%.
- The market price of VTXL seems to be priced slightly higher. But it scores 82%
- In terms of future growth prospects,VTXL gets 74%.
- VTXL earns a just 41%for its managements efficiency.
- In terms of profitability, VTXL score is again average at 61%.
- Financial Health of the company is good at 89%.
- There is no bankruptcy threat to VTXL. It earns 100%
It must be noted that, this worksheet gives more importance to the price valuation of stock.
A stock which is priced right will score higher.
This worksheet gives score to its stocks very defensively.
There are not many stocks in the market that can earn grade above 80% from this worksheet.
This is one reason why, I can say that Vardhman Textile looks to be a good stock.
I think one can include it in ones stock watch list and wait for the price correction.
