Company Update - Filatex India - ICICI Direct

Product realisations across polyester oriented yarn (POY), fully drawn yarn, drawn textured yarn (DTY) have improved from October 2020 while raw material prices have not risen in similar proportion. This has led product spreads to improve for Indian polyester yarn manufacturers. Filatex being a major player in the Indian polyester industry appears well placed to benefit from enhanced margin profile for products like polyester chips, POY/FDY, DTY. As per Crisil data, margins for POY that had fallen from ~ Rs. 26/kg in March 2020 to ~Rs. 12/kg in July 2020 have improved significantly and are trending better than pre-Covid levels at ~ Rs. 27/kg in October 2020. The improved product margins augurs well for its overall profitability. We expect margins to stay strong in H2FY21E driven by improved demand scenario (both domestic, export) and capacity constraint due to 7-8% of industry capacity being not functional owing to fire at one of major manufacturer's production facility in Silvassa. The supply shortfall is expected to continue as restarting the manufacturing facility would take some time 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 the better industry outlook and improved product margins, we revise upwards our revenue, earnings estimates for FY21E, FY22E, respectively. Subsequently, we expect RoCE to get enhanced by 760 bps to 21.6% in FY20-22E. We reiterate our BUY recommendation on the stock with a revised target price of Rs. 55 (6.0x FY22E EPS, previous target price: Rs. 33).

For details, click on the link below: https://www.icicidirect.com/mailimages/IDirect_Filatex_CoUpdate_Dec20.pdf

Shares of FILATEX INDIA LTD. was last trading in BSE at Rs.46.2 as compared to the previous close of Rs. 45.45. The total number of shares traded during the day was 153676 in over 917 trades.

The stock hit an intraday high of Rs. 47 and intraday low of 44. The net turnover during the day was Rs. 7002699.

Source : Equity Bulls

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