Rs 90 to Rs 210 in a year: This small-cap textile stock jumped over 130% in 2023 so far; is more steam left?

The domestic benchmarks saw a sharp correction recently as headline index BSE Sensex fell 2.50 per cent in the past one month. Despite this, there are some stocks which have outperformed in the current scenario. A small-cap textile company, named Arvind, is one of them. Arvind Ltd shares today soared 11.02 per cent to hit a 52-week high of Rs 210. At this price, the company's scrip has gained nearly 13 per cent in a month. The year-to-date (YTD) returns are even higher as the multibagger counter surged 132 per cent in the calendar year 2023 so far.

Arvind's second-quarter (Q2 FY24) EBITDA grew 2 per cent YoY/14 per cent QoQ to Rs 200 crore, said Nuvama Institutional Equities. The company's demand revival is likely from H2 (second-half), led by inventory correction bottoming out across key customers and upcoming festive season demand, the brokerage said.

It has given 'Buy' call on the counter with a target price of Rs 215. "Green shoots are visible in export markets, led by Inventory correction bottoming out among key export customer," it mentioned.

Sharekhan also placed a 'Buy' call for Arvind and suggested a target of Rs 240. The company's Q2 FY24 numbers were sequentially better aided by improved textile volumes and double-digit growth in advanced materials, it said.

"Textiles business posted sequential improvement in performance in Q2 FY24 and the momentum is likely to continue in the coming quarters. The company is optimistic about its long-term growth prospects. A better mix, operating efficiencies and softening input prices would help profitability to improve consistently in the long term," it stated.

Although, the brokerage noted that any slowdown in the export market would hit demand, while volatility in input costs would affect earnings growth.

"Management expects Q3 to be better than Q2 with green-shoots becoming visible in export markets as inventory correction cycle wraps up, coupled with festive and wedding season in the domestic market. Mass segments are experiencing much lower demand, premium segment is doing fine," Sharekhan said, citing Arvind's conference call commentary.

"Arvind has indicated that challenging demand environment continues for the garment division, and the company has not yet achieved 100 per cent capacity utilisation. However, demand recovery is expected in the next 6-9 months, which will help to achieve full capacity utilisation," it added.

Garment margins of the company are currently in high single-digit and are expected to rise to double-digits in a couple of quarters, aided by higher capacity utilisation and better operating efficiencies, the brokerage further stated.

The Ahmedabad-based company operates in denims, knits and woven segments. It has plans for a capital expenditure of Rs 600 crore.

(Disclaimer: Business Today provides stock market news for informational purposes only and should not be construed as investment advice. Readers are encouraged to consult with a qualified financial advisor before making any investment decisions.)

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