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VTM Smallcap Gem in Textile sector

Virudhunagar Textile Mills (VTML) was incorporated in 1946, is promoted by Mr T Kannan . Promtors holding is 75%. The company manufactures cotton fabric at its factory in Sulakkarai, Tamil Nadu. https://www.vtmill.com

Sri T Kannan holds the post of Independent Director in TVS Motor Company Limited, and Sundaram Brake Lining Limited. He is the Chairman of Audit committe in Sundaram Brake Lining Limited. And he is the Chairaman of Risk management committee in TVS motor company limited.

VTM’s established position in the grey fabric segment, and its healthy financial risk profile. These strengths are partially offset by exposure to risks stemming from intense competition and volatility in cotton prices.

Established position in the grey fabric industry: Backed by a six-decade-long presence and established market position in the cotton fabric industry, the company caters to an extensive clientele. It derives around 60% of revenue from the local market, and the balance 40% from the export market. The favorable location provides access to yarn from neighboring districts of Tamilnadu.

Healthy financial risk profile: Financial risk profile is marked by healthy gearing and debt protection metrics. Total outside liabilities to tangible net worth ratio has been comfortable at 0.19 time as on March 31, 2020 and less than one time over the five fiscals through March 2020.
It’s almost debt free company

Company is sustaining operating profitability.

Company is consistent dividend payee.
Screen Shot 2021-05-22 at 5.59.44 PM

Company is continuous buying fixed asset and investing in mutual fund by using free cash flow. Total Investment 85 cr. And getting income as other income.

Modernisation and Upgradation: Company has invested 13.12 crore for installing new looms and accessories. The company’s plant and equipments are up to date with latest technology.

Company mcap is around 110 crore and book value is around 55. Company current market price is around 28. It’s debt free company. It’s undervalued company in textile sector and steady growth compunder.

Disclosure: Invested

Risk:
Exposure to risks from volatility in cotton prices and intense competition: Cost of cotton yarn accounts for around 65% of total production cost. Though the company maintains raw material stock for 30-60 days, and cotton prices may remain volatile, ability to pass on the higher input cost to customers depends on the global demand and competition scenario. In addition, the company faces intense competition from various players in the industry and shall continue to constrain its business risk profile.

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Did this company not peak in 2014 with highest sales, OPM and other parameters? Can you please explain what has changed in company’s favor?

Most of Textiles companies have peak out in that time frame. You will find same topline for most of textile companies. It happened because most of business gone to Bangladesh and other neighbour countries and Indian textile industry suffered a lot. Now there is good export demand and cotton prices surged. seeing good momentum and demand in Indian textile sector. expecting good quarterly result from textile companies.

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Yesterday loyal textile posted superb result. it has also same topline since many year but stocks outperform the market. check vardhman textile topline.
Attaching loyal textile Annual consolidated figures

Following up with your post, because I want to invest in this sector. Trying to find a tailwind and reasons for the tailwind, could not see any. Appreciate your inputs

Actually mainy companies did capex in last few year and had huge debt e.g. see nitin spinner, deepak spinner, kpr mills etc. Now cotton prices are goin up and these companies are sitting on good inventory. Also fetching good margin from export market. Textile companies have been paying debt since few quarters and interest cost burden coming down.

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Thanks very much for responding patiently, I will do some research and may be invest if things look good

Thanks for the above analysis. I ,myself have been following this company due to re-emergence of growth in textile sector. I had a few questions regarding the company

  1. The clientele of the company
  2. It’s CSR section of AR-2020 shows it’s intended CSR transaction Rs700 for the enhance of infrastructure of the Thiagarajar College of Engineering of which Rs 28 lacs have already been appropriated. Isn’t it related to the promoter? And if yes, doesn’t this raise a red flag.