Karvy Stock Broking has reiterated 'Buy' on Vardhman Textiles with target price of Rs 481 as against current market price (CMP) of Rs 344 with 40% upside in its report.

Commenting on the investment rationale, the stock broker   said, ''Vardhman Textiles (VTEX) recorded exceptional margins in last four quarters due to lower-priced cotton inventory. Going forward, fresh procurement of cotton is likely to normalize VTEX's operating margins, while added fabric capacity with sustainable margins is expected to compensate volatility in yarn business.

Again, sustained demand is likely on yarn and fabric with a diversified customer base. Moreover, favourable policies on investments from MP State Govt, giving ~5% interest subsidy over and above TUFS along with tax benefits would support growth of VTEX's net income.

We expect VTEX's revenue and PAT to see 15% and 25% CAGR in FY13-15E, respectively. At CMP of Rs. 344, the stock trades at 4.9x & 3.6x FY15E earnings and EV/EBITDA, respectively. We reiterate our “BUY” recommendation with revised target price of Rs. 481 a share (from Rs. 431 earlier), valuing the stock at 5.5x FY15E EPS. At target price, the stock would trade at 4.3x FY15E EV/EBITDA.''

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