Is VTM overvalued or undervalued?

Current Valuation Metrics Indicate Fair Pricing

As of 1 December 2025, VTM’s valuation grade has been revised to fair, reflecting a more balanced market perception. The company’s price-to-earnings (PE) ratio stands at 19.91, which is moderate within its sector. This figure suggests that investors are paying roughly 20 times the company’s earnings, a level that is neither excessively high nor particularly cheap for a garment and apparel firm with steady earnings.

Other valuation multiples reinforce this view. The enterprise value to EBITDA (EV/EBITDA) ratio is 12.92, indicating a reasonable valuation relative to earnings before interest, taxes, depreciation and amortisation. The price-to-book (P/B) ratio of 2.42 suggests that the stock is trading at more than double its book value, which is typical for companies with consistent profitability and growth prospects.

Importantly, the PEG ratio, which adjusts the PE ratio for earnings growth, is notably low at 0.33. This implies that VTM’s stock price is modest relative to its expected earnings growth, signalling potential undervaluation when growth is factored in.

Strong Returns and Operational Efficiency Support Valuation

VTM’s operational metrics also support its fair valuation. The company’s return on capital employed (ROCE) is a robust 17.84%, indicating efficient use of capital to generate profits. Similarly, the return on equity (ROE) of 12.17% reflects solid profitability for shareholders.

Dividend yield at 1.15% provides a modest income stream, which may appeal to income-focused investors, though it is not a primary attraction given the company’s growth orientation.

Examining stock price performance, VTM has delivered impressive long-term returns. Over the past five years, the stock has surged by approximately 798%, vastly outperforming the Sensex’s 91.78% gain. Even over ten years, VTM’s return of 619.69% dwarfs the benchmark’s 227.26%. This strong track record underlines the company’s growth credentials and justifies a valuation that is not overly discounted.

Peer Comparison Highlights VTM’s Relative Attractiveness

When compared with peers in the Garments & Apparels sector, VTM’s valuation appears reasonable. For instance, K P R Mill Ltd is rated very expensive with a PE ratio exceeding 42 and an EV/EBITDA above 27, indicating a premium valuation. Conversely, companies like Vardhman Textile trade at lower PE ratios but have higher PEG ratios, suggesting slower growth expectations.

Other peers such as Trident and Arvind Ltd are considered attractive or very attractive, but their valuation multiples and growth profiles differ. VTM’s combination of a fair PE ratio, low PEG, and solid returns positions it as a balanced option within its sector.

However, it is worth noting that VTM’s stock price has recently experienced volatility, with a one-week decline of over 15%, contrasting with a modest Sensex gain. This short-term weakness may reflect market sentiment or sector-specific pressures rather than fundamental overvaluation.

Conclusion: VTM Is Fairly Valued with Growth Potential

In summary, VTM’s current valuation metrics suggest the stock is fairly valued rather than overvalued or undervalued. The PE ratio and EV/EBITDA multiples are moderate, while the low PEG ratio indicates that the market may be underestimating the company’s growth prospects. Strong returns over multiple time horizons and solid profitability ratios further support this assessment.

Investors should consider VTM’s recent price volatility and sector dynamics but can take comfort in the company’s balanced valuation profile. For those seeking exposure to the Garments & Apparels industry, VTM offers a blend of growth and reasonable pricing, though it is prudent to compare it with other attractive peers before making investment decisions.

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