1QFY2017 Result Update | Textile
August 11, 2016
Garware Wall Ropes
BUY
CMP
`468
Performance Highlights
Target Price
`524
Quarterly Data
Investment Period
12 months
(` cr)
1QFY17
1QFY16
% yoy
4QFY16
% qoq
Revenue
225
239
(6.0)
188
19.5
Stock Info
EBITDA
31
26
19.1
28
8.5
Sector
Textiles
Margin (%)
13.7
10.8
288bp
15.1
(138bp)
Market Cap (` cr)
1,024
Adj. PAT
20
15
35.2
17
14.3
Net Debt (` cr)
-62
Source: Company, Angel Research
Beta
1.0
Garware Wall Ropes (GWRL)’ 1QFY2017 results outperformed our estimates on
52 Week High / Low
514/260
the bottom-line front while the top-line disappointed as it de-grew by ~6% yoy.
Avg. Daily Volume
4,788
On the operating front, the company reported margin improvement, primarily on
Face Value (`)
10
account of lower raw material costs. Further, on the bottom-line front, the company
BSE Sensex
27,775
reported strong growth on account of a favorable operating performance.
Nifty
8,575
Volumes grew but price cut dragged the overall top-line: The company’s top-line
Reuters Code
GRWL.BO
de-grew by ~6% yoy to `225cr (below our estimate of `256cr).The revenue
Bloomberg Code
[email protected]
underperformance was mainly due to de-growth of 8% yoy in the Synthetic
cordage segment to `185cr and flat growth of ~1% yoy in the Fibre & Industrial
products segment to `49cr.
Shareholding Pattern (%)
Promoters
50.6
Strong operating performance boosts profitability: On the operating front, the
MF / Banks / Indian Fls
6.1
company reported margin improvement (up by 288bp yoy to 13.7%), primarily
FII / NRIs / OCBs
4.1
on account of decline in raw material costs as a percentage of sales by 875bp yoy
Indian Public / Others
39.2
as prices of its key raw materials i.e. high density polyethylene, polyethylene etc
declined during the quarter. The reported net profit grew by ~35% yoy to `20cr
(outperforming our estimate of
`15cr) on account of the strong operating
Abs. (%)
3m 1yr
3yr
performance.
Sensex
7.8
(1.2)
46.6
GWRL
33.3
59.9
1055.0
Outlook and valuation: Going ahead, we expect GWRL to report a healthy top-
line in anticipation of strong domestic as well as export sales. On the domestic
front, we expect demand to pick up with an expected growth in the agriculture
3-year price chart
and fisheries segments in the country. Further, we expect the company to continue
600
reporting strong numbers on back of higher demand for aquaculture and sports
500
products globally and also with the company tapping new geographies. Hence,
400
we recommend a Buy rating on the stock with a target price of `524.
300
200
Key financials (Consolidated)
Y/E March (` cr)
FY2015
FY2016
FY2017E
FY2018E
100
Net sales
784
828
873
938
0
% chg
14.0
5.5
5.5
7.5
Net profit
43
62
68
76
% chg
61.5
43.7
9.3
13.0
Source: Company, Angel Research
EBITDA margin (%)
10.4
12.7
12.9
13.1
EPS (`)
19.7
28.3
30.9
34.9
P/E (x)
23.8
16.5
15.1
13.4
P/BV (x)
3.3
2.8
2.4
2.0
RoE (%)
13.8
16.8
15.7
15.2
RoCE (%)
19.3
23.2
21.8
20.9
Amarjeet S Maurya
EV/Sales (x)
1.3
1.2
1.1
1.0
022-39357800 Ext: 6831
EV/EBITDA (x)
12.9
9.1
8.3
7.5
[email protected]
Source: Company, Angel Research, Note: CMP as of August 10, 2016
Please refer to important disclosures at the end of this report
1
Garware Wall Ropes | 1QFY2017 Result Update
Exhibit 1: Quarterly performance
Y/E March (` cr)
1QFY17
1QFY16
% yoy
4QFY16
% qoq
FY2016
FY2015
% chg
Net Sales
225
239
(6.0)
188
19.5
828
784
5.5
Consumption of RM
88
114
(23.2)
75
16.6
343
363
(5.6)
(% of Sales)
39.0
47.7
39.9
41.4
46.3
Staff Costs
26
23
14.3
25
5.4
93
84
10.2
(% of Sales)
11.7
9.6
13.2
11.2
10.7
Operating Expense
80
76
5.3
60
34.1
286
255
12.2
(% of Sales)
35.7
31.9
31.8
34.6
32.5
Total Expenditure
194
213
(9.0)
160
21.4
722
703
2.8
Operating Profit
31
26
19.1
28
8.5
105
81
29.4
OPM (%)
13.7
10.8
15.1
12.7
10.4
Interest
1
2
(18.8)
2
(25.4)
9
10
(14.8)
Depreciation
3
3
9.1
3
1.4
13
12
5.7
Other Income
2.5
0.7
243.1
1.2
105.6
3
2
102.3
PBT
28
22
31.1
24
17.1
87
61
43.9
(% of Sales)
12.6
9.1
12.9
10.5
7.7
Provision for Taxation
9
7
22.7
7
24.0
25
17
44.2
(% of PBT)
30.4
32.5
28.7
28.9
28.9
Minority Interest
Reported PAT
19.76
14.6
35.2
17
14.3
62
43
43.7
PATM
8.8
6.1
9.2
7.5
5.5
Source: Company, Angel Research
August 11, 2016
2
Garware Wall Ropes | 1QFY2017 Result Update
Volumes grew but price cut dragged overall top-line
The company’s top-line de-grew by ~6% yoy to `225cr (below our estimate of
`256cr). The revenue underperformance was mainly due to de-growth of 8% yoy
in the Synthetic cordage segment to `185cr and flat growth of ~1% yoy in the
Fibre & Industrial products segment to `49cr.
Going forward, we expect the company to report healthy numbers on back of
higher anticipated demand for aquaculture and sports products globally and also
with the company tapping new geographies.
Exhibit 2: Top-line growth trend
25
300
20
250
15
200
10
5
150
-
100
(5)
(10)
50
(15)
0
(20)
Net sales
QoQ growth (%)
Source: Company, Angel Research
Operating margin expansion due to falling material prices
On the operating front, the company reported margin improvement (up by 288bp
yoy to 13.7%), primarily on account of decline in raw material costs as a
percentage of sales by 875bp yoy as prices of its key raw materials i.e. high
density polyethylene, polyethylene etc declined during the quarter.
Exhibit 3: Operating profit and margin trend
35
16
30
14
12
25
10
20
8
15
6
10
4
5
2
0
0
Operating Profit
Margin (%)
Source: Company, Angel Research
August 11, 2016
3
Garware Wall Ropes | 1QFY2017 Result Update
PAT grew ~35% yoy
The reported net profit grew by ~35% yoy to `19.8cr (outperforming our estimate
of `15cr) on account of the strong operating performance.
Exhibit 4: Net Profit and growth trend
35
25
30
20
25
20
15
15
10
10
5
-
5
(5)
0
(10)
Net Profit
QoQ growth (%)
Source: Company, Angel Research
August 11, 2016
4
Garware Wall Ropes | 1QFY2017 Result Update
Investment rationale
Higher exports to accelerate top-line growth
We expect GWRL to report a healthy top-line CAGR of ~7% over FY2016-18E on
back of higher growth in exports. Over the last seven years, the company has
reported a CAGR of ~16% in export sales to `412cr (for FY2016). The percentage
of exports to total sales has increased from 32.5% to 50% over the same period.
Exports predominately comprise of fishing and aquaculture offerings and of sports
goods. Going forward, we expect the company to continue to report strong
numbers on the export front on back of higher demand for aquaculture and sports
products globally. The company has export presence in 72 countries, mainly in the
US, Canada and across Europe. It is now planning to strengthen its presence in
Africa through agricultural offerings. Thus, we expect the company to post export
sales CAGR of ~7% over FY2016-18E. The Management is targeting to increase
export business’ contribution to about 65% of turnover in the next couple of years.
Lower raw material prices and higher export contribution to
enhance margins
In the last six years, despite of volatility in raw material prices, the company has
maintained its operating margin in the range of 10-11%. In FY2016, the company
witnessed an improvement in its operating margin by 235bp. Going forward, we
believe that the company would be able to increase its margins owing to (a) easing
raw material prices including that of high density polyethylene, polyethylene, nylon
etc. which are crude based raw materials, and (b) higher contribution of exports
which is a high margin business.
Continuous debt repayment and improving return ratios
The company is continuously generating higher cash flows, which has resulted in
debt reduction and improvement in its ROE. The company has been consistently
repaying debt over the past five years, resulting in debt having come down from
~`140cr in FY2012 to `30cr in FY2016. Going forward, we believe the company
will continue repaying debt with strong cash flows, which in turn will lead to
reduction in interest cost (interest cost has reduced from ~`17cr in FY2012 to
~`9cr in FY2016). A lower interest expense in turn will lead to higher profitability
for the company. Further, the company’s ROE has improved from 9.6% in FY2012
to 16.8% in FY2016.
August 11, 2016
5
Garware Wall Ropes | 1QFY2017 Result Update
Outlook and valuation
Going ahead, we expect GWRL to report a healthy top-line in anticipation of
strong domestic as well as export sales. On the domestic front, we expect demand
to pick up with an expected growth in the agriculture and fisheries segments in the
country. Further, we expect the company to continue reporting strong numbers on
back of higher demand for aquaculture and sports products globally and also with
the company tapping new geographies. Hence, we recommend a Buy rating on
the stock with a target price of `524.
Exhibit 5: One-year forward P/E band
500
Price
3x
5x
7x
9x
13x
450
400
350
300
250
200
150
100
50
0
Source: Company, Angel Research
Company Background
Garware Wall Ropes Ltd (GWRL) is an ISO 9001:2008 certified company.
Established in 1976, the company is a leading player in technical textiles,
specializing in providing customized solutions to the cordage and infrastructure
industry worldwide. The company is a global player and known for its innovation
in the field of fisheries, aquaculture, shipping, sports, agriculture, coated fabrics
and geosynthetics. GWRL’s products are manufactured in its state-of-art facilities at
Wai and Pune (both in Maharashtra, India) and are marketed in more than
75 countries worldwide.
August 11, 2016
6
Garware Wall Ropes | 1QFY2017 Result Update
Profit & Loss Statement
Y/E March (` cr)
FY13
FY14
FY15
FY16
FY17E
FY18E
Total operating income
604
688
784
828
873
938
% chg
4.0
13.9
14.0
5.5
5.5
7.5
Total Expenditure
541
622
703
722
761
815
Cost of Materials
263
316
363
343
387
414
Personnel Expenses
81
64
84
93
100
109
Others Expenses
197
242
255
286
274
293
EBITDA
63
65
81
105
113
123
% chg
(1.1)
3.9
24.6
29.6
6.8
9.1
(% of Net Sales)
10.4
9.5
10.4
12.7
12.9
13.1
Depreciation& Amortisation
16
14
12
13
14
15
EBIT
47
51
69
92
98
108
% chg
(2.2)
9.4
35.5
33.9
6.4
9.7
(% of Net Sales)
7.7
7.4
8.8
11.2
11.2
11.5
Interest & other Charges
14
13
10
9
6
4
Other Income
1
1
2
3
3
4
(% of PBT)
4.1
2.6
3.0
4.0
3.2
3.7
Share in profit of Associates
-
-
-
-
-
-
Recurring PBT
33
39
61
87
95
108
% chg
4.2
17.0
54.9
43.9
9.4
13.0
Prior Period & Extraord. Exps./(Inc.)
-
-
-
-
-
-
PBT (reported)
33
39
61
87
95
108
Tax
9
12
17
25
28
31
(% of PBT)
26.1
31.8
28.9
28.9
29.0
29.0
PAT (reported)
25
27
43
62
68
76
Add: Share of earnings of asso.
-
-
-
-
-
-
Less: Minority interest (MI)
-
-
-
-
-
-
PAT after MI (reported)
25
27
43
62
68
76
ADJ. PAT
25
27
43
62
68
76
% chg
2.7
8.1
61.5
43.7
9.3
13.0
(% of Net Sales)
4.1
3.9
5.5
7.5
7.7
8.1
Basic EPS (`)
11.3
12.2
19.7
28.3
30.9
34.9
Fully Diluted EPS (`)
11.3
12.2
19.7
28.3
30.9
34.9
% chg
2.7
8.1
61.5
43.7
9.3
13.0
August 11, 2016
7
Garware Wall Ropes | 1QFY2017 Result Update
Balance Sheet
Y/E March (` cr)
FY13
FY14
FY15
FY16
FY17E
FY18E
SOURCES OF FUNDS
Equity Share Capital
24
22
22
22
22
22
Reserves& Surplus
243
254
291
347
409
479
Shareholders Funds
267
276
313
369
431
501
Minority Interest
-
-
-
-
-
-
Total Loans
110
71
45
30
20
15
Deferred Tax Liability
19
21
21
21
21
21
Total Liabilities
397
368
379
420
472
537
APPLICATION OF FUNDS
Gross Block
339
351
371
391
411
431
Less: Acc. Depreciation
185
198
211
224
238
253
Net Block
154
153
160
167
173
178
Capital Work-in-Progress
0
7
7
7
7
7
Investments
9
9
9
9
9
9
Current Assets
399
430
519
615
669
750
Inventories
122
127
137
127
136
149
Sundry Debtors
140
143
182
199
211
226
Cash
20
9
11
83
98
112
Loans & Advances
104
138
175
191
207
235
Other Assets
13
13
13
15
17
28
Current liabilities
167
232
318
380
388
408
Net Current Assets
232
198
201
235
281
342
Deferred Tax Asset
1
1
1
1
1
1
Total Assets
397
368
379
420
472
537
August 11, 2016
8
Garware Wall Ropes | 1QFY2017 Result Update
Cashflow Statement
Y/E March (` cr)
FY13
FY14
FY15
FY16
FY17E
FY18E
Profit before tax
33
39
61
87
95
108
Depreciation
16
14
12
13
14
15
Change in Working Capital
(21)
19
(1)
38
(31)
(47)
Interest / Dividend (Net)
13
15
10
9
6
4
Direct taxes paid
(8)
(5)
(17)
(25)
(28)
(31)
Others
(0)
-
-
-
-
-
Cash Flow from Operations
34
82
64
121
57
49
(Inc.)/ Dec. in Fixed Assets
1
(20)
(20)
(20)
(20)
(20)
(Inc.)/ Dec. in Investments
(0)
(0)
0
-
-
-
Cash Flow from Investing
2
(20)
(20)
(20)
(20)
(20)
Issue of Equity
-
-
-
-
-
-
Inc./(Dec.) in loans
(17)
(51)
(27)
(15)
(10)
(5)
Dividend Paid (Incl. Tax)
(7)
(7)
(6)
(6)
(6)
(6)
Interest / Dividend (Net)
(15)
(16)
(10)
(9)
(6)
(4)
Cash Flow from Financing
(39)
(74)
(43)
(29)
(22)
(15)
Inc./(Dec.) in Cash
(3)
(11)
2
72
15
14
Opening Cash balances
24
20
9
11
83
98
Closing Cash balances
20
9
11
83
98
112
August 11, 2016
9
Garware Wall Ropes | 1QFY2017 Result Update
Key Ratios
Y/E March
FY12
FY13
FY14
FY15
FY16E FY17E
Valuation Ratio (x)
P/E (on FDEPS)
41.5
38.4
23.8
16.5
15.1
13.4
P/CEPS
25.0
24.9
18.5
13.7
12.5
11.2
P/BV
3.8
3.7
3.3
2.8
2.4
2.0
Dividend yield (%)
0.6
0.6
0.6
0.6
0.6
0.6
EV/Sales
1.8
1.6
1.3
1.2
1.1
1.0
EV/EBITDA
17.6
16.5
12.9
9.1
8.3
7.5
EV / Total Assets
2.0
1.8
1.5
1.2
1.1
1.0
Per Share Data (`)
EPS (Basic & fully diluted)
11.3
12.2
19.7
28.3
30.9
34.9
EPS (Adjusted)
11.3
12.2
19.7
28.3
30.9
34.9
Cash EPS
18.7
18.8
25.3
34.3
37.5
41.8
DPS
2.7
2.7
2.7
2.7
2.7
2.7
Book Value
122.1
126.1
143.0
168.6
196.8
229.0
Returns (%)
ROCE
12.3
14.7
19.3
23.2
21.8
20.9
Angel ROIC (Pre-tax)
13.4
15.5
20.4
30.1
28.6
27.3
ROE
9.2
9.7
13.8
16.8
15.7
15.2
Turnover ratios (x)
Asset Turnover (Gross Block)
1.8
2.0
2.1
2.1
2.1
2.2
Inventory / Sales (days)
74
67
64
56
57
58
Receivables (days)
85
76
85
88
88
88
Payables (days)
35
34
36
37
38
38
WC cycle (ex-cash) (days)
124
109
113
107
107
108
August 11, 2016
10
Garware Wall Ropes | 1QFY2017 Result Update
Research Team Tel: 022 - 39357800
E-mail: [email protected]
Website: www.angelbroking.com
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offering of securities of the company covered by Analyst during the past twelve months.
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Disclosure of Interest Statement
Garware Wall Ropes
1. Financial interest of research analyst or Angel or his Associate or his relative
No
2. Ownership of 1% or more of the stock by research analyst or Angel or associates or relatives
No
3. Served as an officer, director or employee of the company covered under Research
No
4. Broking relationship with company covered under Research
No
Ratings (Based on expected returns
Buy (> 15%)
Accumulate (5% to 15%)
Neutral (-5 to 5%)
over 12 months investment period):
Reduce (-5% to -15%)
Sell (< -15)
August 11, 2016
11