2QFY2017 Result Update | Textile
November 16, 2016
Garware Wall Ropes
ACCUMULATE
CMP
`550
Performance Highlights
Target Price
`618
Quarterly Data
Investment Period
12 months
(`cr)
2QFY17
2QFY16
% yoy
1QFY17
% qoq
Revenue
232
214
8.5
225
3.3
Stock Info
EBITDA
40
26
50.9
31
29.4
Sector
Textiles
Margin (%)
17.2
12.4
483bp
13.7
347bp
Market Cap (` cr)
1,305
Adj. PAT
26
15
69.2
20
31.6
Net Debt (` cr)
(62)
Source: Company, Angel Research
Beta
1.0
Garware Wall Ropes (GWRL)’ 2QFY2017 results outperformed our estimates on
52 Week High / Low
567/270
the bottom-line front, while the top-line was in line with our estimates. On the
Avg. Daily Volume
4,637
operating front, the company reported margin improvement, primarily on account of
Face Value (`)
10
lower raw material costs and other expenditures. Further, on the bottom-line front, the
BSE Sensex
26,305
company reported strong growth on account of a favorable operating performance.
Nifty
8,108
Top-line grew by ~9%: The company’s top-line grew by ~9% yoy to `232cr
Reuters Code
GRWL.BO
(estimated `230cr). Healthy growth in revenue was mainly due to growth of 11%
Bloomberg Code
[email protected]
yoy in the Synthetic cordage segment to `195cr. However, Fibre & Industrial
products segment reported de-growth of ~8% yoy to `36cr. Further, the company
Shareholding Pattern (%)
has seen strong growth in fisheries and aquaculture business, during the quarter.
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 483bp yoy to 17.2%), primarily
FII / NRIs / OCBs
4.1
on account of decline in raw material costs and other expenditures, during the
Indian Public / Others
39.2
quarter. The reported net profit grew by ~69% yoy to `26cr on account of the
strong operating performance.
Abs. (%)
3m 1yr
3yr
Outlook and valuation: Going ahead, we expect GWRL to report a healthy top-
Sensex
9.7
50.7
919.2
line in anticipation of strong domestic as well as export sales. On the domestic
GWRL
33.3
59.9
30.9
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
3-year price chart
reporting strong numbers on back of higher demand for aquaculture and sports
600
products globally and also with the company tapping new geographies. Hence,
500
we recommend an Accumulate rating on the stock with a target price of `618.
400
Key financials (Consolidated)
300
Y/E March (` cr)
FY2015
FY2016
FY2017E
FY2018E
200
Net sales
784
828
873
938
100
% chg
14.0
5.5
5.5
7.5
0
Net profit
43
62
77
82
% chg
61.5
43.7
24.3
6.6
EBITDA margin (%)
10.4
12.7
14.3
14.3
EPS (`)
19.7
28.3
35.1
37.5
Source: Company, Angel Research
P/E (x)
28.0
19.4
15.6
14.7
P/BV (x)
3.8
3.3
2.7
2.3
RoE (%)
13.8
16.8
17.5
15.9
RoCE (%)
19.3
23.2
24.0
22.4
Amarjeet S Maurya
EV/Sales (x)
1.6
1.4
1.3
1.2
022-39357800 Ext: 6831
EV/EBITDA (x)
15.1
10.8
9.0
8.3
[email protected]
Source: Company, Angel Research, Note: CMP as of November 15, 2016
Please refer to important disclosures at the end of this report
1
Garware Wall Ropes | 2QFY2017 Result Update
Exhibit 1: Quarterly performance
Y/E March (` cr)
2QFY17
2QFY16
% yoy
1QFY17
% qoq
1HFY17
1HFY16
% chg
Net Sales
232
214
8.5
225
3.3
458
454
0.9
Consumption of RM
86
83
3.4
88
(2.4)
173.3
197
(12.0)
(% of Sales)
36.8
38.6
39.0
37.9
43.4
Staff Costs
26
22
19.6
26
(0.1)
52
45
16.9
(% of Sales)
11.3
10.2
11.7
11.5
9.9
Operating Expense
81
83
(2.9)
80
0.6
161
159
1.0
(% of Sales)
34.7
38.8
35.7
35.2
35.1
Total Expenditure
193
188
2.5
194
(0.9)
387
401
(3.6)
Operating Profit
40
26
50.9
31
29.4
71
52
35.1
OPM (%)
17.2
12.4
483bp
13.7
347bp
15.5
11.6
Interest
2
2
(23.8)
1
10.9
3
4
(21.8)
Depreciation
4
3
8.6
3
1.4
7
6
8.9
Other Income
3.3
0.3
882.4
2.5
35.2
6
1
453.3
PBT
38
21
78.0
28
34.3
67
43
54.4
(% of Sales)
16.4
10.0
12.6
14.5
9.5
Provision for Taxation
12
6
100.2
9
40.4
21
13
58.5
(% of PBT)
31.8
28.3
30.4
31.2
30.4
Minority Interest
-
-
-
-
-
-
-
-
Reported PAT
26
15
69.2
19.8
31.6
46
30
52.6
PATM (%)
11.2
7.2
8.8
10.0
6.6
Source: Company, Angel Research
November 16, 2016
2
Garware Wall Ropes | 2QFY2017 Result Update
Top-line grew by ~9%
The company’s top-line grew by ~9% yoy to `232cr (estimated
`230cr). Healthy
growth in revenue was mainly due to growth of 11% yoy in the Synthetic cordage
segment to
`195cr. However, Fibre & Industrial products segment reported
de-growth of ~8% yoy to `36cr. Further, the company has seen strong growth in
fisheries and aquaculture business, during the quarter.
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 483bp
yoy to 17.2%), primarily on account of decline in raw material costs and other
expenditures, during the quarter.
Exhibit 3: Operating profit and margin trend
45
20
40
18
16
35
14
30
12
25
10
20
8
15
6
10
4
5
2
0
0
Operating Profit
Margin (%)
Source: Company, Angel Research
November 16, 2016
3
Garware Wall Ropes | 2QFY2017 Result Update
PAT grew by ~69% yoy
The reported net profit grew by ~69% yoy to `26cr on account of the strong
operating performance.
Exhibit 4: Net Profit and growth trend
35
30
30
25
25
20
20
15
15
10
10
5
-
5
(5)
0
(10)
Net Profit
QoQ growth (%)
Source: Company, Angel Research
November 16, 2016
4
Garware Wall Ropes | 2QFY2017 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.
November 16, 2016
5
Garware Wall Ropes | 2QFY2017 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 an Accumulate
rating on the stock with a target price of `618.
Exhibit 5: One-year forward P/E band
600
6.0 X
8.0 X
10.0 X
12.0 X
14.0 X
500
400
300
200
100
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.
November 16, 2016
6
Garware Wall Ropes | 2QFY2017 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
748
804
Cost of Materials
263
316
363
343
387
414
Personnel Expenses
81
64
84
93
100
109
Others Expenses
197
242
255
286
262
282
EBITDA
63
65
81
105
125
134
% chg
(1.1)
3.9
24.6
29.6
18.4
7.5
(% of Net Sales)
10.4
9.5
10.4
12.7
14.3
14.3
Depreciation& Amortisation
16
14
12
13
14
15
EBIT
47
51
69
92
110
119
% chg
(2.2)
9.4
35.5
33.9
19.6
7.8
(% of Net Sales)
7.7
7.4
8.8
11.2
12.6
12.7
Interest & other Charges
14
13
10
9
6
4
Other Income
1
1
2
3
7
4
(% of PBT)
4.1
2.6
3.0
4.0
6.3
3.4
Share in profit of Associates
-
-
-
-
-
-
Recurring PBT
33
39
61
87
111
119
% chg
4.2
17.0
54.9
43.9
28.0
6.6
Prior Period & Extraord. Exps./(Inc.)
-
-
-
-
-
-
PBT (reported)
33
39
61
87
111
119
Tax
9
12
17
25
35
37
(% of PBT)
26.1
31.8
28.9
28.9
31.0
31.0
PAT (reported)
25
27
43
62
77
82
Add: Share of earnings of asso.
-
-
-
-
-
-
Less: Minority interest (MI)
-
-
-
-
-
-
PAT after MI (reported)
25
27
43
62
77
82
ADJ. PAT
25
27
43
62
77
82
% chg
2.7
8.1
61.5
43.7
24.3
6.6
(% of Net Sales)
4.1
3.9
5.5
7.5
8.8
8.7
Basic EPS (`)
11.3
12.2
19.7
28.3
35.1
37.5
Fully Diluted EPS (`)
11.3
12.2
19.7
28.3
35.1
37.5
% chg
2.7
8.1
61.5
43.7
24.3
6.6
November 16, 2016
7
Garware Wall Ropes | 2QFY2017 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
418
494
Shareholders Funds
267
276
313
369
440
516
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
481
552
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
679
749
Inventories
122
127
137
127
139
149
Sundry Debtors
140
143
182
199
215
231
Cash
20
9
11
83
92
101
Loans & Advances
104
138
175
191
207
235
Other Assets
13
13
13
15
26
33
Current liabilities
167
232
318
380
389
392
Net Current Assets
232
198
201
235
291
357
Deferred Tax Asset
1
1
1
1
1
1
Total Assets
397
368
379
420
481
552
November 16, 2016
8
Garware Wall Ropes | 2QFY2017 Result Update
Cashflow Statement
Y/E March (` cr)
FY13
FY14
FY15
FY16
FY17E
FY18E
Profit before tax
33
39
61
87
111
119
Depreciation
16
14
12
13
14
15
Change in Working Capital
(21)
19
(1)
38
(46)
(58)
Interest / Dividend (Net)
13
15
10
9
6
4
Direct taxes paid
(8)
(5)
(17)
(25)
(35)
(37)
Others
(0)
-
-
-
-
-
Cash Flow from Operations
34
82
64
121
51
44
(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
9
9
Opening Cash balances
24
20
9
11
83
92
Closing Cash balances
20
9
11
83
92
101
November 16, 2016
9
Garware Wall Ropes | 2QFY2017 Result Update
Key Ratios
Y/E March
FY12
FY13
FY14
FY15
FY16E FY17E
Valuation Ratio (x)
P/E (on FDEPS)
48.8
45.1
28.0
19.4
15.6
14.7
P/CEPS
29.4
29.3
21.7
16.0
13.2
12.4
P/BV
4.5
4.4
3.8
3.3
2.7
2.3
Dividend yield (%)
0.5
0.5
0.5
0.5
0.5
0.5
EV/Sales
2.1
1.8
1.6
1.4
1.3
1.2
EV/EBITDA
20.4
19.2
15.1
10.8
9.0
8.3
EV / Total Assets
2.3
2.1
1.8
1.4
1.3
1.2
Per Share Data (`)
EPS (Basic & fully diluted)
11.3
12.2
19.7
28.3
35.1
37.5
EPS (Adjusted)
11.3
12.2
19.7
28.3
35.1
37.5
Cash EPS
18.7
18.8
25.3
34.3
41.7
44.4
DPS
2.7
2.7
2.7
2.7
2.7
2.7
Book Value
122.1
126.1
143.0
168.6
201.0
235.8
Returns (%)
ROCE
12.3
14.7
19.3
23.2
24.0
22.4
Angel ROIC (Pre-tax)
13.4
15.5
20.4
30.1
30.8
28.3
ROE
9.2
9.7
13.8
16.8
17.5
15.9
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
58
58
Receivables (days)
85
76
85
88
90
90
Payables (days)
35
34
36
37
35
34
WC cycle (ex-cash) (days)
124
109
113
107
113
114
November 16, 2016
10
Garware Wall Ropes | 2QFY2017 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)
November 16, 2016
11