3QFY2016 Result Update | Textile
February 12, 2016
Garware Wall Ropes
BUY
CMP
`291
Performance Highlights
Target Price
`467
Quarterly Data
Investment Period
12 months
(` cr)
3QFY16
3QFY15
% yoy
2QFY16
% qoq
Revenue
186
185
0.2
214
(13.4)
Stock Info
EBITDA
25
18
35.7
26
(7.2)
Sector
Textiles
Margin (%)
13.2
9.8
(346bp)
12.4
(88bp)
Market Cap (` cr)
695
Adj. PAT
15
10
43.3
15
(5.0)
Source: Company, Angel Research
Net Debt (` cr)
24
Beta
1.0
Garware Wall Ropes (GWRL)’ 3QFY2016 results outperformed our estimates on
52 Week High / Low
387/165
the bottom-line front. The company’s top-line for the quarter grew by a subdued
Avg. Daily Volume
10,865
0.2% yoy. On the operating front, the company reported margin improvement,
primarily on account of lower raw material costs. Further, on the bottom-line
Face Value (`)
10
front, the company reported strong growth on account of a favorable operating
BSE Sensex
22,986
performance.
Nifty
6,981
Reuters Code
GRWL.BO
Subdued top-line growth: The company’s top-line grew by ~0.2% yoy to ~`186cr
Bloomberg Code
[email protected]
(which is below our estimates of ~`197cr), mainly due to de-growth in the
Synthetic Cordage segment (by ~2% yoy to `155cr). The Fibre & Industrial
Products segment reported a growth of ~6% yoy to `35cr.
Shareholding Pattern (%)
Strong operating performance boosts profitability: On the operating front, the
Promoters
50.6
company reported margin improvement (up by 346bp yoy to 13.2%), primarily
MF / Banks / Indian Fls
2.3
on account of lower raw material costs (key raw material for GWRL are high
FII / NRIs / OCBs
1.2
density polyethylene, polyethylene etc) and other expenses. Raw material costs as
Indian Public / Others
45.9
a percentage of sales declined by 719bp yoy, during the quarter. The reported
net profit grew by ~43% yoy to `14.6cr (our estimate was of `11.2cr) on account
Abs. (%)
3m 1yr
3yr
of the strong operating performance.
Sensex
(10.5)
(19.6)
17.9
Outlook and valuation: Going ahead, we expect GWRL to report a top-line CAGR
GWRL
(14.3)
(14.3)
543.0
of ~9% over FY2015-17E to ~`936cr owing to strong domestic as well as export
sales. On the bottom-line front, we expect the company to report ~22% CAGR
over FY2015-17E on account of expansion in operating margin (due to lower
3-year price chart
material prices and higher exports, which is a high margin business). Further, the
500
450
company has reduced its debt significantly which will lead to cost savings. Hence,
400
we recommend a Buy rating on the stock with a target price of `467.
350
300
250
Key financials (Consolidated)
200
150
Y/E March (` cr)
FY2014
FY2015
FY2016E
FY2017E
100
Net sales
688
784
844
936
50
0
% chg
13.9
14.0
7.7
10.9
Net profit
27
43
57
64
% chg
8.1
61.5
31.8
12.5
EBITDA margin (%)
9.5
10.4
11.9
11.6
Source: Company, Angel Research
EPS (`)
12.2
19.7
25.9
29.2
P/E (x)
23.9
14.8
11.2
10.0
P/BV (x)
2.3
2.0
1.8
1.5
RoE (%)
9.7
13.8
15.6
15.1
Amarjeet S Maurya
RoCE (%)
14.7
19.3
22.1
21.3
022-39357800 Ext: 6831
EV/Sales (x)
1.0
0.8
0.8
0.7
EV/EBITDA (x)
10.6
8.1
6.4
5.7
[email protected]
Source: Company, Angel Research, Note: CMP as of February 12, 2016
Please refer to important disclosures at the end of this report
1
Garware Wall Ropes | 3QFY2016 Result Update
Exhibit 1: Quarterly performance
Y/E March (` cr)
3QFY16 3QFY15
% yoy
2QFY16
% qoq
9MFY16
9MFY15
% chg
Net Sales
186
185
0.2
214
(13.4)
639
587
8.8
Consumption of RM
71
84
(15.6)
83
(14.3)
268
265
1.2
(% of Sales)
38.2
45.4
38.6
41.9
45.1
Staff Costs
23
16
47.8
22
5.0
68
77
(11.8)
(% of Sales)
12.4
8.4
10.2
10.6
13.1
Operating Expense
67
67.47
(0.5)
83
(19.3)
227
187
21.2
(% of Sales)
36.2
36.4
38.8
35.4
31.8
Total Expenditure
161
167
(3.6)
188
(14.3)
562
529
6.4
Operating Profit
25
18
35.7
26
(7.2)
77
59
31.1
OPM (%)
13.2
9.8
12.4
12.0
10.0
Interest
3
2
59.4
2
31.0
7
7
(3.5)
Depreciation
3
3
5.2
3
0.7
10
9
2.8
Other Income
1.2
0.1
901.8
0.339
255.2
2
1
75.0
PBT
20
13
47.4
21
(8.1)
63
44
44.0
(% of Sales)
10.6
7.2
10.0
9.8
7.4
Provision for Taxation
5
3
60.4
6
(15.9)
18
13
42.1
(% of PBT)
25.9
23.8
28.3
29.0
29.4
Minority Interest
Reported PAT
15
10
43.3
15
(5.0)
45
31
44.8
PATM
7.9
5.5
7.2
7.0
5.2
Source: Company, Angel Research
February 12, 2016
2
Garware Wall Ropes | 3QFY2016 Result Update
Top-line grows 6% yoy
The company’s top-line grew by ~0.2% yoy to ~`186cr (which is below our
estimates of ~ `197cr), mainly due to de-growth in the Synthetic Cordage segment
(by ~2% yoy to `155cr). The Fibre & Industrial Products segment reported a
growth of ~6% yoy to `35cr.
Going forward, we expect the company to continue reporting strong 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 by 346bp yoy
to 13.2%, primarily on account of lower raw material costs (key raw materials for
GWRL are high density polyethylene, polyethylene etc; raw material costs as a % of
sales corrected by 719bp yoy) and employee expenses.
Exhibit 3: Operating profit and margin trend
30
14
12
25
10
20
8
15
6
10
4
5
2
0
0
Operating Profit
Margin (%)
Source: Company, Angel Research
February 12, 2016
3
Garware Wall Ropes | 3QFY2016 Result Update
PAT grew ~43% yoy
The reported net profit grew by ~43% yoy to ~`14.6cr (our estimate was of
~`11.2cr) on account of the strong operating performance.
Exhibit 4: Net Profit and growth trend
18
35
16
30
14
25
12
20
10
15
8
10
6
5
4
-
2
(5)
0
(10)
Net Profit
QoQ growth (%)
Source: Company, Angel Research
February 12, 2016
4
Garware Wall Ropes | 3QFY2016 Result Update
Investment rationale
Higher exports to accelerate top-line growth
We expect GWRL to report a healthy top-line CAGR of ~9% over FY2015-17E, on
the back of higher growth in exports. Over the last seven years, the company has
reported a CAGR of ~20% in export sales to `391cr (for FY2015). 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 report export
sales CAGR of ~16% over FY2015-17E. 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 FY2015, the company
witnessed an improvement in its operating margin by 90bp. 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 four years, resulting in debt having come down from
~`140cr in FY2012 to `45cr in FY2015. 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 FY2010 to
~`10cr in FY2015). 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 13.8% in FY2015.
February 12, 2016
5
Garware Wall Ropes | 3QFY2016 Result Update
Outlook and valuation
Going ahead, we expect GWRL to report a top-line CAGR of ~9% over FY2015-
17E to ~`936cr owing to strong domestic as well as export sales. On the bottom-
line front, we expect the company to report ~22% CAGR over FY2015-17E on
account of expansion in operating margin (due to lower material prices and higher
exports, which is a high margin business). Further, the company has reduced its
debt significantly which will lead to cost savings. Hence, we recommend a Buy
rating on the stock with a target price of `467.
Exhibit 5: One-year forward P/E band
500
3.0 X
6.0 X
9.0 X
12.0 X
15.0 X
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 state-of-art facilities at
Wai and Pune (both in Maharashtra, India) and are marketed in more than
75 countries worldwide.
February 12, 2016
6
Garware Wall Ropes | 3QFY2016 Result Update
Profit & Loss Statement
Y/E March (` cr)
FY12
FY13
FY14
FY15
FY16E
FY17E
Total operating income
580
604
688
784
844
936
% chg
15.9
4.0
13.9
14.0
7.7
10.9
Total Expenditure
517
541
622
703
744
828
Cost of Materials
250
263
316
363
380
429
Personnel Expenses
79
81
64
84
93
105
Others Expenses
187
197
242
255
272
294
EBITDA
64
63
65
81
100
109
% chg
15.7
(1.1)
3.9
24.6
23.0
8.5
(% of Net Sales)
11.0
10.4
9.5
10.4
11.9
11.6
Depreciation& Amortisation
16
16
14
12
13
14
EBIT
48
47
51
69
87
94
% chg
18.6
(2.2)
9.4
35.5
26.3
8.1
(% of Net Sales)
8.2
7.7
7.4
8.8
10.3
10.1
Interest & other Charges
17
14
13
10
9
6
Other Income
1
1
1
2
3
3
(% of PBT)
3.5
4.1
2.6
3.0
3.1
3.3
Share in profit of Associates
-
-
-
-
-
-
Recurring PBT
32
33
39
61
81
91
% chg
2.8
4.2
17.0
54.9
33.9
12.5
Prior Period & Extraord. Exps./(Inc.)
-
-
-
-
-
-
PBT (reported)
32
33
39
61
81
91
Tax
8
9
12
17
24
27
(% of PBT)
25.1
26.1
31.8
28.9
30.0
30.0
PAT (reported)
24
25
27
43
57
64
Add: Share of earnings of asso.
-
-
-
-
-
-
Less: Minority interest (MI)
-
-
-
-
-
-
PAT after MI (reported)
24
25
27
43
57
64
ADJ. PAT
24
25
27
43
57
64
% chg
(1.7)
2.7
8.1
61.5
31.8
12.5
(% of Net Sales)
4.1
4.1
3.9
5.5
6.7
6.8
Basic EPS (`)
11.0
11.3
12.2
19.7
25.9
29.2
Fully Diluted EPS (`)
11.0
11.3
12.2
19.7
25.9
29.2
% chg
(1.7)
2.7
8.1
61.5
31.8
12.5
February 12, 2016
7
Garware Wall Ropes | 3QFY2016 Result Update
Balance Sheet
Y/E March (` cr)
FY12
FY13
FY14
FY15
FY16E
FY17E
SOURCES OF FUNDS
Equity Share Capital
24
24
22
22
22
22
Reserves& Surplus
227
243
254
291
342
400
Shareholders Funds
250
267
276
313
364
422
Minority Interest
-
-
-
-
-
-
Total Loans
140
110
71
45
30
20
Deferred Tax Liability
18
19
21
21
21
21
Total Liabilities
409
397
368
379
415
463
APPLICATION OF FUNDS
Gross Block
336
339
351
371
391
411
Less: Acc. Depreciation
170
185
198
211
224
238
Net Block
167
154
153
160
167
173
Capital Work-in-Progress
3
0
7
7
7
7
Investments
9
9
9
9
9
9
Current Assets
394
399
430
519
596
680
Inventories
123
122
127
137
150
169
Sundry Debtors
150
140
143
182
199
223
Cash
24
20
9
11
21
26
Loans & Advances
87
104
138
175
211
243
Other Assets
10
13
13
13
15
19
Current liabilities
164
167
232
318
367
408
Net Current Assets
230
232
198
201
230
272
Deferred Tax Asset
-
1
1
1
1
1
Total Assets
409
397
368
379
415
463
February 12, 2016
8
Garware Wall Ropes | 3QFY2016 Result Update
Cashflow Statement
Y/E March (` cr)
FY12
FY13
FY14
FY15
FY16E
FY17E
Profit before tax
32
33
39
61
81
91
Depreciation
16
16
14
12
13
14
Change in Working Capital
(6)
(21)
19
(1)
(19)
(37)
Interest / Dividend (Net)
16
13
15
10
9
6
Direct taxes paid
(6)
(8)
(5)
(17)
(24)
(27)
Others
0
(0)
-
-
-
-
Cash Flow from Operations
52
34
82
64
59
47
(Inc.)/ Dec. in Fixed Assets
(30)
1
(20)
(20)
(20)
(20)
(Inc.)/ Dec. in Investments
(0)
(0)
(0)
0
-
-
Cash Flow from Investing
(29)
2
(20)
(20)
(20)
(20)
Issue of Equity
-
-
-
-
-
-
Inc./(Dec.) in loans
23
(17)
(51)
(27)
(15)
(10)
Dividend Paid (Incl. Tax)
(7)
(7)
(7)
(6)
(6)
(6)
Interest / Dividend (Net)
(16)
(15)
(16)
(10)
(9)
(6)
Cash Flow from Financing
(1)
(39)
(74)
(43)
(29)
(22)
Inc./(Dec.) in Cash
22
(3)
(11)
2
10
5
Opening Cash balances
2
24
20
9
11
21
Closing Cash balances
24
20
9
11
21
26
February 12, 2016
9
Garware Wall Ropes | 3QFY2016 Result Update
Key Ratios
Y/E March
FY12
FY13
FY14
FY15
FY16E FY17E
Valuation Ratio (x)
P/E (on FDEPS)
26.5
25.8
23.9
14.8
11.2
10.0
P/CEPS
15.9
15.5
15.5
11.5
9.1
8.1
P/BV
2.5
2.4
2.3
2.0
1.8
1.5
Dividend yield (%)
0.9
0.9
0.9
0.9
0.9
0.9
EV/Sales
1.3
1.2
1.0
0.8
0.8
0.7
EV/EBITDA
11.7
11.4
10.6
8.1
6.4
5.7
EV / Total Assets
1.3
1.3
1.1
0.9
0.8
0.7
Per Share Data (`)
EPS (Basic & fully diluted)
11.0
11.3
12.2
19.7
25.9
29.2
EPS (Adjusted)
11.0
11.3
12.2
19.7
25.9
29.2
Cash EPS
18.3
18.7
18.8
25.3
31.8
35.8
DPS
2.7
2.7
2.7
2.7
2.7
2.7
Book Value
114.5
122.1
126.1
143.0
166.3
192.7
Returns (%)
ROCE
12.2
12.3
14.7
19.3
22.1
21.3
Angel ROIC (Pre-tax)
13.3
13.4
15.5
20.4
23.9
23.2
ROE
9.6
9.2
9.7
13.8
15.6
15.1
Turnover ratios (x)
Asset Turnover (Gross Block)
1.7
1.8
2.0
2.1
2.2
2.3
Inventory / Sales (days)
78
74
67
64
65
66
Receivables (days)
94
85
76
85
86
87
Payables (days)
34
35
34
36
37
38
WC cycle (ex-cash) (days)
138
124
109
113
114
115
February 12, 2016
10
Garware Wall Ropes | 3QFY2016 Result Update
Research Team Tel: 022 - 39357800
E-mail: [email protected]
Website: www.angelbroking.com
DISCLAIMER
Angel Broking Private Limited (hereinafter referred to as “Angel”) is a registered Member of National Stock Exchange of India Limited,
Bombay Stock Exchange Limited and Metropolitan Stock Exchange of India Limited. It is also registered as a Depository Participant with
CDSL and Portfolio Manager with SEBI. It also has registration with AMFI as a Mutual Fund Distributor. Angel Broking Private Limited is
a registered entity with SEBI for Research Analyst in terms of SEBI (Research Analyst) Regulations, 2014 vide registration number
INH000000164. Angel or its associates has not been debarred/ suspended by SEBI or any other regulatory authority for accessing
/dealing in securities Market. Angel or its associates including its relatives/analyst do not hold any financial interest/beneficial
ownership of more than 1% in the company covered by Analyst. Angel or its associates/analyst has not received any compensation /
managed or co-managed public offering of securities of the company covered by Analyst during the past twelve months. Angel/analyst
has not served as an officer, director or employee of company covered by Analyst and has not been engaged in market making activity
of the company covered by Analyst.
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment
decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should
make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the
companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine
the merits and risks of such an investment.
Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and
trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's
fundamentals.
The information in this document has been printed on the basis of publicly available information, internal data and other reliable
sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this
document is for general guidance only. Angel Broking Pvt. Limited or any of its affiliates/ group companies shall not be in any way
responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report.
Angel Broking Pvt. Limited has not independently verified all the information contained within this document. Accordingly, we cannot
testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document.
While Angel Broking Pvt. Limited endeavors to update on a reasonable basis the information discussed in this material, there may be
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This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced,
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or in connection with the use of this information.
Note: Please refer to the important ‘Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the
latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Pvt. Limited and its affiliates may
have investment positions in the stocks recommended in this report.
Disclosure of Interest Statement
Garware Wall Ropes
1. Analyst ownership of the stock
No
2. Angel and its Group companies ownership of the stock
No
3. Angel and its Group companies' Directors ownership of the stock
No
4. Broking relationship with company covered
No
Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors
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%)
February 12, 2016
11