2QFY2016 Result Update | Textile

November 5, 2015

Garware Wall Ropes

BUY

CMP

`345

Performance Highlights

Target Price

`423

Quarterly Data

Investment Period

12 months

(` cr)

2QFY16

2QFY15

% yoy

1QFY16

% qoq

Revenue

214

203

5.7

239

(10.5)

Stock Info

EBITDA

24.7

2.1

Sector

Textiles

Margin (%)

12.4

10.5

188bp

10.8

152bp

Adj. PAT

41.5

5.1

Market Cap (` cr)

818

Source: Company, Angel Research

Net Debt (` cr)

Beta

1.0

Garware Wall Ropes (GWRL)’s 2QFY2016 results outperformed our estimates on

52 Week High / Low

387/145

the bottom-line front. The company’s top-line for the quarter grew by a subdued

Avg. Daily Volume

29,812

6% 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 (`)

front, the company reported strong growth on account of a favorable operating

BSE Sensex

26,304

performance and lower interest costs.

Nifty

7,955

Reuters Code

GRWL.BO

Subdued top-line growth: The company’s top-line grew by ~6% yoy to ~`214cr

Bloomberg Code

GWWR@IN

(which is below our estimates of ~ `232cr), mainly due to lower growth in the

Synthetic Cordage segment (of ~3% to `180cr). The Fibre & Industrial Products

segment reported a strong growth of ~14% to `39cr.

Shareholding Pattern (%)

PAT grew ~42% yoy: The reported net profit grew by ~42% yoy to ~`15.4cr

Promoters

50.6

(our estimate was of ~`12.7cr) on account of falling material prices and lower

MF / Banks / Indian Fls

2.3

interest costs with the company having repaid a significant amount of its debt in

FII / NRIs / OCBs

1.2

FY2015.

Indian Public / Others

45.9

Outlook and valuation: Going ahead, we expect GWRL to report a top-line CAGR

of ~11% over FY2015-17E to ~`967cr owing to strong domestic as well as

Abs. (%)

3m 1yr 3yr

export sales. On the bottom-line front, we expect the company to report ~20%

Sensex

(6.8)

(5.8)

40.2

CAGR over FY2015-17E on account of expansion in operating margin (due to

GWRL

17.7

118.4

571.9

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

3-year price chart

`423.

400

350

Key financials (Consolidated)

300

Y/E March (` cr)

FY2014

FY2015

FY2016E

FY2017E

250

200

Net sales

688

784

861

967

150

% chg

13.9

14.0

9.7

12.3

100

Net profit

% chg

8.1

61.5

21.9

17.7

EBITDA margin (%)

9.5

10.4

10.9

EPS (`)

12.2

19.7

24.0

28.2

Source: Company, Angel Research

P/E (x)

28.3

17.5

14.4

12.2

P/BV (x)

2.7

2.4

2.1

1.8

RoE (%)

9.7

13.8

14.6

14.9

RoCE (%)

14.7

19.3

20.6

21.1

Amarjeet S Maurya

EV/Sales (x)

1.2

1.0

0.9

0.8

022-39357800 Ext: 6831

EV/EBITDA (x)

12.4

9.6

8.1

6.9

[email protected]

Source: Company, Angel Research, Note: CMP as of November 5, 2015

Please refer to important disclosures at the end of this report

Garware Wall Ropes | 2QFY2016 Result Update

Exhibit 1: Quarterly performance

Y/E March (` cr)

2QFY16

2QFY15

% yoy

1QFY16

% qoq

FY2015

FY2014

% chg

Net Sales

214

203

5.7

239

(10.5)

784

688

14.0

Consumption of RM

(12.1)

118

(29.8)

363

316

14.9

(% of Sales)

38.6

46.4

49.2

46.3

46.0

Staff Costs

(16.7)

(4.5)

31.9

(% of Sales)

10.2

13.0

9.6

10.7

9.3

Operating Expense

61.08

36.2

14.6

255

242

5.4

(% of Sales)

38.8

30.1

30.3

32.5

35.2

Total Expenditure

188

182

3.5

213

(12.0)

703

622

12.9

Operating Profit

24.7

2.1

24.5

OPM (%)

12.4

10.5

10.8

10.4

9.5

Interest

(27.4)

18.4

Depreciation

15.3

1.8

(13.9)

Other Income

0.339

0.450

(24.8)

0.716

(52.7)

94.3

PBT

34.6

(1.1)

54.8

(% of Sales)

10.0

7.9

9.1

7.7

5.7

Provision for Taxation

19.8

(13.8)

40.1

(% of PBT)

28.3

31.8

32.5

28.9

31.9

Minority Interest

Reported PAT

15.4

41.5

5.1

61.7

PATM

7.2

5.4

6.1

5.5

3.9

Source: Company, Angel Research

November 5, 2015

Garware Wall Ropes | 2QFY2016 Result Update

Top-line grows 6% yoy

The company’s top-line grew by a subdued ~6% yoy to ~`214cr (which is below

our estimates of ~`232cr), mainly due to lower growth in the Synthetic Cordage

segment (of ~3% to `180cr). However, the Fibre & Industrial Products segment

reported a strong growth of ~14% to `39cr.

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

300

250

200

150

100

(5)

(10)

(15)

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 188bp yoy

to 12.4%, 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 783bp yoy) and employee expenses.

Exhibit 3: Operating profit and margin trend

Operating Profit

Margin (%)

Source: Company, Angel Research

November 5, 2015

Garware Wall Ropes | 2QFY2016 Result Update

Investment rationale

Higher exports to accelerate top-line growth

We expect GWRL to report a healthy top-line CAGR of ~11% 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. 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. GWRL is now planning to strengthen its presence

in Africa through agricultural offerings. Thus, we expect the company to report

export sales CAGR of ~17% 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

increased 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.

November 5, 2015

Garware Wall Ropes | 2QFY2016 Result Update

Outlook and valuation

Going ahead, we expect GWRL to report a top-line CAGR of ~11% over FY2015-

17E to ~`967cr owing to strong domestic as well as export sales. On the bottom-

line front, we expect the company to report ~20% 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 `423.

Exhibit 5: One-year forward P/E band

400

3.0 X

6.0 X

9.0 X

12.0 X

350

300

250

200

150

100

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.

November 5, 2015

Garware Wall Ropes | 2QFY2016 Result Update

Profit & Loss Statement

Y/E March (` cr)

FY12

FY13

FY14

FY15

FY16E

FY17E

Total operating income

580

604

688

784

861

967

% chg

15.9

4.0

13.9

14.0

9.7

12.3

Total Expenditure

517

541

622

703

767

861

Cost of Materials

250

263

316

363

396

450

Personnel Expenses

108

Others Expenses

187

197

242

255

277

304

EBITDA

105

% chg

15.7

(1.1)

3.9

24.6

14.8

12.9

(% of Net Sales)

11.0

10.4

9.5

10.4

10.9

Depreciation& Amortisation

EBIT

% chg

18.6

(2.2)

9.4

35.5

16.6

14.1

(% of Net Sales)

8.2

7.7

7.4

8.8

9.3

9.5

Interest & other Charges

Other Income

(% of PBT)

3.5

4.1

2.6

3.0

2.7

2.3

Share in profit of Associates

Recurring PBT

% chg

2.8

4.2

17.0

54.9

23.9

17.7

Prior Period & Extraord. Exps./(Inc.)

PBT (reported)

Tax

(% of PBT)

25.1

26.1

31.8

28.9

30.0

PAT (reported)

Add: Share of earnings of asso.

Less: Minority interest (MI)

PAT after MI (reported)

ADJ. PAT

% chg

(1.7)

2.7

8.1

61.5

21.9

17.7

(% of Net Sales)

4.1

3.9

5.5

6.1

6.4

Basic EPS (`)

11.0

11.3

12.2

19.7

24.0

28.2

Fully Diluted EPS (`)

11.0

11.3

12.2

19.7

24.0

28.2

% chg

(1.7)

2.7

8.1

61.5

21.9

17.7

November 5, 2015

Garware Wall Ropes | 2QFY2016 Result Update

Balance Sheet

Y/E March (` cr)

FY12

FY13

FY14

FY15

FY16E

FY17E

SOURCES OF FUNDS

Equity Share Capital

Reserves& Surplus

227

243

254

291

338

393

Shareholders Funds

250

267

276

313

360

415

Minority Interest

Total Loans

140

110

Deferred Tax Liability

Total Liabilities

409

397

368

379

411

456

APPLICATION OF FUNDS

Gross Block

336

339

351

371

391

411

Less: Acc. Depreciation

170

185

198

211

224

237

Net Block

167

154

153

160

167

174

Capital Work-in-Progress

Investments

Current Assets

394

399

430

519

591

680

Inventories

123

122

127

137

151

167

Sundry Debtors

150

140

143

182

198

220

Cash

Loans & Advances

104

138

175

213

242

Other Assets

Current liabilities

164

167

232

318

365

415

Net Current Assets

230

232

198

201

226

265

Deferred Tax Asset

Total Assets

409

397

368

379

411

456

November 5, 2015

Garware Wall Ropes | 2QFY2016 Result Update

Cashflow Statement

Y/E March (` cr)

FY12

FY13

FY14

FY15

FY16E

FY17E

Profit before tax

Depreciation

Change in Working Capital

(6)

(21)

(1)

(21)

(18)

Interest / Dividend (Net)

Direct taxes paid

(6)

(8)

(5)

(17)

(22)

(26)

Others

(0)

Cash Flow from Operations

(Inc.)/ Dec. in Fixed Assets

(30)

(20)

(Inc.)/ Dec. in Investments

(0)

Cash Flow from Investing

(29)

(20)

Issue of Equity

Inc./(Dec.) in loans

(17)

(51)

(27)

(15)

(10)

Dividend Paid (Incl. Tax)

(7)

(6)

Interest / Dividend (Net)

(16)

(15)

(16)

(10)

(7)

(6)

Cash Flow from Financing

(1)

(39)

(74)

(43)

(28)

(21)

Inc./(Dec.) in Cash

(3)

(11)

Opening Cash balances

Closing Cash balances

November 5, 2015

Garware Wall Ropes | 2QFY2016 Result Update

Key Ratios

Y/E March

FY12

FY13

FY14

FY15

FY16E FY17E

Valuation Ratio (x)

P/E (on FDEPS)

31.4

30.6

28.3

17.5

14.4

12.2

P/CEPS

18.9

18.4

13.6

11.5

10.0

P/BV

3.0

2.8

2.7

2.4

2.1

1.8

Dividend yield (%)

0.8

EV/Sales

1.5

1.4

1.2

1.0

0.9

0.8

EV/EBITDA

13.6

13.3

12.4

9.6

8.1

6.9

EV / Total Assets

1.5

1.3

1.1

1.0

0.8

Per Share Data (`)

EPS (Basic & fully diluted)

11.0

11.3

12.2

19.7

24.0

28.2

EPS (Adjusted)

11.0

11.3

12.2

19.7

24.0

28.2

Cash EPS

18.3

18.7

18.8

25.3

29.9

34.5

DPS

2.7

Book Value

114.5

122.1

126.1

143.0

164.3

189.8

Returns (%)

ROCE

12.2

12.3

14.7

19.3

20.6

21.1

Angel ROIC (Pre-tax)

13.3

13.4

15.5

20.4

22.0

23.5

ROE

9.6

9.2

9.7

13.8

14.6

14.9

Turnover ratios (x)

Asset Turnover (Gross Block)

1.7

1.8

2.0

2.1

2.2

2.4

Inventory / Sales (days)

Receivables (days)

Payables (days)

WC cycle (ex-cash) (days)

138

124

109

113

110

106

November 5, 2015

Garware Wall Ropes | 2QFY2016 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

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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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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

2. Angel and its Group companies ownership of the stock

3. Angel and its Group companies' Directors ownership of the stock

4. Broking relationship with company covered

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%)

November 5, 2015