3QFY2017 Result Update | Textile

February 16, 2017

Garware Wall Ropes

BUY

CMP

`614

Performance Highlights

Target Price

`710

Quarterly Data

Investment Period

12 months

(`cr)

3QFY17

3QFY16

% yoy

2QFY17

% qoq

Revenue

195

186

4.9

232

(16.2)

Stock Info

EBITDA

20.2

(26.1)

Sector

Textiles

Margin (%)

15.2

13.2

193bp

17.2

(202bp)

Market Cap (`

cr)

1,432

Adj. PAT

22.4

(31.3)

Net Debt (` cr)

-62

Source: Company, Angel Research

Beta

1.0

For 3QFY2017 Garware Wall Ropes (GWRL) posted results which outperformed

52 Week High / Low

650/270

our estimates on the bottom-line front, while the top-line was in-line with our

Avg. Daily Volume

3,310

estimates. On the operating front, the company reported margin improvement,

Face Value (`)

primarily on account of lower other expenditures. Further, on the bottom-line front,

the company reported strong growth on account of a favorable operating

BSE Sensex

28,156

performance.

Nifty

8,725

Reuters Code

GRWL.BO

Top-line grew by ~5%: The company’s top-line grew by ~5% yoy to `195cr

mainly due to growth of 6% yoy in the Synthetic cordage segment to `165cr.

Bloomberg Code

GWWR@IN

However, Fibre & Industrial products segment reported de-growth of ~4% yoy to

`33cr. Further, the company has seen strong growth in fisheries and aquaculture

Shareholding Pattern (%)

business during the quarter.

Promoters

50.6

Profitability boosted by strong operating performance: On the operating front, the

MF / Banks / Indian Fls

6.1

company reported margin improvement (up 193bp yoy to 15.2%), primarily on

FII / NRIs / OCBs

4.1

account of decline in other expenditures during the quarter. The reported net profit

Indian Public / Others

39.2

grew by ~22% yoy to `18cr on account of the strong operating performance.

Outlook and valuation: Going ahead, we expect GWRL to report a healthy

Abs. (%)

3m 1yr

3yr

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

Sensex

7.0

19.5

37.6

agriculture and fisheries segments in the country. Further, we expect the company

GWRL

9.8

89.9

998.5

to continue reporting strong numbers on the back of higher demand for

aquaculture and sports products globally coupled with with the company tapping

3-year price chart

new geographies. Hence, we recommend a Buy rating on the stock with a target

700

price of `710.

600

Key financials (Consolidated)

500

Y/E March (` cr)

FY2015

FY2016

FY2017E

FY2018E

400

Net sales

784

828

863

928

300

% chg

14.0

5.5

4.3

7.6

200

100

Net profit

% chg

61.5

43.7

28.7

8.4

EBITDA margin (%)

10.4

12.7

15.1

15.2

EPS (`)

19.7

28.3

36.4

39.4

P/E (x)

31.2

21.7

16.9

15.6

Source: Company, Angel Research

P/BV (x)

4.3

3.6

3.0

2.6

RoE (%)

13.8

16.8

18.0

16.5

RoCE (%)

19.3

23.2

24.9

23.3

Amarjeet S Maurya

EV/Sales (x)

1.7

1.5

1.4

1.3

022-39357800 Ext: 6831

EV/EBITDA (x)

16.8

12.2

9.5

8.6

[email protected]

Source: Company, Angel Research, Note: CMP as of February 15, 2017

Please refer to important disclosures at the end of this report

Garware Wall Ropes | 3QFY2017 Result Update

Exhibit 1: Quarterly performance

Y/E March (` cr)

3QFY17

3QFY16

% yoy

2QFY17

% qoq

9MFY17

9MFY16

% chg

Net Sales

195

186

4.9

232

(16.2)

652

639

2.0

Consumption of RM

8.3

(10.3)

250

268

(6.6)

(% of Sales)

39.4

38.2

36.8

38.3

41.9

Staff Costs

11.6

(1.9)

15.1

(% of Sales)

13.2

12.4

11.3

12.0

10.6

Operating Expense

(6.6)

(22.3)

224

227

(1.2)

(% of Sales)

32.2

36.2

34.7

34.3

35.4

Total Expenditure

165

161

2.6

193

(14.2)

552

562

(1.8)

Operating Profit

20.2

(26.1)

100

30.4

OPM (%)

15.2

13.2

17.2

15.4

12.0

Interest

(48.6)

(11.7)

(32.8)

Depreciation

8.9

0.9

9.0

Other Income

1.4

1.2

18.3

3.3

(57.5)

219.9

PBT

31.8

(31.9)

47.3

(% of Sales)

13.3

10.6

16.4

14.2

9.8

Provision for Taxation

58.6

(33.3)

58.6

(% of PBT)

31.2

25.9

31.8

31.2

29.0

Minority Interest

Reported PAT

22.4

(31.3)

42.7

PATM (%)

9.2

7.9

11.2

9.8

7.0

Source: Company, Angel Research

February 16, 2017

Garware Wall Ropes | 3QFY2017 Result Update

Top-line grew by ~5%

The company’s top-line grew by ~5% yoy to `195cr mainly due to growth of 6%

yoy in the Synthetic cordage segment to `165cr. However, Fibre & Industrial

products segment reported de-growth of ~4% yoy to `33cr. Further, the company

has seen strong growth in fisheries and aquaculture business during the quarter.

Exhibit 2: Top-line growth trend

300

250

200

150

100

(5)

(10)

(15)

(20)

Net sales

QoQ growth (%)

Source: Company, Angel Research

Lower other expenditure drives operating margin expansion

On the operating front, the company reported margin improvement (up 193bp yoy

to 15.2%), primarily on account of decline in other expenditures, during the quarter.

Exhibit 3: Operating profit and margin trend

Operating Profit

Margin (%)

Source: Company, Angel Research

February 16, 2017

Garware Wall Ropes | 3QFY2017 Result Update

Investment rationale

Higher exports to accelerate top-line growth

We expect GWRL to report a healthy top-line CAGR of ~6% 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 the 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 ~6% over FY2016-18E. The Management is targeting to

increase contribution of export business 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 the 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, nylon, etc.,

which are crude based raw materials, and (b) higher contribution from 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.

February 16, 2017

Garware Wall Ropes | 3QFY2017 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

the back of higher demand for aquaculture and sports products globally coupled

with the company tapping new geographies. Hence, we recommend a Buy rating

on the stock with a target price of `710.

Exhibit 5: One-year forward P/E band

6.0 X

8.0 X

10.0 X

12.0 X

14.0 X

700

600

500

400

300

200

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 its state-of-art facilities at

Wai and Pune (both in Maharashtra, India) and are marketed in more than

75 countries worldwide.

February 16, 2017

Garware Wall Ropes | 3QFY2017 Result Update

Profit & Loss Statement

Y/E March (` cr)

FY13

FY14

FY15

FY16

FY17E

FY18E

Total operating income

604

688

784

828

863

928

% chg

4.0

13.9

14.0

5.5

4.3

7.6

Total Expenditure

541

622

703

722

733

787

Cost of Materials

263

316

363

343

336

367

Personnel Expenses

104

114

Others Expenses

197

242

255

286

293

306

EBITDA

105

130

141

% chg

(1.1)

3.9

24.6

29.6

23.6

8.3

(% of Net Sales)

10.4

9.5

10.4

12.7

15.1

15.2

Depreciation& Amortisation

EBIT

115

125

% chg

(2.2)

9.4

35.5

33.9

24.6

8.7

(% of Net Sales)

7.7

7.4

8.8

11.2

13.3

13.5

Interest & other Charges

Other Income

(% of PBT)

4.1

2.6

3.0

4.0

6.8

4.7

Share in profit of Associates

Recurring PBT

117

127

% chg

4.2

17.0

54.9

43.9

34.5

8.4

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

PBT (reported)

117

127

Tax

(% of PBT)

26.1

31.8

28.9

32.0

PAT (reported)

Add: Share of earnings of asso.

Less: Minority interest (MI)

PAT after MI (reported)

ADJ. PAT

% chg

2.7

8.1

61.5

43.7

28.7

8.4

(% of Net Sales)

4.1

3.9

5.5

7.5

9.2

9.3

Basic EPS (`)

11.3

12.2

19.7

28.3

36.4

39.4

Fully Diluted EPS (`)

11.3

12.2

19.7

28.3

36.4

39.4

% chg

2.7

8.1

61.5

43.7

28.7

8.4

February 16, 2017

Garware Wall Ropes | 3QFY2017 Result Update

Balance Sheet

Y/E March (` cr)

FY13

FY14

FY15

FY16

FY17E FY18E

SOURCES OF FUNDS

Equity Share Capital

Reserves& Surplus

243

254

291

347

421

501

Shareholders Funds

267

276

313

369

443

523

Minority Interest

Total Loans

110

Deferred Tax Liability

Total Liabilities

397

368

379

420

484

559

APPLICATION OF FUNDS

Gross Block

339

351

371

391

411

431

Less: Acc. Depreciation

185

198

211

224

239

255

Net Block

154

153

160

167

172

176

Capital Work-in-Progress

Investments

Current Assets

399

430

519

615

694

773

Inventories

122

127

137

127

137

148

Sundry Debtors

140

143

182

199

213

229

Cash

113

132

Loans & Advances

104

138

175

191

205

232

Other Assets

Current liabilities

167

232

318

380

399

407

Net Current Assets

232

198

201

235

294

366

Deferred Tax Asset

Total Assets

397

368

379

420

484

559

February 16, 2017

Garware Wall Ropes | 3QFY2017 Result Update

Cashflow Statement

Y/E March (` cr)

FY13

FY14

FY15

FY16

FY17E

FY18E

Profit before tax

117

127

Depreciation

Change in Working Capital

(21)

(1)

(29)

(53)

Interest / Dividend (Net)

Direct taxes paid

(8)

(5)

(17)

(25)

(37)

(41)

Others

(0)

Cash Flow from Operations

121

(Inc.)/ Dec. in Fixed Assets

(20)

(Inc.)/ Dec. in Investments

(0)

Cash Flow from Investing

(20)

Issue of Equity

Inc./(Dec.) in loans

(17)

(51)

(27)

(15)

(10)

(5)

Dividend Paid (Incl. Tax)

(7)

(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)

Opening Cash balances

113

Closing Cash balances

113

132

February 16, 2017

Garware Wall Ropes | 3QFY2017 Result Update

Key Ratios

Y/E March

FY12

FY13

FY14

FY15

FY16E FY17E

Valuation Ratio (x)

P/E (on FDEPS)

56.0

54.5

50.4

31.2

21.7

16.9

P/CEPS

33.6

32.8

32.7

24.2

17.9

14.2

P/BV

5.4

5.0

4.9

4.3

3.6

3.0

Dividend yield (%)

0.4

EV/Sales

2.5

2.4

2.0

1.7

1.5

1.4

EV/EBITDA

22.8

22.7

21.4

16.8

12.2

9.5

EV / Total Assets

2.5

2.3

2.0

1.6

1.4

Per Share Data (`)

EPS (Basic & fully diluted)

11.0

11.3

12.2

19.7

28.3

36.4

EPS (Adjusted)

11.0

11.3

12.2

19.7

28.3

36.4

Cash EPS

18.3

18.7

18.8

25.3

34.3

43.4

DPS

2.7

Book Value

114.5

122.1

126.1

143.0

168.6

202.3

Returns (%)

ROCE

12.2

12.3

14.7

19.3

23.2

24.9

Angel ROIC (Pre-tax)

13.3

13.4

15.5

20.4

30.1

33.8

ROE

9.6

9.2

9.7

13.8

16.8

18.0

Turnover ratios (x)

Asset Turnover (Gross Block)

1.7

1.8

2.0

2.1

Inventory / Sales (days)

Receivables (days)

Payables (days)

WC cycle (ex-cash) (days)

138

124

109

113

107

113

February 16, 2017

Garware Wall Ropes | 3QFY2017 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

2. Ownership of 1% or more of the stock by research analyst or Angel or associates or relatives

3. Served as an officer, director or employee of the company covered under Research

4. Broking relationship with company covered under Research

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 16, 2017