Garware Wall Ropes (GWRL)s 2QFY2016 results outperformed our estimates on
the bottom-line front. The companys top-line for the quarter grew by a subdued
6% yoy. On the operating front, the company reported margin improvement,
primarily on account of lower raw material costs. Further, on the bottom-line
front, the company reported strong growth on account of a favorable operating
performance and lower interest costs.
Subdued top-line growth: The company’s top-line grew by ~6% yoy to ~Rs214cr
(which is below our estimates of ~ Rs232cr), mainly due to lower growth in the
Synthetic Cordage segment (of ~3% to Rs180cr). The Fibre & Industrial Products
segment reported a strong growth of ~14% to Rs39cr.
PAT grew ~42% yoy: The reported net profit grew by ~42% yoy to ~Rs15.4cr
(our estimate was of ~Rs12.7cr) on account of falling material prices and lower
interest costs with the company having repaid a significant amount of its debt in
FY2015.
Outlook and valuation: Going ahead, we expect GWRL to report a top-line CAGR
of ~11% over FY2015-17E to ~Rs967cr 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
Rs423.
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