Garware Wall Ropes (GWRL)’ 1QFY2017 results outperformed our estimates on
the bottom-line front while the top-line disappointed as it de-grew by ~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.
Volumes grew but price cut dragged the overall top-line: The company’s top-line
de-grew by ~6% yoy to Rs225cr (below our estimate of Rs256cr).The revenue
underperformance was mainly due to de-growth of 8% yoy in the Synthetic
cordage segment to Rs185cr and flat growth of ~1% yoy in the Fibre & Industrial
products segment to Rs49cr.
Strong operating performance boosts profitability: On the operating front, the
company reported margin improvement (up by 288bp yoy to 13.7%), primarily
on account of decline in raw material costs as a percentage of sales by 875bp yoy
as prices of its key raw materials i.e. high density polyethylene, polyethylene etc
declined during the quarter. The reported net profit grew by ~35% yoy to Rs20cr
(outperforming our estimate of Rs15cr) on account of the strong operating
Outlook and valuation: Going ahead, we expect GWRL to report a healthy topline
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 a Buy rating on the stock with a target price of Rs524.

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