Garware Wall Ropes (GWRL)’ 3QFY2016 results outperformed our estimates on the bottom-line front. The company’s top-line for the quarter grew by a subdued 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 front, the company reported strong growth on account of a favorable operating performance.
Subdued top-line growth: 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.
Strong operating performance boosts profitability: On the operating front, the company reported margin improvement (up by 346bp yoy to 13.2%), primarily on account of lower raw material costs (key raw material for GWRL are high density polyethylene, polyethylene etc) and other expenses. Raw material costs as 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 of the strong operating performance.
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.

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