Garware Wall Ropes (GWRL)’ 4QFY2016 results outperformed our estimates on
the bottom-line front. The company’s top-line for the quarter de-grew by
~4% 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 ~4% yoy to Rs188cr (below our estimate of Rs205cr). The revenue
underperformance was mainly due to lower growth of 1% yoy to Rs153cr in the
Synthetic cordage segment and de-growth of ~22% yoy to Rs40cr in the Fibre &
Industrial products segment.
Strong operating performance boosts profitability: On the operating front, the
company reported margin improvement (up by 356bp yoy to 15.1%), primarily
on account of lower raw material costs by 981bp yoy as a percentage of sales as
prices of its key raw materials, ie high density polyethylene, polyethylene etc
declined during the quarter. The reported net profit grew by ~41% yoy to Rs17.3cr
(outperforming our estimate of Rs12cr) 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 Rs460.

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