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Garware-Wall Ropes: Buy for an upside of 22% over a period of 9-12 months

CD Equisearch Pvt Ltd | 07 Dec, 2017  | Follow Author | Add to my Favourites 
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The global technical textile market is rapidly growing given significant applications and technological changes. While the developed countries constitute a large part of its demand, increasing industrialization in emerging economies and initiatives taken by the GOI in attracting investments in technical textiles are driving the growth of the overall market. According to FICCI, the largest and oldest apex business organization of India, the per capita consumption of technical textiles in India is 1.7/kg compared to 10-12/kg in developed countries, which shows large untapped potential of further market growth for technical textiles in India.

With presence in both developed and emerging markets, Garware has received accolades from Indian and international institutions for innovation and exports in sports, aquaculture and fishing nets. It is the leading sports net manufacturer in India and also the top exporter to USA. Its sports nets have high shock resistance; UV treated and better knot stability which is used in Wimbledon, FIFA and Olympics. Its marquee clientele includes Kerela State Electricity Board, Adani Ports and Special Economic Zone Ltd, Vengsarkar Cricket Academy, Indian defense sector and various other customers overseas. 

The company is known for its application centric products and has also forayed into the nation’s defense sector with specialized products.  The Government of India's recent defense procurement policy, which emphasizes indigenization, has opened new growth avenues for several of Garware’s products. It contributes to the nation's defense sector with specialized products like weather-proof enclosures to protect electronic equipment in extreme conditions, airborne platforms for military surveillance, inflated structures for radars, flexible helipads and tethered aerostat balloons. It has also developed strong association and co-operation with Indian R&D establishments such as Aerial Delivery Research Development Establishment (ADRDE), Defense Research and Development Organization (DRDO) and end customers to understand their needs and co-develop customized solutions.

Netting the benefits of innovation and cost effectiveness, Garware’s PAT has grown at a CAGR of 28.3% in five years ending FY17, despite its revenue booking recording a CAGR growth of only 8.4%. This has significantly improved its financial position and enhanced its return ratios over the years; ROCE and ROC have skyrocketed to 18.8% and 20.8% last fiscal from 9.5% and 9.2% respectively in FY12.

The stock currently trades at 18.7x FY18e EPS of Rs 49.16 and 15.6x FY19e EPS of Rs 58.98. Owing to the strong outlook of key end user industries, GOI’s promotion schemes - recently launched scheme of ‘Blue Revolution’ with capital outlay of Rs 3000 crs for the integrated development of the fisheries sector in the country aims to increase fish production and productivity to upto 8% p.a. and to produce 15 million tons of fish by 2020 - Garware is riding high on growth trajectory. Rising share of international sales over the years - 47.5% in FY17 from 43.4% in FY13 – has doubtlessly made it vulnerable to any uncertainty in global market conditions; exports failed to rise much in FY13 – growth of only 2.6% - due to slack demand for fishing nets in Europe and unfavorable economic conditions in USA.  Risk of sharp and unprecedented volatility in crude oil prices is a matter of concern and can pull down profitability. We recommend a ‘buy’ rating on the stock with a target price of Rs 1121 based on 19x FY19e EPS of Rs 58.98 (PEG ratio ~1 on FY19 earnings) over a period of 9-12 months.

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About CD Equisearch Pvt Ltd

CD Equisearch Pvt. Ltd. is one of the leading stock broking firms in the country with strong presence in the institutional and HNI broking segment. The company boasts of a strong Equity Research Division, and has offices in the several cities in the country including Mumbai, Kolkata, Delhi, Bangalore, Hyderabad and Chennai. The company serves a huge clientele of over 4,000 retail clients, High Net worth Individuals, Non Resident Indians, large Corporate Groups, and Financial Institutions. For more information, please visit


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Disclaimer: The author has taken due care and caution to compile and analyse the data. The opinions expressed above are only the views of the author, and not a recommendation to buy or sell. Neither the author nor accept any liability whatsoever arising from the use of any of the above contents.

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