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Sunday, November 9, 2008

Garware-Wall Rope (GRWL) - Growth with Infrastructure

Garware-Wall Rope (GRWL) provides customized solutions to the Cordage and Infrastructure Industry both in India and worldwide.

Incorporated in 1976, Garware-Wall Ropes was promoted by Garware Filament Corporation and Wall Ind. Inc, US. In 1987, Wall Ind. divested its shareholding, which was taken up by the Garwares.

GRWL is now leading provider of applications based solutions for fishing, shipping, sports, and infrastructure projects. The products are manufactured to customer’s specification with an increasing share of branded products in all business segments.

The company with its diverse product portfolio has integrated manufacturing facilities and strong R&D, which continuously brings out new products making itself a one-stop shop for the customers. The company operates under two segments: - cordage division and geosynthetic division.

Cordage Business
In the Cordage business, the company is in the manufacturing of high end ropes and nets for mechanized and industrial fishing vessels of 100HP-15000HP, for industrial applications and fabricated products..

The fishing net market in India is estimated to be Rs 120 crore, while the international market is estimated to be $500 mn. Garware - Wall Ropes Ltd. caters to the requirements of 80 countries where fishing is a major industry and has earned recognition in the international market on the basis of its proven track record.

In India it has more than 80% market share in the mechanized fishing sector and 5% market share in he international market. Mechanized fishing is different from the traditional way of fishing in the sense that huge fishing nets are deployed in water through men and machines. The quality, weight, size are far better than the traditional fishing nets. GWRL’s name is considered a synonym for quality and service across every mechanized fishing base in the country. GWRL’s strong brand equity allows the company to counter competition, particularly from the unorganized sector and also fetch a 15-20% pricing premium.

Apart from fishing, it has growing presence in industries like sports, shipping and material handling.

In sports, the company’s products are used in almost all the cricket nets, tennis courts, ski protection nets, soccer nets and every game wherever nets are required.

Of the total Rs 284 crore sales of cordage division in 2006-07, the fishery segment constitutes nearly 53%, industrial segment (Shipping, Ports, Shipbuilding Yards, Stevedoring, Defense, Material Handling, Construction, Electricity Boards and various other Industrial Applications) constitutes nearly 35% and the balance sales comes from fabrication (speicalised products for fishery, sports and industrial applications) division. Nearly 58% of the total sales come from domestic market and the balance is from exports.

Promising Geosynthetic business
Geosynthetic means planar, polymeric, permeable/impermeable material which may be used in contact with the soil/rock and /any other geotechnical material in civil engineering applications. These products have application in Coastal protection, Railways, and roads. They provide increased safety and better productivity. With the user industry expected to post a robust growth, GWRL will be one of the direct beneficiaries. Currently this business contributes 16% of the total sales, which is expected to reach 25% in the next one year due to high growth in this division.

Applications are directly linked to the growth in various infrastructure areas In roads segment the company’s geosyntheic products are used for Reinforced soil walls, Asphalt Reinforcement, Sub reinforcement, Heavy Duty Pavements, slopes, embankment
Foundations etc.

In railway segment, the company’s geosyntheic products are laid under the layers of track bed. This product when laid keeps the strength of the track intact. Major advantage is that it improves bearing capacity of the tracks, reduces maintenance of ballast and the trains can operate without speed restrictions.

One of the geosynthetic product namely, rock fall boulder nets, are laid over the rocks on the roads to prevent the rock fall. These nets improve safety and eliminate traffic interruption.

The company provides various coastal protection systems, which eliminates soil erosion problem, improves coastal safety and reduces property losses.

With large investments made in infrastructure development, a growing market has been opened up for the company’s Geosynthetic segment.

The current order book for the geosynthetic division stands at Rs 110 crore which will get executed in the next one year. The Indian Railway’s research division has approved company’s products for its application in railway tracks. It is about to secure project worth Rs 50 crore on solid waste management in UP where Geosynthetic products will be used extensively.

The geosynthetic division sales for FY’06 stood at Rs 24 crore which doubled to Rs 56 crore in FY’07. With strong order book position and new orders in pipeline and tremendous growth in infrastructure sector, there is a strong visibility for this segment.

Slated to take up Turnkey projects
The company already provides wide variety of services and solutions along with the products. Now the company plans to provide turnkey solutions in the specific areas of water resource management and landfill engineering. In water resource management, the company provides with canal and reservoir lining to channelise the water. This reduces water logging, salination and ensures proper water distribution. Landfill engineering is a unique area where the company products are used to restrict the harmful water or waste of water. It ensures optimum air space utilization and eliminates ground water contamination.

Considering the importance of water conservation, there is an immense scope and opportunity in this segment. However since most of the action needs government initiative, it is difficult to predict the pace of growth in this segment. Also the company has nearly monopoly in this segment and has technical tie up with German company for landfill engineering products. The company has orders worth Rs 25 crore in this area.

Financials are consistent with growth in Indian industry
For the first half ended Sept 2007 Garware Wall Ropes (GWRL) reported a 26% increase in top line at Rs 97.69 crore. Operating profit margins improved by 140 basis points at 12.6% resulting in the operating profit going up by 41% at Rs 14.17 crore. Interest cost for the quarter increased 86% to Rs 3.92 crore, while depreciation cost was up 19% to Rs 2.76 crore.

The higher interest cost was due to increase in working capital requirement of the company in the first half. Often in the first half of the year, the domestic market remains slower and the growth starts to picking up in the last two quarters. So, during this period, exports are more. In export market, the working capital requirement is higher and hence the interest cost. The PBT of the company was up 23% at Rs 7.63 crore while PAT was up 21% at Rs 6.99 crore. Due to higher contribution from domestic market, second half will witness lower working capital requirement and lower interest costs.

For the year ended Mar’07, the net sales and PAT stood at Rs 339.72 crore (up 28%) and Rs 22.23 crore (up 50%) respectively.

Valuation
For the year ended Mar’08, we expect the company to report net sales and PAT of Rs 435.98 crore and Rs 30.75 crore respectively. This gives an EPS of Rs 13. At current market price of Rs 178, the P/E stands at 13.7 times. As the infrastructure development picks up pace and the company’s products find increasing acceptance in varied applications, the company’s growth rate will accelerate.

Note: This is one of the stocks Rakesh Jhunjhunwala has invested in

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