Actual results turned out to be along these lines. Good work by the company.
Garware Wall Ropes – Strong profitability and debt reduction, looks attractive
• For Q4, Net Sales grew by 3.4% to Rs 197cr driven by Industrial products which grew +18% yoy. However, Core biz of Synthetic Cordage has shown degrowth of -4% yoy during the qtr. Ebitda grew healthy +32% yoy to Rs 23cr with margin expanded 250bps yoy (180bps qoq) to 11.5% driven by RM Cost (90bps yoy improvement), Employee cost (80bps yoy improvement) and Other expense (60bps improvement). Company reported PAT growth of +66% yoy to Rs 12.3cr. Q4 EPS at Rs 5.6/sh.
• For FY15, Consol Sales, EBitda and PAT grew +14%, +24% and +61% yoy to Rs 784cr, Rs 81cr and s 43cr respectively. FY15 EPS at Rs 19.71/sh
• Board recommended dividend of Rs 3/sh (vs Rs 2.7/sh yoy), yield works out at 1.73%
• Balance sheet further strengthen by reduction in Gross debt. Consol debt came down to Rs 32cr vs Rs 57cr yoy. Networth stood at Rs 311cr vs Rs 276cr yoy. Cash balance at Rs 11cr vs Rs 9cr. D/E of 0.1x vs 0.21x yoy.
• Commenting on results - “The Company is continuing its strategy of profitable growth based on three pillars: Innovation, Geographic expansion and Operational excellence. We are pleased with the results which have shown sustained profit and business growth throughout the year. The Company has now an ever increasing differentiated product portfolio that straddles various applications which would aid in boosting the growth in the coming year”
Today it has created a new 52 week high. Looks like its getting re-rated now.
AGM on 2nd Sep & was addr by Mr. Vayu Garware CMD.Highlights by Capital Mkt
Newer Geographies, more and innovative products, more sale of high value added products, higher exports etc were the main reasons for around 14% growth in sales and about 61% growth in PAT for FY’15.
Based on user industry, broadly Company’s business is divided into various segments such as Fishing, Aquaculture, Agriculture, Geosynthetics, Sports, Coates fabrics, Ropes etc. Fishing is more of traditional business which is about 20% of total turnover, Aquaculture constitute about 15-20%, Agriculture about 15-20%, Ropes about 13%, Sports about 10%, Geosynthetics about 7% and rest would be from various other segments.
Company launched several solutions in Acquaculture industry, which was well received by the markets and particularly in exports. Management expects the segment to continue to do well in FY’16 as well.Exports now account for about 49% of total sales and grew by about 13% YoY in FY’15. Management expects export to hover around 50-55% of total turnover. Company exports to more than 75 countries. North America, Europe and Australia are the major markets.There was a forex gain of around Rs 1.35 crore for FY’15 as compared to forex gain of around Rs 6.75 crore in FY’14
Geosynthetis is probably the only segment which did not pick up well, as compared to other sectors, given slower reforms and not much infrastructure activity going around.The company has sufficient capacities with latest technology to meet the increasing demand in Pune, Wai and in Silvassa.On defense side, the company is present in a very small way in the form of weather proof enclosures.The value added businesses like Aquaculture, Agriculture, Sports etc are growing very well for the company, while the traditional businesses of fishing is more or less steady.Sports, which is around 10% of net sales is growing strongly. Lot of export market opportunities await in this segment.
The prices of major raw materials, both PP and HDPE were lower on YoY basis. Company either imports them or procures from RIL or other local players. While generally the lower raw material costs is a pass through, the company is able to retain some benefits in value added products…Margins in the new business remain high. Management is confident of sustaining the margins of around 11% as reported in Q1 FY’16.
Overall, the company aims to clock turnover of about Rs 950 crore by FY’16 with Agriculture, Aquaculture and Sports being main drivers of growth with higher operating margins.
Few questions from AR
I am tracking the company for a while now… A consistent performer in a niche area of product with huge possibility in the expansion of Synthetic Cordage market.
However, while going through the Annual report in detail, I came across few issues, which unless clearly understood, is difficult to build a conviction in spite of perceived quality of management being good.
Enclosed is an excel file (with 4 years’ numbers) which I prepared after finding few numbers which need better clarity… Here are crux of my observations…
There is a Revenue booking of Rs. 12 Cr. to 15 Cr. (appx) each year during last four years under “Efforts made for construction contracts” ---- Unable to understand what it actually means?
Garware change accounting figures of previous years on subsequent years in many instances…… Some instances are mentioned in the worksheet. What may be the reason for such frequent changes?
Other Provisions / Other Payables figure are increasing at much higher rate than sales or profit…… Check excel…. Any specific reason for the change? Like, some change in business practises etc? If so, need to understand.
Forex exposure Liability has increased substantially over the years (check excel) …. We need to understand the nature and reason for this. Garware blended (domestic + exports) receivable days are less than 90 days and net forex exposure is about Rs. 268 cr. It is to be noted that, Rupee also didn’t show much volatility during the accounting period of 2014 – 2015. We are unclear about the reason for having such large and increasing forex hedge liability.How will Garware liquidate the liability. If the receivable days are less than 90 then there should be constant circulation of forex exposure … How can it increase so much? Also, they didn’t have any large Capital Goods import pending.
Non-elucidated (No narration given in AR) Short Term loan and Advances has gone up at 38% CAGR between 2012 – 2015 ---- What may be the reason?
I tried to seek clarification from management through few mail / phone but unable to elicit any response.
GARWARE 040915.xlsx (13.2 KB)
Let me answer one by one to queries posted by Aveek
Efforts made for Construction Costs- This figure doesnt appear in Revenue directly, but under Debtors. In construction contracts there is a regular practice of billing based on milestones. For eg. Garware is constructing something, and the contract specifies that 1st billing will happen only on 40% work completion, 2nd billing on another 25% completion annd final 35% billing at final completion.
Now suppose in FY 14, co has completed only 15% of work, so it will charge costs of this 15% in expenses…but billing cannot be done uptill 1st 40% level, then in FY 15, it further completes another 15% of work…but since milestone is not triggered it still cannot bill. But imagine what is happening to PL of the company. We have booked 30% in expenses and there is no Income yet…this will create mismatch in income vs expenses…Now Accounting Standard allows you to book 30% income as per Percent of Completion Method…So you end up solving the income vs expense mismatch…but this is just PL part…What about the second part of the enty…You cannot create a debtor for this 30% percent of completion you have books (because milestone hasnt been triggered), so you create a balance sheet receivable called Unbilled Revenue (Revenue which has technically accrrued to you towards percent of work completed, but billing of which hasnt yet been done due to contractual obligations)
You will observe such Unbilled Revenue in Balance Sheet of all companies which do turnkey projects (say Punj Lloyd, Larsen Toubro, Siemens, NBCC etc)
Regarding regrouping /reclassification of expenses, you should observe Note 47 in Garware’s Annual Report…This is a regular practice and almost 99% of Balance Sheets will have this standard issue in varying degrees. As long as overall Net profit doesnt change, we have to ignore this. This is a part and parcel of Accounting. You need to confirm if Net profit changed in any year due to this. This has happened more in last 3-4 years due to continous changes made in Companies Act, Accounting Standards and Schedule VI Disclousres of Balance Sheet. In my view this is nothing to crack head upon.
Regarding Provisions, yes you are right…the figure under Other Provisions is huge. We can request management for a breakup of this. 100 Crores in FY 15. I dont smell anything fishy here…but yes, I would defintely want a breakup of this 100 crores. Hopefully we can highlight this in an AGM or concall and request management to make the disclosure proper.
Regarding you question on CIF Value of Imports. This is a major issue with all accountants…How do u define CIF Value of imports…For a product which is imported for 100 Rs…Customs Dept does a valuation of 102 Rs a lot of times due to Custom Valuation Rules, party does billing of 100 Rs., freight and inurance can be a part of contract, or can be paid by ourselves. Often a naive accoutant will end up ignoring frieght on a special contract, only to be later reminded by an auditor that this needs to be corrected. This is just an informational discolsure anyways and just gives you a ballpark figure on value of imports company has. Depending on a contract to contract basis, CIF value keeps changing and its quite normal to have a dispute of 10% or so in this category (10% because thats the normal freight and insurance cost). Often i myself argue with my auditor that Insurance and Fright should not be included in CIF value because i took both from a local party and not a foreign party and hence I dont have a forex exposure here
Regarding Hedged Liability, Im not sure if you are comparing the right things,
- Co does exports. Period
- Co also imports some stuff. Period
- It chooses to hedge partially. Can be observed from unhedged figure in financials
- Hedge Liability accrues only on Hedged amount. There could be MTM Gains/Loss on a hedge which is disclosed as a hedge liability and is totally unrealted to sales/expenses.
It calculated by you in excel sheet is something totally wrong. You can connect with me anytime and I will explain this to you
In the Short Term Loans an Advances which you mention has gone up 38% CAGR, it inlcudes advances to creditors and advances recoverable in cash or kind (agaisnt which they will receive services etc)
Also auditor has mentions in his report that they havent extended any loan or advance to any sister concern. So dont think you should worry too much here.
Ashwini… Thanks for the response… I really appreciate…
Let me go point by point…
Unbilled revenue — It’s fine… I missed that they also do turnkey projects.
Agreed and possible … However as an investor I would like to check the frequency, quantum and nature of changes. and also check how these are being done relative to other companies who are affected by same rules and regulations.
Provisions ---- Here you seem to agree to my view. But you assume that possibly it’s due to laxity on part of auditor of not insisting for detailed breakdown. I don’t know. I am just focusing on facts. Smelling something fishy or not is irrelevant — My first job an an investor is to be as much clear as possible about numbers and accounting standard of a company. I will use my opinion about the facts and figures in next stage i.e. when valuing the company.
I didn’t really have a question on CIF value … But on your point my opinion is, CIF value is a CIF value and it should have freight and Insurance in calculation. If not included then that’s a mistake and not a matter of opinion of accountant or auditor.
You entirely missed my point while answering the question. I didn’t calculate anything to derive anything, I just stated the figures from Annual report. The % of net exposure I calculated as a pointer to their increasing hedging strategy and it was not main question. Here look at the absolute figure of Rs. 63 Cr. …and look at the increase over previous year. Since it is a liability (payable) and since the total EBITDA is only Rs. 83 crs., I should be bothered it being a large amount. How are you sure that MTM loss will not translate to actual loss?
Just for comparison, Garware has Rs. 63 Cr. payable liability of this nature against export sales of Rs. 385 Cr. (Total sales Rs. 782 crs) … TCS has Rs. 20 Cr. similar liability against sales of Rs. 75000 crores; Infosys has Rs. 3 Crs liability against sales of Rs. 50000 Crs. Does it give any pattern? Doesn’t the figure look too big …?? If yes, isn’t it worthwhile to know the reason behind the anomaly? Also, these payable liability is increasing at a faster pace than sales — We, at the least should know what are are real reason and how these payables would be settled… Considering the size of the company, the amount is significant for me to understand.
And total forex exposure has a direct link to sales and can’t be otherwise except for fixed asset purchase. MTM or actual gain / loss in forex has no relation to it though.
So practically you didn’t answer the question at all.
- Here you have not at all checked my question before answering … I said,** “non-elucidated short term loans and advances”** … From total Short Term L&A I already deducted the figures mentioned by you (Rs. 105 Cr. - Rs. 14 Crs = Rs. 91 Crs). I have only taken the figures for which no details are given. And this “Non-elucidated” portion is going up steadily compared to the size of the company. From figure I can only say company provided Rs. 74 Cr in 2014 and Rs. 91 Cr in 2015 to someone about which I am yet to have any idea. Forming opinion about these again comes later.
And all these are to be looked w.r.t. the size of the company and size of its profit.
Anyway, thanks for making this thread move again… I totally lost track of the company in the interim
Aveek, on the hedging part, i think we can discuss offline and I will explain to you the intricacies of accounting.
On Loans as well as provisions, as shareholders we can ask management and invetor relations to give more detailed breakup in Financials of FY16.
Lets write together…I think they should listen.
However, I would again urge you on a single point… Dont miss out on opportunities because of small things. often these small caps are not perfect and only with time do they increase their level of disclosures. We have to take this into account in our valuation
A case study of Garware: http://geosynsummit.in/Presentation/Tiru-Kulkarni.pdf
Good interview by reticent Vayu Garware
A GOOD Read
Angel gave a target of 467
A dated but informative report
Any plans for expansion ?? There topline is not growing
Topline for a Company = Volume * Price per Unit
They are a commodity company, and their per unit price is a component of the underlying commodity- Crude. Now Crude itself has fallen from 140 Dollar to 40 dollar. So price/unit has has fallen down
Despite this if company is able to maintain Sales at same level, means they are growing volumes at phenomenal pace.
So Now that the crude has rebounded in this quarter… We can expect top line to increase and operating margin to go down?? Any info about the business from defense… Management has guided 100 crores revenue for next five years from next year onwards
@ashwinidamani Hi - Did you manage to check if there is any growth in volume last year? If yes - how much?
First Call Equity has released a report on the company dated 13 June 2016. Not really very helpful, just contains a summary of company’s P&L account and balance sheet and the random stuff they put in to fill pages.
FCE_GARWARE-WALL_ROPES_14Jun16.pdf (627.8 KB)
A dated but useful video on GWR & its Wharton educated owner Vayu Garware who is right age of 40s.