Was researching and after making notes, thought of verifying in the forum. Confusion seems to prevail here too. I will put my notes for others to comment…
Reason for Consideration:
About the company: Founded in 1985 in Daman & Diu.
Apart from manufacturing and exporting Garbage bags and Carrier bags, the Company has also established its flagship unit for Spun Bond Nonwoven Fabrics, being the first of its kind in India. From <https://fiberwebindia.com/about-us/>
- Specialty textile fibers incl. Technical Fibers: "Nonwovens are broadly defined as sheet or web structures bonded together by entangling fiber or filamnets mechanically, thermally or chemically…)
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- Spunbond: 7500MTPA (5000 owned) @ 92% utilization
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- Meltblown: 3000MTPA @ 17% utilization (commissioned in Q4 FY18)
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- 70% revenue from exports
- Offsets oil price rise from $ appreciation
- Small company (286 Cr) operating in a niche space
- India non-woven is growing @ 8~10% and is expected to grow @ 12~15% in future
- Operates in high growth segments:
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Personal hygiene market is expected to grow @ 20% CAGR
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Geotextile @ 10.2% CAGR
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Growth of Automotive…
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Packaging industry growth @ 18% CAGR
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Global nonwoven @ 7.5% CAGR
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Asia Pacific accounts for the highest share of global demand
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Expected growth in India 18.3% (luxury goods….- Strange this comes under luxury goods!)
- No major domestic player in India
- International players like Berry Plastics, Kimberly-Clark, Ahlstrom, Dupont, Fitesa etc operate…
- Business model portfolio has turned healthy with
- Relatively lower share of Agri (40% Vs. 45% PY)
- PAT/EBITDA levels maintained with reduced topline
- Good financials:
- Zero debt company
- Good ratios:
|PE|3.9|
|ROE|22%|
|ROA|17%|
|ROCE|22%|
- There is a huge gap in demand and supply (esp. for flat bond products…)
Stated strategy:
1. Maximize gain: Sale of value added products vs. pursuing volume opportunities (traditional)
a. FDA approved usages
b. Contact products (Medical, hygiene…)
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c. Specialty fabrics (margins 50% higher…)
2. Cost fluctuation effects are mitigated through price indexing
a. This also effectively takes out the windfall, except inventory gains and forward contracts…
3. Invest in line, to increase plant capacity!
a. Flat Bond line… at about $10M
Concerns:
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Raw material is disproportionately high:
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% of Cost (2300/2466)*100=93.2685%
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% of revenue: (2300/2861)*100=80.3915%
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Raw material price is dependent upon Crude (Polypropylene resin)
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Dip in Q2 FY19 sales
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While maintaining EBITA & PAT with relatively less change! (+ve)
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Underperforms sector in Revenue growth, while at par on earnings growth!
Silver lining: Earnings growth faster than revenue growth! -
Unlikely to match surreal past growth, on a small base, of 65.8% vs. 17.3% of market and last year growth @ 25.1% and even that is unlikely to sustain!
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Lowly paid Senile Management, with average age of 59.5, with short average tenure (1 year) at top management and !
- But board has a few highly paid ones! - mismatch of governance!
- Steadily reducing margins on legacy business:
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- $350/t Vs. $800/t in 2017 for lawn garden market (single beam leased line products)
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- Reduced order sizes, though @ higher margin affects overall profitability!
- Longer product development & approval cycles affect the new strategy…
- Poor results were masked by strength of $, due to export dominance
- Products increase
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- Packing & forwarding costs
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- freight costs
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- Litigation costs
- Reducing promoter stake… currently @ 45.51% from 63.77% in Jan 2017
- A funding agency (New Horizon Fund) has withdrawn from investing on Flat Bond project - is it because of lack of confidence on the company/management or the project?
- Company rarely announces dividends???
- Costs have come down disproportionately along with reduction in revenue! Is there something cooking?