Garware Technical Fibres (Earlier: Garware Wallropes)

Stock Opportunities
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Article on long term collaboration between Garware and Mowi Canda. As per google search, Mowi Canada West is a leading Salmon Aquaculture Company in British Columbia. Mowi seems to be a leading global company in aqua culture. The group has a share of 25 to 30% of the global salmon and trout market. Wikipedia

Summary of article:

  • This relationship started 10 years ago (may be approx. 2010), when Mowi canada west was looking for a better net offering better durability, better protection against predators, could withstand regular cleanings, and would last much longer. Garware’s HDPE net “Sapphire” satisfied such conditions.
  • After testing they could launch nets in Norwegian market in 2015/16, after making adjustment to NS9415 standard. It takes pretty good amount of time (5-6 years) in testing and quality assurance.
  • The upfront costs of net are more expensive, but the quality and durability are worth it.
  • Province’s marine institute recently visited Garware for quality control and checks and confirms Garware’s high standard and quality control.

The article shows the approach of Garware to enter and create a niche for themselves. They customize the product highly for a few key players, which creates goodwill with customers and may be in future, other customers would want to have these products due to superior performance.

As per established rule of thumb, superior product does not create a lasting moat (longevity of the moat is less) because of competition catching up and providing similar products at cheaper rate. I am unable to gauge the competitive pressure for this company. If the competition is sleeping, thinking whatever Garware is doing is not scalable (read creating niche product for companies), Garware might have pretty good opportunity.

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Help from the dear fellow members keeping a close eye on this company - while overall this looks to be a great bet (growing ROCEs, FCFs, Brand recognition globally, good long term promoter track record in innovation and sticking to the core business, etc.) , I see some cyclicality in the sales will some lull periods in sales growth - does this pose some sort of concern (this could be possibly be attributed to the nature of the products like fishing nets, sporting nets lasting for a certain period before they are bought again by the customers) -

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Also, do we know the overall size of the industry and share of GTF at present (growth potential that is).

Sorry, some of these things might have already been covered in the posts but have just started tracking this company.

Appreciate your inputs, time and help in advance.

Regards,
Mohit

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I read the whole thread. It’s really an insightful discussion. I understand that Garware is building a Moat related to their product by creating greater quality products. I have small doubt regarding this. Quality product can be made by some other company as well. Still no big competitor present. What is the entry barrier or competitive advantage for this company. Knowledgeable VP members can surely address this please.
Disc. Thinking to invest in this valuation so longterm Sustainability checking being done.

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Yes. Garware has a great moat and monopoly. There is no doubt about it.
My concern is the below average growth in the business.
Means it’s like Gillette India. All of us know Gillette in absolute monopoly but it’s already a BIG FISH in Big pond. So double digit growth is doubtful.
Same way I feel about Garware.
Yes. It’s already a BIG FISH. But I doubt about its double digit growth in sales in future.

My personal opinion.

Other boarders view are welcome.

Regards,
Vikas

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Technical textiles has huge potential to use in a wide variety of applications / industries. Many of these applications are still in concept and in R&D labs. The Total addressable market is huge but the current size of the market is small and is not worth for a big conglomerate to spend attention. So, at present, competition is only expected to come from small agile players.

GTFL is an early mover in this space and after the joining of Vayu Garware they’ve taken it to the next level. They acquired the unique capability to put one feet to Lab R&D and another to understand each customer’s unique requirements which enabled them to offer truly customized patented products to its customers. This is one of the big reason why even new agile competitors would find it very hard to lure GTFL’s customers away. Cost arbitrage won’t work here unless the value offered is far better.

One example I can remember is a special kind of fishing net that GTFL produces which not only increases the catch/escape ratio of fishes but also is extremely durable. So, GTFL essentially produces habit forming B2B products!!

Few years back the management told that from that time onward only 15% PAT growth expectation is rational.

Since GTFL is the only credible global player in the value added technical textile market, the growth of the market mostly depends on GTFL’s capacity to reach more global locations, convince the businesses about their value proposition and then innovate continuously. However, I hope that once the market size grows bigger enough, more bigger innovative companies will get interested in this space, leading to the introduction of plethora of innovations and ensuring growth of the market at the same pace as now.

So, the ~ 15% PAT CAGR growth is expected to continue of a long time. However, the growth may not be smooth as the industries it is exposed to depends on the state of the economy, although they are adequately diversified geographically and sectorially.

Disc: Part of Core Portfolio.

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Thanks Sujay for your valuable insights. Great point here that more players may come in once the business becomes more apparent. Won’t that mean rising competition that could potentially have an adverse impact on GTFL. Also, I see the revenue growth around ~5% about 5 times in the last 10 years - not sure how 15% is really achievable. You seem to have great insights on this business, and just looking for your further viewpoints. Thanks in advance.

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Sorry, I meant PAT CAGR (fixed the original post).

“The next five to seven years will be very important for the company as we are looking to double our profit,” said Vayu Garware, chairman and managing director, Garware Technical Fibres.

https://www.business-standard.com/article/pti-stories/garware-wall-ropes-rebrands-itself-looks-to-double-profit-in-118080800867_1.html

The main hindrance in growing faster is the time needed to convince the businesses that GTFL’s product will improve their throughput, and then understanding their problem and then developing customized product for them. All of which requires substantial gestation period.

Sometimes an existing product will serve the purpose but most often in different global territories the challenges (e.g. fishing) are different and thus requires specialized products. Now, if GTFL is able to garner more businesses from the existing territories then the time spent on developing a new customized product will be saved. However, GTFL seems to be more keen to go to newer geographies and develop specialized products and thus grow their portfolio so that they always stay ahead of competition. Now when they have portfolios ready for many different global locations it will be easier for them to grow.

The time needed to convince the businesses is also quite large as GTFL’s products are quite costly compared to common alternatives. And this convincing part needs a large pool of sales team in different global locations who also needs to be conversant with the locals. So, my take is that GTFL will be able to employ more task-force as their revenue grows and thus tap more businesses with incrementally lesser spending on r&d. So, volume growth and margins are expected to only improve going forward.

As I stated earlier, it will be difficult for the existing customers to switch, and GTFL is trying to build first mover advantage in different global locations. Now, this first mover advantage combined with high switching cost (sticky customer base) and superior B2B branding (reputation), and strong entry barrier (convince, understand and then r&d) is a deadly combo.

Competition can still tap other territories untouched by GTFL as the world is simply big enough. Regardless, competition is needed to increase awareness among businesses to adopt value added products, and then the tediously built reputation (B2B brand strengh) will decide which business will get more subsequent orders.

Whatever a business does, it can’t stop attracting competition if the opportunity becomes lucrative enough. However, I would like to believe that by the time the real competition decides to step in GTFL will be big enough to dislodge easily.

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@RaviYendru thanks for the article. Since, the management do not conduct concalls, these interviews are very important source of information.

So, let me post a transcript of the interview:

Strategy

  • Strategy is very much around innovation and value delivery, which made them global leaders in cage and mooring solutions for salmon farming.
  • Wants to become globally number one or two in all the major segments that they play.

Ten years ago, we tried to understand what is our DNA and … we came out with a mission to grow the profit of our customers… if we do that well, better than anyone else, the customers will definitely stay with us and continue to buy from us.
.
We realised that the only way is to understand the customer’s application and innovate our products to deliver better profit to the customers.
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we brought on board application experts who really understand the application (not our manufacturing technology) but actually from the customers’ points of view of our products and that allowed us to start developing many products.
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Five to six years ago, value-added, innovative products were only 30% of our sales and it has gone up to 70%.
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We are certainly not the cheapest and probably one of the most expensive in terms of final product but we deliver the best value.

Why China is not a threat

Plants run somewhere around 20,000 skus of products. Approximately 8,000 unique products are run every month and that leads to a lot of complication and it is very difficult for a Chinese manufacturer to probably come and deliver that kind of variety to the market. So, these kind of things keep them quite separated and they don’t see any competition issue from China in their industries. “Chinese competition would probably be third or fourth because there would be European companies in second or third position.”

“We are not fighting China but ourselves. We are our biggest competitors. We are trying to make sure that we are continuously ahead of the game because we believe being a price competition is temporary.”

Future plan

  • Geographic expansion from 75 countries around the world to many more countries.
  • Expanding product offerings.
  • Getting into new likes of business.

On Impact of Corona

  • Impact of lockdown is less because 60% of their sales come from exports.
  • Since a majority (70%) of the businesses are food-related, the impact on demand side is fairly intact.
  • Impact was from supply side when factories were closed, and they couldn’t produce either for international or for domestic markets. So, they now have a lot of catching up to do.

On impact of impending recession

  • The economic impact on aquaculture & agriculture facing businesses tends to be a bit less.
  • Safety products for construction is going to go through a very tough time.
  • Infrastructure based geosynthetics business looks pretty good because they work with the railways, who are doing a lot of work now.
  • They work with private companies for construction of their landfills and securing toxic effluents. These kind of projects have continued.
  • Temporary impact is in the sports netting business overseas.
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@sujay85, i really liked the Managment’s thought process as captured from the Interview

  1. They are fully focussed about their business (he doesnt speak about economy, say’s i am not an economist)
  2. Thinks about providing value to the customer. The thought process is if the company help’s in providing value to the customer then the company will do good
  3. Their products are costlier than the competition, which means they have buyer power and as i mentioned in my earlier analysis the company is building up a MOAT
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This still seems unanswered in the thread.

@ashwinidamani, @zygo23554 Do you guys have any possible explanation to this discrepancy observed in their numbers? I have gone through the Annual report of FY 2016-17 and could not explanation from the Auditors/Management has provides for the changed numbers. Interestingly enough, in both the FYs (2015-16, 2016-17) they have followed IGAAP. So, the change in numbers because of transition from IGAAP to Ind-AS is not possible in this case.

I would really appreciate to know your take on this since you guys have in-depth knowledge about this company.

Disc: Still evaluating the company. Not invested.

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Company had made restatements in FY17 for certain balance sheet items. Extract from the previously shared report of garware from ambit capital. I guess this was discussed during AGM.

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Thanks for this. But doesn’t the company or their auditors have a regulatory obligation to disclose such discrepancies to shareholders in the annual reports?

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Garware tech fibres is flying in the last few weeks. Was going through the annual report and now after Marcellus making their little champ portfolio public , there is lots of discussion on their V2 nets and solution to the problem of sea lice etc esp Marcellus August newsletter. GTF has formed a subsidiary in US with almost Rs 47 cr investment infused by way of equity capital and it is showing in its stand alone balance sheet while in Consol I am unable to find the similar amount and not able to get a clear picture in what form it will be lying in the Consol.

The subsidiary seems to have started only by Feb 2020, already has negative reserves and surplus of Rs 34 crores but has given dividend of Rs 37 crores to its parent. not sure why this round tripping.

Since its a substantial amount, can other members provide any clarification

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Easy understanding of business model:

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Please share notes from AGM scheduled today. Thank you.

Discl - invested. Part of core portfolio.

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Looks like after AGM, company share price is falling. There were a lot of votes against the appointment of Mallika as director. Quite a number but the resolution was still passed

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I am confused as to why they want to appoint someone who has no experience in wallropes as a director in the company

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This Indian fibers firm wants to ease the ‘pain points’ in aquaculture

This appeared in an international fishing magazine. Garware has appointed a sales veteran in the Norwegian fishing industry as their country manager- Pal Korneliussen. Given Garware Technical Fibres’ focus on salmon fishing products and their intentions on expanding market share in Norway, this seems like a positive move.

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Poor results by GTFL. due to COVID 19 disruption.
Garware Technical Fibres consolidated net profit falls by 40.3% in Ql FY21
Consolidated: 01 FY21Highlights:
• Net Sales decreased by 34.4% to Rs. 152.4Cr in Qt FY21 as compared to Rs. 232.3 Cr in Qi FY20
• Profit before tax reduced by 46.6% to Rs. 22.6 Cr in Qt FY21 as compared to Rs. 42.3 Cr in the
same quarter last year
• Net profit after tax has dropped by 40.3% to Rs. 17.7Cr in the quarter as against Rs. 29.6 Cr in the
corresponding period of FY20.
• EPS for Qi FY21 is at Rs. 8.08; this is a de-growth of 40.3 % over Q1 FY20

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Some corporate governance issues with Garware Technical Fibres have been flagged out in this post.
Further views will be appreciated on this issue.

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