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Showing posts with label Garware Hi-Tech Films. Show all posts
Showing posts with label Garware Hi-Tech Films. Show all posts

Sunday, July 25, 2021

Garware Hi-Tech Films - 3.5 Bagger Stock in 9 Months

Dear Reader,

We are pleased to share that we released our Hidden Gem Report on Garware Hi-Tech Films Ltd (formerly known as Garware Polyester) on 24th Oct 2020 having market capital of 600 crores with multibagger potential. We recommended the stock at price of Rs. 258 for target of Rs 550, we are glad to inform you that the company has already achieved its target price and made all time high of Rs. 966 recently and closed at Rs 922.75 on Friday delivering as on date returns of 257.1%. Garware Hi-Tech Films is a 3.5-Bagger stock for our Hidden Gems members in period of 9 months.

Net profit of Garware Hi-Tech Films rose 50.93% to Rs 31.80 crore in the quarter ended March 2021 as against Rs 21.07 crore during the previous quarter ended March 2020. Sales rose 30.39% to Rs 287.74 crore in the quarter ended March 2021 as against Rs 220.67 crore during the previous quarter ended March 2020.

For FY2020-21, net profit rose 46.42% to Rs 125.95 crore in the year ended March 2021 as against Rs 86.02 crore during the previous year ended March 2020. Sales rose 6.94% to Rs 989.03 crore in the year ended March 2021 as against Rs 924.83 crore during the previous year ended March 2020.

Below is the summary of Garware Hi-Tech Films (formerly known as Garware Polyester) Ltd Report released by our team as Hidden Gem Stock on 24th Oct 2020.

1. Company Background

Garware Hi-Tech Films Multibagger Stock
Garware Hi-Tech Films Ltd (erstwhile Garware Polyester Ltd) is the flagship company of the Garware Group. The company was co-promoted by the Chairman and Managing Director Mr. S.B. Garware in the year 1957 along with the Founder Chairman Late Dr. Bhalchandra Garware.

The company has developed in-house technology for polyester films in India and put its first state-of-the-art plant to manufacture polyester films in the year 1976 at Aurangabad, Maharashtra which was the first plant of its kind in South-East Asia. The company is the only one of its kind to manufacture its own raw material that is polyester chips to manufacture polyester films for variety of end applications such as packaging, electrical & motor and cable insulations, shrink film for label application, coloured polyester films for window tint application, sequin, TV Screen, safety etc.

The company has four manufacturing plants for polyester film and manufactures film of thickness ranging from 10 micron to 350 micron. The company possesses patented technology for dyed polyester film in India and USA and is the second company possessing such technology.

The company produces wide range of products having variety of end applications. The company manufactures Bi-axially Oriented Polyethylene Terephthalate (BOPET) / Polyester Films, Sun Control Films, Thermal Lamination Films and Specialty Polyester Films. It also manufactures premium grade heat rejection films based on the latest IR Rejection Technology developed in its in-house R&D facility center.

Garware Polyester is the sole manufacture of solar control window films in India and among the only two companies in the world having patented technology for manufacturing the UV stabilized dyed films and perhaps the only company in the world with backward integration for manufacturing of solar control films.

The company is the trend-setter in solar control film industry with a history of more than 3 decades of technological development. The solar control window films are sold under the well established brands of the company. The company also has backward integration through establishment of batch process polyester chips plant which ensures a steady stream of supply of variety of specially designed chips for the BOPET film lines.

The company has come out with many new products for label films to help environment protection and recycling of the film with bottles and developed range of shrink films for label application. The company has also developed films for better seal and peal strength application for proper lidding of any type of containers.

2. Recent Developments (24 Oct 2020)

i) CARE Ratings upgrades Garware Polyester outlook from stable to positive – Oct 2020

CARE Ratings has reaffirmed the credit rating of Garware Polyester Limited as CARE A and upgraded the outlook to positive from stable. The rating assigned to the bank facilities of Garware Polyester Limited factors in the strength of the company from its established track record of more than five decades in polymer value chain industry, diversified product portfolio with wide geographical coverage globally and integrated manufacturing facilities.

The ratings also continue to factor in the improvement in operating performance marked by consistently high capacity utilization level witnessed during last couple of years and improved focus on value added products translating into expansion in its operating profit margin (for FY20 and Q1FY21).

The rating has also taken cognizance of the fact that the leverage indicators continued to improve in FY20 on back of scheduled repayment of its debt obligations. 

ii) Garware Polyester Board recommends dividend – March 2020

Board of Directors of the company at its meeting held on Thursday, March 12, 2020, considered and declared an Interim Dividend of Rs. 10 per equity share of Rs. 10 each.

Further, pursuant to Regulation 42 of the SEBI (Listing Obligation and Disclosure Requirements) Regulations, 2015, the record date for the purpose of determining the members eligible to receive the Interim Dividend has been fixed as Friday March 20, 2020. 

At the current share price of Rs 258.40, this results in an attractive dividend yield of 3.87%.

3. Financial Performance (24 Oct 2020)

Garware Polyester consolidated net profit declines 49.25% in the June 2020 quarter

Net profit of Garware Polyester declined 49.25% to Rs 13.61 crore in the quarter ended June 2020 as against Rs 26.82 crore during the previous quarter ended June 2019. Sales declined 32.88% to Rs 169.44 crore in the quarter ended June 2020 as against Rs 252.44 crore during the previous quarter ended June 2019. 

Garware Polyester consolidated net profit rose 23.29% in the March 2020 quarter

Net profit of Garware Polyester rose 23.29% to Rs 21.07 crore in the quarter ended March 2020 as against Rs 17.07 crore during the previous quarter ended March 2019. Sales declined 1.35% to Rs 220.67 crore in the quarter ended March 2020 as against Rs 223.67 crore during the previous quarter ended March 2019.

For the full year, net profit rose 5.35% to Rs 86.02 crore in the year ended March 2020 as against Rs 81.65 crore during the previous year ended March 2019. Sales declined 2.43% to Rs 924.83 crore in the year ended March 2020 as against Rs 947.89 crore during the previous year ended March 2019.
Garware Hi-Tech Films Multibagger Stock Analysis

4. Peer Group Comparison (24 Oct 2020)
Hidden Gem Stock Garware Hi-Tech Films
5. Key Concerns & Risks (24 Oct 2020)

i) Raw material i.e. PTA (Purified Terephthalic Acid) and MEG (Monoethylene Glycol) are derivatives of crude oil, hence their prices move in tandem with crude oil prices. The company margins remain susceptible to any adverse movement in the prices of raw materials. 

ii) Due to the commoditized nature of BOPET films, the industry remains highly competitive with pressure on margins globally. However, weakening of the INR is helping to boost exports.

6. Saral Gyan Recommendation (24 Oct 2020)

i) Polyester or polyethylene terephthalate (PET) is a high-performance, crystal clear thermoplastic made from ethylene glycol and dimethyl terephthalate (DMT). In comparison with other common plastic films, PET film has higher tensile strength, excellent dimensional stability, low moisture absorption, and good retention of physical properties over a fairly wide temperature range. It also has superior UV resistance, excellent electrical properties, good optical clarity, high gloss, and good gas barrier but only moderate moisture barrier properties. It is the ideal film for quality printing and lamination and a good choice for a high-performance plastic films and sheets. It has a relative high melting point, which makes it suitable for applications that require sterilization at high temperatures. 

ii) Polyester films has wide applications in a host of industries engaged in the manufacture of flexible packaging, shrink labels, electrical motor and cable insulation, sequin, magnetic media, imaging, metallic yarn etc. Sun control films caters to the real estate sector both in Indian and export market where it is widely used for building applications, laminated films for glass tint, safety application etc. and to the automobile sector in export markets where it is used in car application. The company has a well-developed marketing network throughout the world and it has developed wide network of dedicated customers across the globe i.e. USA, Europe, Russia Far East, China, Middle East, Africa, South America, Australia, New Zealand etc. 

iii) The company’s international accreditations and certifications for different products namely European Chemicals Agency, EU Regulation and others have resulted in strong marketing of its products. The company has developed patented technology for manufacturing the UV stabilised dyed films. It has developed strong distribution network with presence in around 80 countries in the world indicating high acceptability for its products thereby insulating it from regional risks. The company generates 65-70% of its total operating income from export sales. In order to expand the business and offer better services to the customers of consumer products in overseas market, the company has subsidiary companies situated in USA and UK. This ensures a cohesive global organization that can weave its operations in the above countries.

iv) During last financial year, the company successfully increased its capacity of specialty film production. The company also completed modification of its manufacturing line at Chikalthana to further improve the quality of the products. In order to keep the plants in excellent running condition, the company continues the upgradation of manufacturing facilities to increase the output and produce better quality products. The company has established best manufacturing practices and implemented LEAN methodology, SIX SIGMA and QA initiatives, wherever required, which are showing good results and improvements in the company’s performance.

v) Garware Polyester plants were shut down on account of nationwide lockdown imposed due to Covid-19 from March 23, 2020 to second week of April 2020. However, its plants commenced operation from mid-April 2020 with limited work force. The March quarter performance of the company remained impacted due to operational constraints caused due to Covid-19 lockdown but on back of gradual ease in lockdown the recovery in operations can be witnessed from the fact that the capacity utilization that dipped to around 40-45% in April 2020 has revived to over 80% by month of June 2020. In congruence to same, the average monthly sales have also elevated to pre Covid levels.

vi) Garware Polyester has a dedicated R&D department which focuses on increasing efficiency as well as introducing new value added products. The company during last three years has tweaked its product mix in favour of higher margin yielding products as against the commodity grade product. As a result, the company stopped production of BOPP films (commoditized product) since FY18 and subsequently in FY19 and FY20, the production of thermal films was curtailed to have focus on high margin yielding product mix. The contribution of value added products (Sun films and Shrink films part of plain films) has been proportionately rising since FY18. These value added products are high margin products due to their properties like high tensile strength, chemical & dimensional stability, rejection of harmful UV rays and others. Thus, higher contribution of value added products in total operating income has translated into improved operating profit margin for the company.

vii) As on Sept’20, promoter’s shareholding in the company is 60.72% without any share being pledged. The company has registered sales CAGR of 1%, profit CAGR of 38% with ROE of 4% over last 5 years, with higher contribution from value added products and increase in revenue in coming quarters, returns ratios are expected to improve going forward. The company looks attractive at current valuations considering increase in demand in domestic as well export market. During the year, the company availed term loan of Rs.101.25 crore to fund its capex for developing new product i.e. Paint Protection Film along with modernisation of the current manufacturing facility. Out of the total, Rs.14.75 crore has been disbursed as on March 31, 2020.

viii) Garware Polyester has paid higher dividend over last 2 financial years considering better margins and profitability. The management declared dividend of Rs. 10 per share for FY19-20 and same was paid in March 2020. 

ix) At current price of Rs. 258.40, dividend yield is 3.87%. As per our estimates, Garware Polyester can deliver net profit of Rs. 107 crores in FY 2021-22 with annualized EPS of Rs. 46. At current price of 258.40, stock is available at forward P/E multiple of 5.6X based on FY21-22 earnings and looks attractive.

x) On equity of Rs. 23.23 crore, the estimated annualized EPS for FY 21-22 works out to Rs. 46 and the Book Value per share is Rs. 604. At current market price of Rs. 258.40, stock price to book value is 0.43. 

The company has diversified its product mix by adding value added products in the past and continues to do so to support margin expansion. Moreover, profit margins are expected to improve further with moderation in key raw material prices as most of them are crude oil derivative. Considering wide geographical coverage of the company to meet increasing demand globally, improvement in capacity utilization levels with monthly average sales clocking back to pre-covid sales and attractive valuations of the company, Saral Gyan team recommends “Buy” on Garware Polyester Ltd at current price of Rs. 258.40 for target of Rs. 550 over a period of 12 to 24 months.

Buying Strategy:
  • 70% at current market price of Rs. 258.40
  • 30% at price range of Rs. 180 - 220 (in case of correction in stock price)
Portfolio Allocation: 3% of your equity portfolio

To Download Saral Gyan Hidden Gem Report of Garware Hi-Tech Films - Click Here

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