ICICI Direct Bets On This Multibagger Small-Cap Textile Stock For 20% Upside

ICICI Direct, renowned brokerage firm, has been optimistic about the stock of Garware Technical Fibres Ltd. (GTFL) and has given a buy call for a potential gain of 20%.

Updated: Monday, July 4, 2022, 18:03 [IST]

ICICI Direct, renowned brokerage firm, has been optimistic about the stock of Garware Technical Fibres Ltd. (GTFL) and has given a buy call for a potential gain of 20%. The company has transitioned from being a provider of nets and ropes to Indian fisheries and shipping sector, respectively, to a value-added solution provider to its clients across the globe with a presence in 75 countries with exports contributing approximate 63% of revenues.

1. Stock Outlook

The current market price of the stock is Rs 3075 apiece. It gained 1.71% in today's trade. The 52-week high is 4030 and 52-week low is 2619 apiece. The stock has given multibagger returns of 250% in 5 years. According to ICICI Direct, if you buy the stock at its current market price of Rs 3075, it can give you potential return of 20% in 12 months.

2. Key Financials of Garware Technical Fibres Ltd

Over the last decade, GTFL's financials have witnessed significant improvement in operating metrics. Conscious strategy of focusing on value added products rather than commoditised products has led to moderate revenue CAGR of approximate7%. However, profitability has improved materially with EBITDA and PAT CAGR of 14% and 21%, respectively. Balancesheet has also strengthened with D:E ratio improving from 0.6x in FY12 to 0.1x in FY22. Consistent OCF generation (average: ~70% OCF/EBITDA) has led to robust cash & investments worth | 520 crore. RoCE, RoE have almost doubled from 12%, 9% in FY12 to 22%, 17%, respectively, in FY22.

3. Key triggers for future price performance

GTFL has a unique business model as it derives ~ 60% of revenues from products developed for food related sectors that are relatively immune to demand fluctuations compared to textile fashion and clothing categories. High share of value-added products (75% of revenues) enhances customer stickiness and enables GTFL to pass on majority of the input cost increase to consumers and maintain its margin profile trajectory.

Expansion of aquaculture cages business by foraying into non-salmon fish farming cages coupled with strong growth in sports and geosynthetics segment would aid in maintaining pace of revenue growth. Increased traction in new high margin innovative products (40% of value-added products) to drive 240 bps margin expansion to 21.1% in FY22-FY24E. We expect revenue, PAT CAGR of 12%, 20%, respectively, in FY22-24E with healthy RoCE in range of 22%-24% (RoIC: 40%+).

4. Valuation

According to ICICI Direct, "Over the past three years, the impact of GTFL's improved financial performance has been visible in upward momentum in stock price, which has grown at approximately 2.5x over the last three years. We initiate coverage under Stock Tales format with a BUY rating. We value GTFL at Rs 3695 i.e. 32x FY24E EPS.

5. About the company

Garware Technical Fibres (GTFL) is one of India's leading players in the technical textiles sector and a major supplier of aquaculture cage nets to the global salmon farming industry (40% market share). GTFL also has a dominant market position in providing solutions to the domestic marine fisheries and a growing presence in sports nets and geosynthetics.

Disclaimer

The stock has been picked from the brokerage report of ICICI Direct. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.