Stock To Buy: ICICI Securities Gave Buy Call To This Small-Cap Multibagger Stock For 21% Gains

ICICI Securities has a buy call to Garware Technical Fibres Ltd for a target price of Rs 3,695 per share. Garware Technical Fibres Ltd. 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. Garware Technical Fibres develops new and innovative products to enable customers to maximise revenues and reduce costs which leads to customer stickiness and a steady flow of repeat orders. Garware Technical Fibres has filed 75 patents over the years (granted 23 patents) for various products and continues to provide innovative solutions to its customers.

Stock Outlook

On July 05, the shares of the company opened at Rs 3,098.95 per share, gained 2.43 from the previous close of Rs 3,075.20 per share and ends at the Current Market Price (CMP) of Rs 3,152.75 per share. It recorded 52-week low at Rs 2,619.80 per share on 16 March 2022, and 52-week high at Rs 4,030 per share on 18 October 2021.

The stock has the potential to gain 21% in 12 months, considering the CMP of the stock and the estimated target price of Rs 3,695 per share.

Over the past 1 year the stock has given multibagger returns of 259.25% and 155.72% in the past 3 years. In the past 1 year, however, it has not delivered positive returns, the share price declined 4.8%. In short-term investment tenure, the stock has performed good and given decent returns.

CMP	Target Price	Potential Gains
Rs 3,152.75	Rs 3,695	21.00%

Financial performance over last decade

Over the last decade, Garware Technical Fibres' 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 ~7%. However, profitability has improved materially with EBITDA and PAT CAGR of 14% and 21%, respectively.

B/s 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 Rs 520 crore. RoCE, RoE have almost doubled from 12%, 9% in FY12 to 22%, 17%, respectively, in FY22.

Key triggers for future price performance

Garware Technical Fibres 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 Garware Technical Fibres 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.

The brokerage said, "We expect revenue, PAT CAGR of 12%, 20%, respectively, in FY22-24E with healthy RoCE in range of 22%-24% (RoIC: 40%+)."

Buy for a target price of Rs 3695 per share

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

About - Garware Technical Fibres Ltd.

Garware Technical Fibres Ltd. 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). Established in 1976, the company today is a multi-divisional, multi-geographical technical textiles company and is known for providing world-class innovative solutions in high-performance aquaculture cage nets, fishing nets, sports nets, safety nets, agricultural nets, coated fabrics, polymer ropes and geosynthetics. Garware Technical Fibres also has a dominant market position in providing solutions to the domestic marine fisheries and a growing presence in sports nets and geosynthetics. The company has transitioned from being a provider of nets and ropes to the 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 ~ 63% of revenues.

Disclaimer

The stock has been picked from the brokerage report of ICICI Securities. 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.