Buy This Multibagger Small Cap Textiles Sector Stock, Shares Can Surge 18%, Says ICICI Direct

Leading brokerage firm ICICI Direct maintains its buy call on Garware Technical Fibres Limited (GTFL) with a target price of Rs 4,160 per share. The brokerage sees a potential upside of 18% from its current level with the given target price. GTFL is a small-cap company having a market cap of Rs 7,271.10 crore.

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 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 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.

Stock Outlook and Returns over the years

On the NSE, the stock's Current Market Price (CMP) stood at Rs 3526.55 per share. The shares of the company in the past 1 week surged by 2.04%. The shares in the past 1 and 3 months surged by 4.34% and 8.94%, respectively. It has given 4.52% positive returns in the past 1 year. The stock has performed well in the past 3 years as it gave a multibagger return of 214.77% and a multibagger return of 274.15% in the past 5 years.
The ROE of the stock is 16.97%. The stock recorded its 52 week high on 08 November 2021 at Rs 3,843.40 per share and 52 week low on 16 March 2022 at Rs 2,619.80, respectively. 

 

Q2FY23 result

According to the brokerage, GTFL reported steady revenue growth with QoQ margin improvement.  Revenue grew 26% YoY to Rs 356 crore. However, lower gross margins (down 352 bps YoY to 66.1%) impacted profitability. Positive operating leverage led to lower employee cost to sales ratio (declined 104 bps YoY) and lower other expenses to sales ratio (declined 182 bps YoY), which restricted the decline in EBITDA margin to 66 bps YoY to 17.4%. Absolute EBITDA increased 22% YoY to Rs 62 crore. Higher depreciation and interest expense along with lower other income on a YoY basis led to net profit growth being restricted to 17% YoY to Rs 48 crore.

 

Buy for a target price of Rs 4,160 per share

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 ~3x over the last three years. "We maintain BUY rating on the stock. We value GTFL at Rs 4160 i.e. 34x FY24E EPS," the brokerage said.

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 a 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 250 bps margin expansion to 21.2% in FY22-24E. We expect revenue, PAT CAGR of 15%, 23%, respectively, in FY22-24E with healthy RoCE in range of 24-27% (RoIC: 40%+).

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 making any investment decision.