Domestic brokerage firm Sharekhan initiated coverage on Garware Hi-Tech Films, an export-oriented global specialty film producer, with a positive view and expects a 20% upside from the stock's previous closing price of ₹1,329.
The company's shares have been on a consistent winning streak, concluding the last five months with impressive gains. From their March 2023 lows of ₹491, they have surged by a remarkable 171% to date.
Garware Hi-Tech Films is the leading manufacturer and supplier of high-quality, durable, and highly tensile polyester films, solar control films, and paint protection films internationally. The company is the sole manufacturer of solar control window films (SCF) in India. Currently, the company sells its products in around 80 countries in the world, and exports account for 69% of sales.
Solar control films have properties that help control the sun’s heat, harsh brightness, and harmful UV rays. SCF is one of the main products of GHFL, as it has contributed around 40% towards total revenue over the past many years. The company has the second-largest global capacity of SCF in the world, with 90% of its sales coming from the overseas market.
It has patented its SCF production technology in 15 countries, including the U.S. In the domestic market as well, the company is the market leader with a strong brand recall, said Sharekhan.
Over the past two years, the company has incurred a capital expenditure of ₹270 crore. This capex enabled GHFL to introduce its new product (PPF), enhance the capacity of existing products (SCF), build a stronger dealer network, and vertically integrate its operations. Thus, ramping up of capacity provides the company with strong medium-term growth visibility.
Increased demand for SCF in domestic markets: As per Sharekhan, new domestic automotive rules now allow the usage of safety glazing materials in automobiles, which will increase the domestic demand for SCF. Notably, GHFL is the sole manufacturer of safety glazing films, which conform to new standards.
Currently, GHFL exports around 90% of SCF films primarily due to limited domestic demand. However, the new automotive regulations will create new opportunities for GHFL in previously unexplored markets, the brokerage noted.
Higher domestic adoption of PPF to improve capacity utilisation: Scratch-resistant, abrasion-resistant, and self-healing paint protection films shield the vehicle’s exterior from daily wear and tear, scratches, and bird droppings. The company is the sole producer of professional-grade premium paint protection film (PPF) in India.
Currently, GHFL operates its PPF capacity at 50% utilisation, with 80% of its products sold in overseas markets. The company wants to target the SUV and luxury car market in India, which accounts for around 40% of the total cars sold in India.
Many buyers of top-end cars want to put PPF in their cars but were unable to find applicators to install the film. In contrast to developed countries that have dedicated training institutions for applicators, India lacks such facilities.
To address this gap, GHFL has set up the Garware Application Studio, where it is currently training 50 applicators each month. This initiative is expected to stimulate demand for PPF products, as highlighted by the brokerage.
The brokerage has identified capacity expansion (SCF), product diversification (PPF), and positive shifts in India's automotive regulations for safety glazing film, along with the company's robust presence in export markets, as the primary drivers propelling the company's growth.
Sharekhan expects a robust 2x jump in PAT over FY2023–FY2025 and improved RoE and RoCE to 23.5% and 31.8% in FY2025. Moreover, the brokerage said the valuations of 8.4x its FY2025E EPS and 5.5x its EV/EBITDA look attractive considering strong growth prospects and high cash of ₹296 crore (10% of the current market capitalisation) coupled with potential monetisation of land with the current value of ₹1,005 crore.
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