Issue #014 examines Garware Hi-Tech Films Limited's strategic focus on niche, high-end products & the impact of margin expansion on it's financials. Psst .. I'm projecting a 100% growth in EPS by FY26
"There are typically two ways of enhancing shareholder value – by boosting sales growth or, by increasing profit margins" - So simple and elegant. Yet we confuse us with so much jargons and this and that. If we understand this small basic - Then investing becomes easy. Thanks a lot for the knowledge and research.
Most welcome, Suresh ji. I'm happy this post helped you. Since the focus was on EPS, one can't ignore "other income" which is the tricky part of this analysis. Do spend some time on that this weekend with an understanding of whether a) GHFL will grow their cash reserve (balance sheet entry) or b) periodically sell the investments for a profit and take the winnings into the P&L
Dan here has shared the playlist where I continue to add sector specific videos. The videos are done in an evergreen manner i.e. you can apply the metrics discussed there at anytime to identify ideal entry and exit points. My favourite videos are the ones on hospitals, hotels and cement
- i find the company a market leader with largely international competition and a strong hold on domestic market. the shift to better product mix (which also perhaps shows they can be flexible in shifting mix?) has really done wonders to their financial profile which reflects in their valuation uplift.
- Good to see that they are adding capacity now itself and be ahead of the competition. shows they sense a chance to scale up. - here i wonder what the competitors are doing and how they are positioning here. Given the higher utilization levels, i think capacity could enter India (theoretically but greenfields i guess take time) . Net net , i like that they are adding capacity now.
- nice margin profile and diversified revenue stream . stating the ovbvious but marins do seem to reflect that they can passthrough costs (but maybe not beyond a point? i.e. if input prices are volatile on the higher side). Also they seem to be super diversified on the end markets as well so hard to wrap head around that.
main concerns for me -
Competition/capacity , as you point out they do not seem to have much right now, but over the longer term i see domestic capacity coming in and in such cases, what are the defenses in place (does brand mean a lot here or do customer shop for the best prices regardless).
Valuation - the table is super interesting. i find the PE rations of the four pretty similar actually b/c if we adjust for leverage (i.e. assume they dont have leverage) then Uflex and cosmo come out to similar P/E , i might be getting this wrong but is the market lumping all the four companies similarly(polyplex seems to the leader here)? b/c i think garware seems to deserve a higher relative premium if we look at the margin comparison like you mentioned.
Thanks so much for this , will def dig a little deeper on this as this seems like a good bet in the current longer term push for alternative suppliers (esp. with a cheaper export focus in India). seems like a good 'heads you win and tails you dont lose much' kind of a bet. if price drops then should be a super interesting.
If someone wants to make an entry in this stock how would you do technical analysis of this stock? And what would be your holding period and target for this stock?
Does fundamental analysis also gives you witty humour that you use, it is also working well for you😂😂 Great analysis though, been following you for a while and it is definitely worth it🙌
Thanks for the detailed analysis, sir. From where did you get the 350cr revenue generation from the PPF capacity expansion. Also that capacity will go live next FY and to generate 350crs it will take them atleast 1-2yrs from that plant.
Since there is slow down in demand in the auto markets don't u think ,this might hinder their growth in sales or make it stagnant for few years , as auto market is also related to the economy's purchasing power . my view is that they have the moat and wil maintain the margins or even the expand the margin considerabally due to the special product mix and integrations . the other way the can grow the sales might be by increasing penetration and scaling forward .
Thank you. Pls do read the Q1FY25 earnings call transcript on the automobile market situation in the US and the company's strategy of mitigating the impact of that by expanding in other areas esp. architectural films -- which is now 20-25% of GHFL's SCF revenues from 6% an year or so back.
Very beautifully explained, However their competitor anyone entering this high end products SCF, PPF & shrink films to research more on this particular growth company
Since 77% of GHFL's revenue is exports (outside India), it's the foreign players that the company is competing with. I'm sure there is already enough & more competion at the global level which is why understanding Garware's unique strengths is important. The management has already referenced that in the Q1FY25 earnings call, do have a look
"There are typically two ways of enhancing shareholder value – by boosting sales growth or, by increasing profit margins" - So simple and elegant. Yet we confuse us with so much jargons and this and that. If we understand this small basic - Then investing becomes easy. Thanks a lot for the knowledge and research.
Most welcome. Glad you liked it 🙌 Good investing is never complicated
I really Appreciate your Knowledge and Research Sir.
What a detailed analysis! Many thanks to you.
Thank you very much Hemant ji for your kind appreciation and encouragement 🙌
You do Fundamental Analysis like no one else does. Kudos to you and your team for detailed and well researched content. More power to you
Thank you Manish Ji.
Good analysis. I take your newsletter &video seriously.
Thank you! Appreciate it
Thank you Sir for your detailed analysis.
Most welcome!
What a detailed analysis! Hats-off to you sir.
Thank you very much Jasbeer ji 🙌
Ever greatful to your commitment towards us sirr
Thank you, I'm glad you found it helpful
Thanks for the new insights,as always your analysis helps us to take better decisions in investing..
Most welcome, Suresh ji. I'm happy this post helped you. Since the focus was on EPS, one can't ignore "other income" which is the tricky part of this analysis. Do spend some time on that this weekend with an understanding of whether a) GHFL will grow their cash reserve (balance sheet entry) or b) periodically sell the investments for a profit and take the winnings into the P&L
Kudos to your efforts in doing such deep research and finding gem of a company... Truly commendable 👏🤘
I'm glad you liked it, Swapnil ji
Appreciate your knowledge and research.
Thank you very much 🙌
Thanks for your analysis and sharing the information in an understandable format.
Like your content always.
If possible, can you please make a posts on how to do sector analysis and what are the parameters to consider for different sectors.
Thanks in advance.
Most welcome, glad you like my work 🙌
Dan here has shared the playlist where I continue to add sector specific videos. The videos are done in an evergreen manner i.e. you can apply the metrics discussed there at anytime to identify ideal entry and exit points. My favourite videos are the ones on hospitals, hotels and cement
Hope the following helps 😊
https://youtube.com/playlist?list=PLJND7T5G_LHBb9yBelV9cxf9DNEAmON87&si=yd62tTgbSHR6dvec
https://zerodha.com/varsity/module/sector-analysis/
as always nice write up!
on the positives -
- i find the company a market leader with largely international competition and a strong hold on domestic market. the shift to better product mix (which also perhaps shows they can be flexible in shifting mix?) has really done wonders to their financial profile which reflects in their valuation uplift.
- Good to see that they are adding capacity now itself and be ahead of the competition. shows they sense a chance to scale up. - here i wonder what the competitors are doing and how they are positioning here. Given the higher utilization levels, i think capacity could enter India (theoretically but greenfields i guess take time) . Net net , i like that they are adding capacity now.
- nice margin profile and diversified revenue stream . stating the ovbvious but marins do seem to reflect that they can passthrough costs (but maybe not beyond a point? i.e. if input prices are volatile on the higher side). Also they seem to be super diversified on the end markets as well so hard to wrap head around that.
main concerns for me -
Competition/capacity , as you point out they do not seem to have much right now, but over the longer term i see domestic capacity coming in and in such cases, what are the defenses in place (does brand mean a lot here or do customer shop for the best prices regardless).
Valuation - the table is super interesting. i find the PE rations of the four pretty similar actually b/c if we adjust for leverage (i.e. assume they dont have leverage) then Uflex and cosmo come out to similar P/E , i might be getting this wrong but is the market lumping all the four companies similarly(polyplex seems to the leader here)? b/c i think garware seems to deserve a higher relative premium if we look at the margin comparison like you mentioned.
Thanks so much for this , will def dig a little deeper on this as this seems like a good bet in the current longer term push for alternative suppliers (esp. with a cheaper export focus in India). seems like a good 'heads you win and tails you dont lose much' kind of a bet. if price drops then should be a super interesting.
Glad you liked it. Thx for sharing you views!
If someone wants to make an entry in this stock how would you do technical analysis of this stock? And what would be your holding period and target for this stock?
I don't do technical analysis when selecting stocks -- prefer the classical fundamental-based approach. It's worked well for me so far.
Does fundamental analysis also gives you witty humour that you use, it is also working well for you😂😂 Great analysis though, been following you for a while and it is definitely worth it🙌
Yep. Wit is the real moat, the rest are mere details :)
Appreciate the support! 🙌
Thanks for the detailed analysis, sir. From where did you get the 350cr revenue generation from the PPF capacity expansion. Also that capacity will go live next FY and to generate 350crs it will take them atleast 1-2yrs from that plant.
great analysis sir .
Since there is slow down in demand in the auto markets don't u think ,this might hinder their growth in sales or make it stagnant for few years , as auto market is also related to the economy's purchasing power . my view is that they have the moat and wil maintain the margins or even the expand the margin considerabally due to the special product mix and integrations . the other way the can grow the sales might be by increasing penetration and scaling forward .
Thank you. Pls do read the Q1FY25 earnings call transcript on the automobile market situation in the US and the company's strategy of mitigating the impact of that by expanding in other areas esp. architectural films -- which is now 20-25% of GHFL's SCF revenues from 6% an year or so back.
thanks for the input and response
will sure look at it .
Very beautifully explained, However their competitor anyone entering this high end products SCF, PPF & shrink films to research more on this particular growth company
Thank you. I didn't understand the rest of the comment though, can you pls rephrase it
I just asked about GHFL peers anyone entering on higher margin products such as SCF, PPF etc...
Since 77% of GHFL's revenue is exports (outside India), it's the foreign players that the company is competing with. I'm sure there is already enough & more competion at the global level which is why understanding Garware's unique strengths is important. The management has already referenced that in the Q1FY25 earnings call, do have a look
Sure thank you