India Defense Spending Has Ropemaker Focused on Lofty GainsBy
Garware-Wall Ropes sees revenue boost from military orders
Company’s stock has outperformed, nearly doubling in past year
Amid the scores of companies looking to cash in on India’s plans to boost defense spending and open up contracts to the local private sector, one unlikely hopeful stands out: a ropemaker.
Garware-Wall Ropes Ltd. aims to win defense contracts by forging partnerships and developing new products to complement its traditional offerings of industrial ropes, textiles and nets used in fishing and sports. The company plans to begin making fabric covers that protect radar equipment from weather conditions, and earlier this month it signed a pact with Israel’s Aero-T to manufacture surveillance balloons called aerostats.
“We will work out the details on the venture such as revenue-sharing and investments soon, and Garware aims to have a significant stake in it,” Shujaul Rehman, chief executive officer of the Pune-based company, said in a phone interview on Tuesday.
India plans to spend $250 billion by 2025 to modernize its armed forces and in May approved a policy that allows companies to partner with foreign firms and to boost local manufacturing. The plans have helped inflate shares of companies that are queuing up to bid for supply contracts ranging from explosives and surveillance equipment to combat planes and submarines. Garware-Wall’s stock has nearly doubled in the past 12 months compared with a 32 percent gain in the S&P BSE Small Cap Index.
Garware-Wall targets sales growth of 10 percent for the financial year ending March 2018, which would be the fastest pace in three years. The company, which reported total revenue of 8.7 billion rupees ($135 million) for the 12 months ended March 31, expects exports of aquaculture products plus sales from deep-sea fishing and farm products in India to boost revenue this year, Rehman said. While the ropemaker has yet to officially factor in any boost from defense orders, the CEO envisions a total revenue contribution of about 1 billion rupees over 2020-22.
“Demand from all the businesses that it supplies to is expected to improve the top-line, and we see the defense sector adding to the stream in the next couple of years,” Hyderabad-based Anil Kumar, an equity analyst at Firstcall India Equity Advisors Pvt., said by phone. Kumar, who has an overweight rating on the stock, expects Garware-Wall Rope’s operating profit and net income to rise at least 22 percent annually and sees its partnership with Aero-T as “another step for future growth.”
Widening margins have helped the ropemaker’s profits rise at a faster pace than revenue. Net income increased at an average 47 percent annually for the past three financial years versus around 8 percent sales growth. The company cites lower costs and sales of more-profitable products as the main reason for the margin improvement. Garware-Wall aims to maintain its recent growth and profitability levels.
“We sell a considerable percentage of high-margin products and aim to improve it to as much as 70 percent of total sales from the current contribution of around 50 percent,” Rehman said.