valuation methods
Garware Polyester manufactures polyester films, which has a variety of applications in packaging, insulation, imaging, etc. among several others.
The company is the largest exporter of polyester films based out of India and is one of only two global manufacturers producing dyed polyester films.  It owns the “Global” brand of polyester films, which is prominent in the US and now introduced successfully in the Indian market.
It produces polyester films in three broad categories, which are – plain (e.g. shrink film), sun control (used in automobiles), and thermal films, which is a recent addition.
Management is looking to invest in research and development for launching new branded products in the solar film market; as well as market window films for offices, commercial buildings and malls to the premium segment of that market.
The company reported reasonably stable performance over the last five years but has dipped in the last twelve months (see below) – reporting just under 100cr in operating profits on revenues of about 800cr for the year ended 31st March, 2012.  It operated with a moderate net debt load as at 30th September, 2011.
The demand for the company’s products is largely cyclical and dependent on both global and domestic economic cycles.  For example, demand for sun control film is dependent on the automobile industry’s fortunes, which is reliant on the interest rate cycle and the economic cycle.
The company is directly exposed to increases in interest rates on its loans, which constitutes about 25% of total capital.  About half of these are foreign currency loans and therefore, it is exposed to a weakening INR as well.
The company is not immune from substantial oversupply in its industry arising from excess production capacity (as currently) and for extended periods, which dampens selling prices and reduces profitability.  The rectification of this would depend on demand growth and the extent of excess capacity as well as other company-specific factors.
The operations are exposed to rising crude oil prices, which is an important raw material for production.  Moreover, there is a time lag in pricing these cost increases in the export market, which may diminish profitability in the intervening period.
It is a net exporter and therefore, its profitability would be negatively impacted in the case of a strengthening INR.
The company is adversely impacted by increases in central and state taxes including arbitrary retrospective taxes (as applied last year by the Maharashtra state government), which would deplete the company’s resources.  In one sense, the company is exposed to the state governments’ inefficiencies in managing its finances.
By: AI