NEW DELHI, February 20: Garware-WalL Ropes hopes to treble its net profit for the full year 1997-98. As against a PAT of Rs 2 crore in fiscal 1996-97, the R B Garware group company has estimated a net profit figure of over Rs 6 crore in the current financial year. This estimate is by no means a high task if one considers the first-half performance of the company. Profits in the half-year have trebled to Rs 3.11 crore from Rs 1.12 crore in the corresponding period last year.According to Garware-Wall Ropes financial advisor G P Jategaonkar, the growth in profit has come about through a sizable reduction in financing costs; basically through tighter control on inventory. "An on-going exercise was started last year whereby all fixed costs are constantly under review for further reduction. We have also brought down our inventory levels substantially," says Jategaonkar.
For the full year, the company hopes to achieve the high net profit target through a tight control on utilisation of bank limits, whereverpossible, and by availing finance at lower interest costs. "We have already taken advatage of the FCNR (B) loans and the low interest rate regime prevailing in the last quarter of 1997," he adds. To that effect, Garware-Wall Ropes will be relatively unaffected by the rise in interest rates subsequent to the hike in bank rate by the RBI.
Although the company has not made any turnover projections, Jategaonkar says the company's sustained focus on value-addition, end-user programme and a strong dealer network will ensure a substantial growth in net sales. According to him, Garware-Wall Ropes managed to record a quantitative growth in first-half sales despite the fact that the fishing season was normal only in Maharashtra and Gujarat; in the south, the fishing season was subdued (in Kerala, particularly, which accounts for a major marine fishing catch). "Quantitatively, our sales have grown because of increased penetration in the market. However, due to depressed market conditions, selling prices have remaineddepressed and, hence, the marginal rise in first-half turnover from Rs 58.94 crore to Rs 59.38 crore."
However, industry sources say Garware-Wall Ropes' turnover has been affected by the infiltration of cheaper quality ropes and nets from the unorganised sector. According to them, the second consecutive bad fishing season has affected the cash-flow position of fishermen who have become extremely price sensitive. "Where the normal focus would be to purchase quality products, there has been a distinct move towards purchasing cheaper, but inferior quality products. Because of this, Garware-Wall Ropes, which was losing its market share, resorted to lowering of invoice/list price, reduction in discounts and giving credit to dealers to regain its pre-dominant position," said an industry source, adding that this will continue to impact the company's sales realisation in the full year.
However, Jategaonkar is hopeful of surpassing last year's sales of Rs 119.69 crore. "With a sustained focus on end-userprogrammes, strong dealer network and ensuring a wider acceptance of our products we will post a healthy growth in turnover. We have also launched an aggressive campaign among the fisherfolk to stress on the need for quality nets and ropes, which I think will pay off. Besides, exports will continue to be on a strong wicket thanks to our emphasis on higher value products for the European markets and a renewed focus on new markets with better realisations."
Moreover, raw material cost which accounts for a substantial portion of the total expenditure will be lower because of the fall in the prices of the two major raw materials -- HDPE and polypropelene. Although Garware-Wall Ropes imports most of its HDPE requirement and could have been badly hit by the rupee depreciation, will now be a gainer because of the substantial drop in global prices. Polypropelene, the other raw material which is mostly sourced from the domestic market, has also become cheaper.
At its current price of Rs 18.60, the stock is prettyattractive as the book value is around Rs 55. Besides, there will be no equity dilution as the company has no plans to tap the market in the near future. In 1995-96, the company had come out with a rights issue and the equity base of the company now stands at Rs 19.68 crore. The scrip has seen an all-time high of Rs 153 in November 1994. The shareholders of the company, however, may not be too enthused by net profit projections as Garware-Wall Ropes has failed to live up to its promises made during the rights issue in 1995-96. Compared with the projected turnover and net profit of Rs 185.63 crore and Rs 20.71 crore, the company recorded net sales and PAT of only Rs 118.41 crore and Rs 1.89 crore, respectively.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
