Share price performance - Fiberwebindiafiberwebindia.com/pdf/Fiberweb India Ltd_Initiating Coverage...

(Wholly owned subsidiary of Bank of Baroda)

Exhibit 1: Financial summary (Rs mn)

Year end: March FY14 FY15 FY16P* FY17e FY18e FY19e

Net sales 640 681 617 710 1,136 1,541

Growth (%) 26.4% 6.5% -9.4% 15.0% 60.0% 35.6%

PAT -7 20 71 77 118 144

Adjusted PAT -8 20 53 77 118 144

EPS (Rs) -0.7 1.9 4.2 6.1 7.2 8.8

Growth (%) -676.0 -370.6 128.6 44.6 17.7 22.2

P/E(x) -149.1 55.1 24.1 16.7 14.2 11.6

ROE (%) 1.2 -3.5 -15.9 8.4 11.0 11.9

ROCE (%) -1.0 3.1 7.8 4.5 7.6 11.7

Net debt/equity (x) -2.1 -2.1 -2.3 0.9 0.7 0.7

P/Bv (x) -1.9 -1.9 -2.9 1.4 1.6 1.4

*p: provisional Source: Company, BOBCAPSe

$CompanyN ame$

Fiberweb India Ltd. (FIL)

Set to grow at a rapid pace; initiate with BUY

We initiate coverage on FIL with a BUY rating and a price target of Rs.158 implying 55% upside. We believe, being a focused player of non-woven products, FIL could be a key beneficiary in the Technical Textile space led by 1) improving global demand for Technical Textile (TT) products 2) robust order book 3) proposed expansion plan 4) increasing per capita income and changing perception of consumers towards disposal products. We believe, FIL to achieve its revenue growth at a CAGR of ~36% over FY16p-19e.

Superior quality, product development and global presence is a key to grow: FIL has state of art facility with unique double beam technology which has diverse applications supplied by the renowned manufacturer, REIFENHAUSER Gmbh of Troisdorf, Germany. Hence the products of the company are of best quality and have been accepted by giant companies as end-users in many advanced countries. It has certificates like ISO 9001-2008, 14001-2004, OHSAS 18001:2007 Certified by quality Registrar Intertek and UKAS. Apart from the above, the Company also holds authorization/accreditation conforming to Oeko-Tex standards from Hohenstein Textile Institute, Germany. The company’s ability to produce superior quality product and continuous Research & Development would help the company to sustain its revenue growth from export markets.

Proposed capacity expansion to boost the topline: Due to increasing demand across the markets (domestic & international) the company is planning expansion in FY17-18. The company has plans to buy two more machines which would add the capacity (~10000 MT / ~2000 MT respectively) to fulfill the current market demand. Also it has plans to improve manufacturing efficiency by incorporating various balancing equipment’s. We expect post expansion capacity of ~17000 MT (current 5000 MT + additional 12000 MT) would upsurge the company’s revenues at a CGAR of ~36% over FY16-19e.

Robust order book gives revenue visibility: FIL has strong order book of Rs.789 mn including export order worth of Rs. 489 mn and domestic worth of Rs. 300mn executable over FY17-18. In agriculture, Hygiene and laminated segment Company’s products command premium in USA, UK, Europe and Middle East. Its order book has grown at a CAGR of 72% / 62%, domestic / international respectively over FY12-FY17. Recently the company has done a pilot marketing of the products and experienced a good response from developed countries like USA, UK and Europe. We expect this will help to grow order book going forward.

Valuation: We believe, going forward the non-woven Technical Textile sector would grow globally as well as in India led by 1) changing perception of consumers towards disposable products 2) increasing per capita income 3) increasing awareness of hygiene. We like the stock as it is uniquely placed in the organized sector with low cost of production, strong order book and robust expansion plan by FY18 due to growing demand in TT products. The stock is currently trades at 24.1x/ 16.7x / 14.2x / 11.6x of FY16/17/18/19e. We initiate a coverage on FIL with BUY rating and a price target of Rs. 158 with a potential upside of 55% (18x PE multiple to FY19e EPS;10 year average PE).

Padmaja Ambekar | [email protected] | +91 22 6138 9381

Price Price Target Up/Down (%)

Rs. 102 Rs.158

Bloomberg Code

FWB IN -

Share Holding (%)

Promotor holding 55.5

Public 44.5

Stock Data

Nifty 8,775

Sensex 28,423

52 week high/low 110/14

Maket Cap Full (Rs. bn) 1.29

Price performance (%) 1M 3M 6M 1Y

Absolute 23.9 109.2 204.2 318.0

Relative to Sensex 22.4 102.8 184.6 307.3

Relative Performance

55%

As on June 2016

Reuters Code

50100150200250300350400450

Sep

-15

Oct

-15

Nov

-15

Dec

-15

Jan-

16

Feb

-16

Mar

-16

Apr

-16

May

-16

Jun-

16

Jul-

16

Aug

-16

BSE Sensex Fiberweb India Ltd.

Source:-Bloomberg

Note: February 2016 to May 2016, the stock trading was restricted

due to new issue of shares as per BIFR order

Sector: AUTO ANCIALLARY

29th April, 2015

Initiating coverage

BUY

Initiating coverage

BUY

Sector: Plastic Products

2nd September, 2016

Fiberweb (India) Ltd. | 2 September 2016

| Equity research | 2


Industry

Technical textiles has specific physical and functional properties due to which it is used by

several user industries. Depending on the product characteristics, functional requirements and

end-user applications. The highly diversified range of Technical Textile products have been

currently grouped into 12 categories based on application: 1) Agrotech (Agriculture, horticulture

and forestry), 2) Buildtech (building and construction), 3) Clothtech (technical components of

footwear and clothing), 4) Geotech (geotextiles, civil engineering), 5) Hometech (components of

furniture, household textiles and floor coverings), 6) Indutech (filtration, cleaning and other

industrial usage), 7) Meditech (hygiene and medical), 8) Mobiltech (automobiles, shipping,

railways and aerospace), 9) Oekotech (environmental protection), 10) Packtech (packaging), 11)

Protech (personal and property protection), 12) Sportech (sport and leisure)

The global market for Technical Textiles is expected to grow, driven by the increasing use of

products particularly non-woven in emerging markets like Asia, because of increased levels of

consumption and production, availability of skilled labour, and developing infrastructure facilities.

The global technical textiles market is expected to reach $193.16bn by 2022. The demand for

global technical textiles was 26.58mn tons in 2014 and is expected to reach 35.47 mn tons by

2022 at a CAGR of 3.7% over FY15-22.

Indian Scenario of Technical Textiles

India accounts for 3% of the world Technical Textile production producing roughly 104,000 MT of

Technical Textiles in 2010. India represents less than 5% of the global technical textiles

production. India accounts for 4% of global Technical Textile exports and 3% of global imports.

China and Europe are the leading manufacturers accounting for over 75% of Technical Textile

production along with the largest exporters, and U.S & Europe are the largest importers of

Technical Textiles.

Exhibit 2: Fiber consumption of Technical Textiles across the world

0%

4%

8%

12%

-

300

600

900

1,200

1,500

1,800

Ch

ina

US

Eu

rop

e

Tu

rke

y

Ko

rea

Ru

ssia

Jap

an

Ta

iwan

India

Bra

zil

in '0

00

MT

PA

2009 2013 Growth rate (RHS) Source: BSTT, BOBCAPS

Based on past trends of growth and estimated growth in end user segment, India’s technical

textile industry is expected to grow at rate of 20% YoY during 12th Five Year Plan (FYP). The

Working Group on Technical Textiles for 12th FYP projected the market size to reach US$ 29 bn

by FY17. The segment wise expected growth of Technical Textiles is shown in the following

table.

Fiberweb (India) Ltd. caters to Technical Textile products.

Growing global demand for non-woven products augurs well for FIL

Technical textile – an emerging sunrise sector




Exhibit 3: Expected growth of Technical Textiles in India

Sr. No. Segment Expected growth (%) Expected growth by 2016-17 (USD mn)

1 Agrotech 20 340

2 Meditech 20 1,039

3 Mobiltech 17 1,870

4 Packtech 22 11,782

5 Sportech 17 622

6 Buildtech 17 541

7 Clothtech 22 4,277

8 Hometech 20 3,542

9 Protech 23 967

10 Geotech 22 201

11 Oekotech 22 66

12 Indutech 18 2,034

Total 27,281

Source: Ministry of Textiles, BOBCAPs

Non-woven Fabrics: Non-woven fabric is made from long fibers, bonded together by chemical,

mechanical and heat solvent treatment. The manufacturers usually manufacture the fabric in a

roll form and sent to various other industries where it has end applications, where it is cut and

given in different form depending upon the use. Non-woven Technical Textiles have diverse

applications across various segments of Technical Textiles like automotive, geo-textiles and

health/hygienic sectors.

In global non-woven production China is the leader with close to 70% of global production

growing at 13% during the last five years. India accounts for 2% of global non-woven production

and has witnessed a high growth rate of 13% over the last five years. However compared to the

global average per capita consumption of 1.1 kg of non-woven, India consumes only 200 gm of

non-woven per capita. This indicates the high potential of non-woven usage that can be achieved

in India going forward. India’s per capita consumption of technical textiles is 1.7kg vs 10-12 kg in

developed countries. Technical textiles comprises only 11% of Indian Textile industry as

compared to 27% globally and 50% in some developed countries.

Exhibit 4: Production of non-woven across major countries

-5%

-1%

3%

7%

11%

15%

-

500

1,000

1,500

2,000

2,500

Eu

rop

e

Tu

rke

y

Chin

a

India

Ko

rea

Bra

zil

Me

xic

o

in '0

00

MT

PA

2009 2013 Growth rate (RHS)

Source: BSTT, BOBCAPS

Increasing market size to drive the Technical Textile sector

India has witnessed a high growth rate of 13% over the last five years




Exhibit 5: Non-woven production trend for India

-

50

100

150

200

250

300

350

400

FY08 FY09 FY10 FY11 FY12 FY13 FY14(P)

FY15(P)

FY16(P)

in '0

00

MT

Source: BSTT, BOBCAPS

We believe, factors like ease of doing business and technology integration can further drive

growth in technical textile sector in India. With increase in investments in industry sectors, higher

consumption and growing exports, the industrial sector is poised for considerable growth.

Growing awareness about the superior functionality of technical textiles will also encourage

higher consumption of the Technical Textile (TT) products.




Investment rationale

Fiberweb India Ltd. (FIL) is a pioneer of Spun bond nonwoven fabric production in India

which was incorporated in 1985. It is engaged in manufacturing and exporting of Non-

Woven Spun Bonded Polypropylene Fabric across the world. It is 100% Export Oriented

Unit (EOU) with ~75% of the products exported (25% deemed export) to countries like

U.S.A., U.K., EUROPE, AUSTRALIA, NEW ZEALAND, SOUTH AFRICA AND GULF

countries.

FIL underwent through stressful years in the past due global recession, huge cost overrun

on account of adverse currency movement ($ denominated loan; thus overrun of interest

cost). Hence overall financials adversely impacted. However, the Company come out of

the stress in 1QFY17 through settling dues of Rs 1.03bn for Rs 220mn. With the improving

in global demand for TT products FIL sees good days ahead.

Expected growth in the economy, government initiatives to promote the Technical Textile

(TT) sector, Increase in investments in industry sector, higher consumption and growing

exports augurs well the company. The company has robust order book of ~ Rs.789.1 mn

which is expected to be executed by FY17. Its current capacity is ~5000 MT and has

expansion plan of additional ~12,000 MT in FY18 which would be the key growth driver for

the revenue growth at a CAGR of 47% over FY17-19e. We believe, the company’s revenue/

earnings would grow at a CAGR of ~36% / 30% over FY16-19e led by 1) huge expansion

plan (capacity expansion of more than double) 2) Government initiatives to promote TT

sector 3) increasing per capita income 4) changing perception of consumers towards

disposable products 5) increasing export orders.

Superior quality and product development is a key to grow

FIL has state of art facility with unique double beam technology which has diverse applications

supplied by the renowned manufacturer, REIFENHAUSER Gmbh of Troisdorf, Germany. Hence

the products of the company are of best quality and have been accepted by giant companies as

end-users in many advanced countries. Its bag unit where it produces Garbage bags and Carrier

bags has a modern plant ensure quality products to meet the international standards. The

Company has implemented comprehensive quality management systems in all functional areas

like marketing, material Management, production, maintenance, quality assurance and Customer

Services. It has certificates like ISO 9001-2008, 14001-2004, OHSAS 18001:2007 Certified by

quality Registrar Intertek and UKAS. Apart from the above, the Company also holds

authorization/accreditation conforming to Oeko-Tex standards from Hohenstein Textile Institute,

Germany. The company’s ability to produce superior quality product and continuous Research &

Development would help the company to sustain its revenue growth from export markets.

Recently FIL received three orders from USA worth of Rs.121 mn / Rs. 136 mn / Rs. 148 mn

respectively.

Exhibit 6: Company’s nonwoven plant at Daman

Source: Company, BOBCAPs

Consistent in superior quality of product

No wastage of raw material – waste material is recycled and used in non-hygienic products




Worldwide presence

FIL is a 100% Export Oriented Unit (EOU) of Spun Bond Polypropylene Nonwoven Fabrics &

products. The company exports ~ 75% of products to countries like U.S.A., U.K., EUROPE,

AUSTRALIA, NEW ZEALAND, SOUTH AFRICA AND GULF countries. It has diversified business

spread across the regions which enable to cater more demand worldwide. This reduces the

concentration risk and dependence on any particular market/ economy. The company is

experiencing rising trend of exports/ domestic sales at a CAGR of ~66%/ ~107% respectively

over FY12-FY16. With high potential growth in specific sector applications and favorable

opportunities in India, we expect deemed exports to grow which would aid to the revenue

contribution of the company going forward.

Exhibit 7: Geographical spread Exhibit 8: Increasing order execution

USA, 80%

Europe & UK, 10%

Rest of the world *,

10%

-

100

200

300

400

500

FY12 FY13 FY14 FY15 FY16 FY17

Rs. m

n

Deemed exports Exports

Source: Company, BOBCAPS

* South Africa, Newzeland, Africa, Gulf Countries Source: Company, BOB Capital Research

Proposed capacity expansion to boost the topline

The Company has focus on Technical Textile products and presence worldwide. Its current

capacity is ~5000 MT and capacity utilization is ~79% with one owned imported (two bims)

machine. It also has additional ~2500 MT capacity with a leased machine from Unimin India Ltd.

and capacity utilization is ~80%. Both the machines are from renowned manufacturer

REIFENHAUSER Gmbh of Troisdorf, Germany due to which quality of the product is maintained.

Out of ~79% capacity utilisation. It has strong client base out of India and locally it supplies to

multinational companies like Johnson & Johnson India Ltd, and Unicharm India Ltd.

The management stated that, the demand is increasing across the markets (domestic &

international) due to which the company is planning expansion in FY17-18. The company has

plans to buy two more machines which would add the capacity (~10000 MT / ~2000 MT

respectively) to fulfill the current market demand. Also it has plans to improve manufacturing

efficiency by incorporating various balancing equipment’s. We expect this expansion would give

additional ~12000 MT capacity (Total capacity would be 17000 MT) and upsurge the company’s

revenues at a CGAR of ~36% over FY16-19e.

Least affected commodity fluctuation

FIL’s main raw material is ‘Polypropylene’ (PP) which is a derivative of crude oil. Thus the prices

of PP are dependent on the prices of crude oil. In last Five years the crude oil prices have

corrected by 58% whereas PP prices have corrected by 40% which augurs well for the company.

However, the product life cycle is very short, therefore the procurement price of raw material and

selling price of finished goods is frozen simultaneously at the time of receipt of order (which take

care of commodity fluctuation). The company imports PP from the world class producer,

Exxonmobil Co. U.S.A. It is benefitted from the low cost manufacturing (as cheap labour cost and

lower electricity charges) vs its peers. Exxonmobil is a preferred supplier for FIL where it enjoys

more than 20 years of business relations and gives quality assurance to the company. The

company also enjoys natural hedge as FIL imports raw material from Singapore and exports

finished products to U.S.A., U.K., Europe, Australia, New Zealand, South Africa and Gulf

Scope to be widened led by expansion and strong clientele

Cheap labour cost and other lower electricity charges to support higher margins




countries (Sales and raw material in USD). We assume this will continue to remain same going

forward.

Exhibit 9: Commodity prices trend

Exhibit 10: Average labour cost across

countries - 2011

0

30

60

90

120

150

-

500

1,000

1,500

2,000

2,500

Au

g-1

1

Dec-1

1

Ap

r-12

Au

g-1

2

Dec-1

2

Ap

r-13

Au

g-1

3

Dec-1

3

Ap

r-14

Au

g-1

4

Dec-1

4

Ap

r-15

Au

g-1

5

Dec-1

5

Ap

r-16

US

D/b

arr

el

US

D/

MT

Polyprop (LHS) Brent (RHS)

30.39

17.4

3.41

1.06

0 10 20 30 40

France

US

Brazil

India

Labour cost in USD per hour


Source: Company, BOB Capital Research

Government’s initiatives towards TT to open up India as a new market

Government of India has taken lot of initiatives like ‘Make in India’, import substitution, export

promotion and increased consumption for promoting the growth of technical textiles. Technical

Textile has been identified as one of the four priority segment & 15% capital subsidy is being

provided, schemes for promoting Agro-textiles & Geotextiles in the North East, recently duty

rationalization for select specially fibres was also announced. The government is

implementing scheme for usage of agri-textiles in north-eastern region and restructured

technology upgradation fund scheme.

The Revised Restructured Technology Up gradation Fund Scheme (RRTUFS) covers

manufacturing of major machinery for technical textiles for 5% interest reimbursement and

10% capital subsidy in addition to 5% interest reimbursement also provided to the specified

technical textile machinery under RRTUFS.

The major machinery for production of technical textiles receives a concessional customs duty

list of 5%.

Diversified product portfolio to drive demand in domestic market

India is moving towards globalization and approaching westernization therefore it has huge

potential for technical textile industry. It has witnessed significant growth of 16% over FY02-10

and is expected to grow at a CAGR of 20% with market size of US$ 28,727mn by FY17. Indian

markets were dominated with large unorganized player (Chinese players) with lower quality

products. However with increasing quality cautiousness and awareness for hygiene, FIL is

looking India as potential market. FIL is present mainly into Personal Hygiene and medial usage,

Agricultural usage, Hometech usage.

Personal Hygiene and medial usage: It includes all those textile materials used in health and

hygiene applications in both consumer and medical markets. India is moving towards

modernization and fast living style, due to which consumers are getting attracted towards

disposable products like sanitary pads, baby diapers or wips etc. Earlier these products were

hardly used by the common people but now it is entering into rural areas also. As per the Ministry

of Textiles, the total market size of medical textile has projected to grow to ~ Rs. 43 bn by FY16

growing at a CAGR of ~9% and ~Rs. 51 bn by FY18.

Agricultural usage: It includes woven, non-woven and knitted fabrics applied for agriculture,

cultivation, for covering, livestock protection, shading, weed and insect control. The products

includes Crop cover, shade nets, Mulch mats, Anti hail nets and bird protection nets, Fishing

nets, other Nettings for agriculture. The domestic market is expected to grow to ~ Rs. 9 bn by

Imported Materials at Internationally Competitive Prices

Government initiatives like ‘Make in India’, import substitution, export promotion to boost the technical textile sector

Growing opportunities in indigenous Market

India - Untapped market for disposable TT products to drive potential growth




FY16 while the exports was expected to reach ~ Rs. 3 bn by FY16 and to ~ Rs. 16 bn by FY18.

Overall the market is expected to grow at ~12%.

Hometech usage: It comprises of the textile components used in household applications. The

major products under the segment are Mattress and pillow components, Carpet backing cloth,

Stuff toys, Filter fabrics for HVAC and Vacuum cleaner, Nonwoven wipes, Mosquito nets,

Furniture fabrics and other coated fabrics. This segment was projected to grow to ~ Rs. 93 bn in

FY16 at a CAGR of ~14% and further to ~ Rs. 121 bn by FY18.

We believe, consumer needs and market demands are changing and products of personal

hygiene (e.g. Baby / Adult diapers, sanitary napkins), Agricultural usage (e.g. Crop covers, soil

covers, wind and insect protection), Medical usage (e.g. medical made ups, bed linen, etc., and

other applications like filtration medium, industrial work clothing, head covers, disposable table

wipes and mats, etc.) will be used more and more on daily basis. This augurs well for the

Company to increase the market share and grow in the domestic market.

Exhibit 11: Market size in India

Agrotech Medtech Hometech

0.6

0.8

1.9

0

0.5

1

1.5

2

FY08 FY12 FY17 (P)

'00

0 C

r.

2.2 2.3

5.7

0

1

2

3

4

5

6

FY08 FY12 FY17 (P)

'00

0 C

r.

5.0

7.8

19.5

0.0

5.0

10.0

15.0

20.0

FY08 FY12 FY17 (P)

'00

0 C

r.

Source: Industry, BOBCAPS

Robust order book gives revenue visibility

FIL has strong order book of Rs.789 mn including export order worth of Rs. 489 mn and domestic

worth of Rs. 300mn executable over FY17-18. In agriculture, Hygiene and laminated segment

Company’s products command premium in USA, UK, Europe and Middle East. Its order book has

grown at a CAGR of 72% / 62%, domestic / international respectively over FY12-FY17. Recently

the company has done a pilot marketing of the products and experienced a good response from

developed countries like USA, UK and Europe. We expect this will help to grow order book going

forward.

Exhibit 12: Increase order book trend

-

100

200

300

400

500

FY12 FY13 FY14 FY15 FY16 FY17

Rs. m

n

Deemed exports Exports

Source: Company, BOBCAPs

Increasing adaptability and acceptance of products to encourage higher consumption

FIL is among the top 10 international non-woven companies by sales value in FY12

Sizeable order book ensuring revenue growth




Growing per capita income & increasing awareness for hygine can create room for growth

India’s population is 1.3 bn second most populous country in the world. More than 50%

population is below the age of 25 years, more than 65% is below 35 years. It is expected that, in

2020, the average age of an Indian will be 29 years. The growth rate in per capita income was

estimated at 6.2% during FY16 as against 5.8% in FY15 and further Central Statistics Office

(CSO) has projected the economy to grow at 7.6%.

The demand for Technical Textile products like Hometech, Meditech, Aggrotech, Indutech,

Clothtech, Buildtech, Mobiltech etc will be fueled by population growth (expected to reach ~1.35

bn by 2020) and increase in purchasing power parity. Growing income levels, improved life styles

and increase in disposable income will enable consumers to make more discretionary spending

on TT products. GDP per capita is expected to keep rising more than ~4% annually between

2015 and 2020. In India, the middle class population is well educated and receptive to many TT

products, particularly disposable products which have a huge market in Western countries. We

believe, growing awareness about the superior functionality of technical textiles will encourage

higher consumption of these products.

Sucessfully out of Board for Industrial and Financial Reconstruction (BIFR)

The company is engaged in the manufacture of Mono Layer and Multi-Layer Films, Spun Bond

Nonwoven Fabrics for export markets. Unfortunately due to Global recession there was huge cost

overrun, which led to additional interest burden and financial liability to the Company. The lower

sales price in the international market led to poor margin which led erosion in networth of the

company. Therefore, the Company had to file a reference with the BIFR.

(The Board for Industrial and Financial Reconstruction (BIFR) is an agency of the government of

India, part of the Department of Financial Services of the Ministry of Finance, formed for Revival

and Reconstuction of Sick Units.)

With the change in demand scenario in global markets, and with the help of Govt. initiative the

company came out of BIFR in October 2015.

In FY15, FIL’s net worth was negative with accumulated loss of Rs. 922.8 mn. In Q1FY17, the

Company made structured deal with its creditors and successfully convinced them for settling

their dues. The Company has written back their dues for which Company had already made

provisions in past years total worth to Rs. 1.03 bn. Because of this impact FIL’s net worth

becomes positive to Rs. 598 mn in June 2016.

Increasing disposable income to drive demand for technical textile (TT) products

Rising per capita income, shift in preference for branded products is expected to boost the demand for TT products




Key risk

Chinese product competition in the markets.

Any change in government policy,

Increase in ocean freight and wide fluctuation in Polymer Prices which is raw material can be

a major constrain and could adversely affect the profitability of the company

Economic recession can affect the production and distribution of the essential petrochemical

products




Valuation:

Fibreweb (India) Ltd is engaged in the manufacture of High Quality Spun Bond Nonwoven

Roll Goods Used in Hygiene Industry, Agriculture Crop Cover, Medical & Industrial

Clothing & other Innovative Uses. The company's product range includes High Quality

Spun Bond NONWOVEN Roll Goods, Mono layer and multiplayer films, Garbage bags,

Carrier bags, Spun Bond Nonwoven Fabrics, Lamination, Masking, etc.

The company’s current capacity is ~5000 MT with ~80% utilization. In addition it proposes

to take up the expansion programme (~12,000 MT additional capacity) in view of the

increasing demand for its products in the international markets. This expansion is

expected in FY18 and the capacity would be operational from Q2FY18. With this expansion

the company’s production would increase to more than double. The effect of this could be

seen in revenues of Q3FY18.

We assume that, for the expansion the company requires ~Rs.1.3 bn Out of this the

company will use Rs. 200 mn from internal accrual and we assume it will be taking Rs. 800

mn by External Commercial Borrowings (ECB) in FY17 (interest @ 6%) as the company’s

business is purely into foreign currency and Rs. 300 mn by equity dilution in FY18. Equity

dilution would led increase in net worth and EPS due to increased number of shares

without any contribution from new capacity.

The stock currently trades at 24.1x/ 16.7x/ 14.2x/ 11.6x of FY16/17/ 18/19e. Its average PE is

18x for last 10 years. We assign 18x PE multiple to FY19e EPS and arrive at a price target

of Rs.158 with potential upside of 55%.

Exhibit 13: One year forward PE

0

15

30

45

60

75

90

Au

g-0

9

Fe

b-1

0

Au

g-1

0

Fe

b-1

1

Au

g-1

1

Fe

b-1

2

Au

g-1

2

Fe

b-1

3

Au

g-1

3

Fe

b-1

4

Au

g-1

4

Fe

b-1

5

Au

g-1

5

Fe

b-1

6

Au

g-1

6

x

Price Avg PE

Avg PE 17.99x

Source: Bloomberg, BOBCAPS




Financial summary

Revenues to grow at a CAGR of ~39% over FY16p-18e

Due to recession in global markets, the revenue grew at a CAGR of 7% over FY11-16. Also in

FY16, sales was impacted due to delay in renewing an agreement for leased machine by the

owner Unimin India Ltd. (FIL has taken ~2500MT machine on lease from Unimin India Ltd.) With

the improved global demand the company has started receiving orders and has strong order

book of Rs. 789 mn to be commissioned by FY17. Also the advance product showcased by the

company in USA, is well accepted by the customers and it has received pilot orders worth Rs 405

mn in the month of July and August 2016.

Current order book ensures stable growth in revenues and we expect, proposed capacity

expansion of 12000 MT (led by increasing global demand and opportunities in domestic market)

would provide higher growth visibility over FY16-19e. As per management, the company is

planning to spread out its wings in domestic market as well, on account of improving

opportunities in Technical Textile industry in India. We believe, FIL’s revenues to grow at a CAGR

of ~36% over FY16p-19e led by robust expansion plan along with diversification of products,

rising awareness of TT products in India.

Exhibit 14: Revenues to grow at a CAGR of ~36% over FY16p-19e

26.4

6.5

-9.4

15.0

60.0

35.6

-20

0

20

40

60

80

200

400

600

800

1,000

1,200

1,400

1,600

FY14 FY15 FY16P* FY17e FY18e FY19e

%

Rs m

n

Net sales Growth yoy (%)

Source: Company, BOBCAPSe

*p: provisional

EBITDA margins to grow by ~661 bps over FY16p-19e

The company’s EBITDA margin was under stressed due to lower operational efficiency in the

year FY14 & FY15. The EBITDA margin improved from 1.8% in FY14 to 12.6% in FY16. In

1QFY17 the company posted EBITDA margin of 23.9% vs 7.4% in 1QFY16. With the increasing

operational efficiency, higher capacity utilization, increasing demand for high margin products and

continuous development through R&D, we expect company to maintain higher margins in future.

On a conservative basis we expect EBITDA margin of 14.7%/16.3%/19.2% in

FY17e/FY18e/FY19e with an overall expansion of ~661 bps over FY16-19e.

Exhibit 15: EBITDA to grow at a CAGR of 56% over FY16p-19e

1.82.9

12.614.7

16.3

19.2

0

4

8

12

16

20

24

-50

50

150

250

350


%

Rs m

n

EBITDA EBITDA margin (%)


*p: provisional




Return ratios

FIL’s ROE was negative -3.5% / -15.9% in FY15 / FY16 respectively due to negative net worth

and accumulated loss. With the structured deal with its creditors, the company has written back

its dues in 1QFY17 worth of ~Rs. 1.03 bn. This impacted in positive net worth of Rs. 598 mn (in

June 2016). Going forward, we assume the company to issue fresh equity for the planned

capacity expansion in FY18. The result will start flowing in 2H FY18 onwards, as the machine

would be operational by 1QFY18. We expect the return ratios of the company to improve on

account of steady earnings growth of ~27% CAGR over FY16p-19e and improving operational

efficiency. We believe, FIL’s ROCE/ ROE to improve from 7.8% to 11.7% / -15.9% to 11.9% in

FY16p/ FY19e respectively.

Exhibit 16: ROCE & ROE

-20

-15

-10

-5

0

5

10

15

FY

14

FY

15

FY

16P

*

FY

17e

FY

18e

FY

19e

%

RoE RoCE


*p: provisional

Debt to equity Ratio

FIL successfully completed restructuring of debt by clearing dues of Rs 1.03 bn for Rs 22.8 mn in

1QFY17. The company has expansion plans with the additional capacity of 12,000 MT (capex of

~Rs 1.3 bn) and looking out for various options to raise funds. In our view, being the 100% export

unit, FIL can avail ECB loan (lower interest rate; we assume 6% P.A interest rate). For our

calculation, we assume, the company to avail loan Rs 800 mn in FY17. This will lead to increase

its D:E ratio however well within the limit (D:E ratio 0.9x after the loan). We expect, with the

increase in demand the company will able to service the interest comfortably.

Exhibit 17: Debt / Equity

-2.1 -2.1 -2.3

0.9 0.7 0.7

-3.0

-2.0

-1.0

0.0

1.0

2.0

FY14 FY15 FY16P* FY17e FY18e FY19ex

Debt/equity (x)


*p: provisional

PAT to grow at a CAGR of 27% over FY16-19e

FIL’s has received a tax benefit from BIFR, under which the company is not liable to pay tax till FY18. This will led to increase absolute PAT and would maintain PAT margin even after the increase in interest rate (led by proposed expansion with the help of debt in FY18).




Exhibit 18: PAT & PAT margin trend

Exhibit 19: EPS growing at a CAGR of

27.6% over FY16p-19e

-1.2

3.0

11.5 10.9 10.4 9.3

-5

0

5

10

15

-10

30

70

110

150

FY

14

FY

15

FY

16P

*

FY

17e

FY

18e

FY

19e

%

Rs m

n

PAT PAT Margin (%)

-0.7

1.9

4.2

6.17.2

8.8

-2.0

0.0

2.0

4.0

6.0

8.0

10.0


x






Exhibit 20: Income statement

Year end: March (Rs mn) FY14 FY15 FY16P* FY17e FY18e FY19e

Net sales 640 681 617 710 1,136 1,541

Growth yoy (%) 26.4 6.5 (9.4) 15.0 60.0 35.6

Total income 642 683 619 713 1,140 1,545

Expenditure 630 663 541 608 954 1,248

EBITDA 12 20 78 105 186 297

Change (%) (39.0) 69.9 290.9 33.8 77.5 59.9

EBITDA margin (%) 1.8 2.9 12.6 14.7 16.3 19.2

Depreciation 23 1 32 28 44 62

PBT (7) 20 71 77 118 192

Tax - - - - - 48.0

Effective rate (%) - - - - - 25.0

PAT (7) 20 71 77 118 144

Growth yoy (%) (18.5) (373.5) 249.1 8.5 52.8 22.2

PAT Margin (%) (1.2) 3.0 11.5 10.8 10.3 9.3

Exhibit 21: Balance sheet


Sources of funds

Share Capital 110 110 126 126 163 163

Reserves (706) (686) (573) 789 906 1,050

Net worth (596) (576) (447) 915 1,070 1,214

Net deferred tax - - - - - -

Loans 1,233 1,216 1,035 801 801 801

Capital employed 678 688 588 1,716 1,871 2,015

Application of funds

Net Fixed Assets 540 543 409 381 1,337 1,375

Capital WIP - - - - - -

Curr.Assets, L & adv. 177 182 209 1,370 585 705

Inventory 76 84 75 86 134 177

Sundry Debtors 42 32 53 60 97 131

Cash & Bank Balances 26 43 64 1,204 331 370

Loans & advances 34 23 17 20 23 26

Other current assets - - - - - -

Current Liab. & Prov. 39 38 30 35 51 65

Current liabilities 34 35 25 30 46 60

Provisions 5 3 4 5 5 5

Net Current Assets 138 144 179 1,335 534 640

Application of Funds 678 688 588 1,716 1,871 2,015


*p: provisional




Exhibit 22: Ratios (%)


Per share data (Rs.)

EPS -0.7 1.9 4.2 6.1 7.2 8.8

Cash EPS 1.4 2.0 8.2 8.3 9.9 12.6

Book Value per share -0.5 -0.5 -0.4 0.7 0.7 0.7

DPS 0.0 0.0 0.0 0.0 0.0 0.0

Valuation (x)

P/E (diluted) -149.1 55.1 24.1 16.7 14.2 11.6

Cash P/E 73.5 52.1 12.5 12.3 10.3 8.1

EV/EBITDA 1053.6 618.5 176.5 118.8 92.2 57.5

EV/sales 19.4 18.2 22.4 17.5 15.1 11.1

Price to book value -1.9 -1.9 -2.9 1.4 1.6 1.4

Dividend yield (%) 0.0 0.0 0.0 0.0 0.0 0.0

Profitability ratios (%)

RoE 1.2 -3.5 -15.9 8.4 11.0 11.9

RoCE -1.0 3.1 7.8 4.5 7.6 11.7

RoIC 1.7 3.1 13.4 20.2 18.1 18.7

Leverage ratio

Debt/equity (x) -2.1 -2.1 -2.3 0.9 0.7 0.7

Exhibit 23: Cash flow statement (Rs mn)


OP/(loss) before tax -11 19 46 77 142 235

Interest/div. received 4 2 0 0 0 0

Depreciation & amort. 23 1 32 28 44 62

Direct taxes paid 0 0 0 0 0 -48

(Inc)/dec in wkg. capital 74 12 -15 -15 -72 -67

CF from op. activity 92 39 17 89 114 183

(Inc)/dec in FA+CWIP -5 -4 103 0 -1000 -100

CF from inv. activity -5 -4 103 0 -1000 -100

Inc./(dec) in networth 0 0 58 1284 38 0

Inc/(dec) in debt -87 -16 -181 -234 0 0

Interest paid -1 -1 0 0 -24 -43

Dividends paid 0 0 0 0 0 0

CF from fin. activity -88 -17 -124 1050 13 -43

Inc/(dec) in cash -2 18 21 1140 -873 39

Add: beginning balance 28 26 43 64 1204 331

Closing balance 26 43 64 1204 331 370


*p: provisional




Company Profile

Fiberweb (India) Ltd. was incorporated in 1985. The company is a pioneer of a spunbond

nonwoven fabric plant in India. It manufactures innovative and high quality Spun Bond

Polypropylene Non-Woven roll goods and products. The Company has implemented

comprehensive quality management systems in all functional areas like marketing, material

Management, production, maintenance, quality assurance and Customer Services, to fully satisfy

the Customer under ISO 9001-2008, 14001-2004, OHSAS 18001:2007 Certified by quality

Registrar Intertek and UKAS. Apart from this, the Company also holds authorization /

accreditation conforming to Oeko-Tex standards from Hohenstein Textile Institute, Germany.

Nonwoven Unit (100% EOU):- This unit is set up for manufacture of Non-Woven Spun Bonded

Polypropylene Fabric with the state of art REICOFIL II DOUBLE BEAM plant supplied by the

renowned as No.1 manufacturer REIFENHAUSER Gmbh of Troisdorf, Germany. This fabric has

diverse applications. The main Raw Material Polypropylene is imported from world class

renowned producer Exxonmobil Co. U.S.A. Its Bag Unit is 100% EOU and manufacturers

Garbage bags and Carrier bags. This unit has a modern plant to ensure quality products

conforming to International standards. The Company exports ~75% of the products to U.S.A.,

U.K., Europe, Australia, New Zealand, South Africa and Gulf countries. In agricultural field

Company’s products command premium. In India Company supplies to Multinational Companies

Johnson & Johnson India Ltd. and Unicharm India Ltd.

Exhibit 24: Products and usage:

Personal Hygiene usage

Baby Diapers Adult Diapers Sanitary Napkins

Features & Benefits: Light weight, Soft, Uniform and Strong, Economical

Agricultural usage

Crop Cover Soil Cover Wind and Insect Protection

Features & Benefits: Protects against UV Radiation, Wind and insects and Hail storm, increases

farm production, Economical

Medical usage

Protective Garments in Hospitals & Industries

Bed sheets & Pillow/Head covers, Curtains

Lining/Backing/Interlining in Upholstery, luggages & Garments

Features & Benefits: Easy to cut, stitch and heat seal, Easy to print, dye and laminate, Economical





The company has a separate division for manufacturing stitched garments like medical and

industrial gowns & overhauls, Aprons, Bed covers, pillow covers, and Bags etc. as per customer’s

specifications and requirements.

Other products


Exhibit 25: he Product – Broad Specifications

Weight (GSM)

Width (CM)

Length/Roll (M)

Roll Dia (CM)

Weight/Roll (KG)

Core Dia

(MM) Colours Treatment

15-150 10-320 500-7500 25-100 10-500 76

&101.5

Wide Choice

Hydrophilic U.V.Stabilised

Antistatic/Antiskid, Flame Retardent


Exhibit 26: Key Management

Name Designation

Mr. Pravin V. Sheth Chairman & Managing Director

Mr. P.S. Krishnan Executive Director

Mr. G. Ravindran Executive Director





Disclaimer BUY. We expect the stock to deliver >15% absolute returns. HOLD. We expect the stock to deliver 5-15% absolute returns. SELL. We expect the stock to deliver <5% absolute returns. Not Rated (NR). We have no investment opinion on the stock. “The BoB Capital Markets research team hereby certifies that all of the views expressed in this report accurately reflect our personal views about the subject company or companies and its or their securities. We also certify that no part of our compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report."

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Hareesha Kakkera - Associate Bio Technology, Pharmaceuticals

+91-22-6138 9351 [email protected]

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