Lower raw material prices and higher export contribution to enhance margins: In the last six years, despite volatile raw material prices, Garware-Wall Ropes (GWRL) has maintained its operating margin in the range of 10-11%. The company’s key raw materials are crude based; the recent decline in crude prices has resultantly had a favorable impact on the company’s margins. Crude prices have declined by ~37% on an YTD basis and by ~40% on a yoy basis. The company’s EBITDA margins, as a result, expanded by 145bp yoy in 1HFY2016. Crude prices are likely to continue to remain soft and thereby translate into lower raw material (high density polyethylene, polyethylene, nylon etc) prices for the company, which in turn will result in improvement in the company’s EBITDA margin going forward. Moreover, higher contribution of exports as well as better product mix augurs well for the company. Debt repayment and improving return ratios: The company is continuously generating higher cash flows, which has resulted in debt reduction and improvement in ROE. The company has been consistently repaying debt over the past four years, resulting in debt having come down from ~Rs140cr in FY2012 to Rs45cr in FY2015. Going forward, we believe the company will continue repaying debt with strong cash flows, which in turn will lead to reduction in interest costs (interest costs have reduced from ~Rs17cr in FY2010 to ~Rs10cr in FY2015). For 1HFY2016, the interest cost has reduced by ~25% yoy to Rs4.0cr (against Rs5.2cr in 1HFY2015). A lower interest expense in turn will lead to higher profitability for the company. Further, the company’s ROE has improved from 9.6% in FY2012 to 13.8% in FY2015. Outlook and valuation: At the current market price, GWRL trades at a P/E of 14.3x its FY2017E EPS. We had last upgraded our target price to Rs423 (after the company’s 2QFY2016 results) which has now been achieved (on 23rd December, 2015). We are revising our recommendation on the stock to Accumulate and are further upgrading our target price to Rs473 (16x FY2017E EPS), indicating further upside in the stock price of ~12% from the current levels. Click here to download research report