Recently I have strated writing notes for my reference for stock identification and rationale: I provide below some of them:
My notes on stock identification – Garware Hitech Films (GHFL)
I was going through presentation by Ian Cassel on multi-baggers https://www.youtube.com/watch?v=trT3GmEWZPg . He talked about a business XPEL which makes Paint Protection Film (PPF) for auto companies. It has gone up over 100x in the last 10 years. I was interested in knowing if there is any such firm in India. I searched for “paint protection” in screener. First name popped up was “Garware Hitech Film”.
I went through company presentation and I was positively surprised. Exports account for 75% which means good quality products and cost advantages. It seems much more diversified across Auto, Industrial, packaging, construction etc. vs. XPEL (only Auto). Its main products are PPF (30% of revenues and 80%+ of it is exported) and Solar Control Film, SCF, (36% of revenues and 90%+ is exported).
Positive triggers ahead: SCF second line to have peak utilization by FY25, which means about 500 crores of revenues addition in two years (LTM revenue was ~1500 crores). In addition, there have been positive regulatory developments on safety glazing film (to achieve 6-8 % of revenues in next three years).
With above factors company can grow revenues at 15% CAGR for next two three years and bottom-line accretion could be in 20% range as company’s margins currently are suppressed due to aggressive investments (marketing and service centers) for PPF and safety glazing (it was banned in India but now re-launched).
Stock seems reasonably valued at 20PE with market cap of 3400 crores. It has a landbank of 1000 crores (source: Sharekhan report published on September 04, 2023).
Penetration of PPF on cars in India is below 1% vs. 10-12% in the US. PPF makes sense for cars above 20 Lakhs. This premium car market in India is growing rapidly. Hence, this can be a high growth exposure on auto growth.
Cost of PPF on per car in India including installation is 2 to 3 lakhs. ((credit to @spartan who has done some scuttlebutt)). While XPEL in its presentation shows 4000-6000 us dollars for PPF and ~1000 dollars for installation. So this puts total cost around 4 to 6 lakhs in the US.
Competitors: 3M, XPEL
Right to win (innovation, market share, cost) –
- In SCF, only company in the world with backward integration (Chip-to-films)
- Only one of 2 in dyed SCF
- Leading player in India’s shrink film (used in packaging) market with over 60% market share
- India’s first company to produce PCR grade & APR certified Ecofriendly Shrink Films
- GHFL is the only producer of professional-grade Premium paint protection film (PPF) in India.
Risks:
- Some related party transactions.
- Sitting on land of around 1000 crores (not an efficient use of resources) vs. mcap of 3400 crores
Thanks,
Disclaimer: I am not a financial advisor and nor a SEBI registered Analyst. The content shared here is only for learning purpose. All the names mentioned here are for example purpose. I may buy more, exit or partly sell the stock/bonds without any prior intimation.
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