Wires & Fabriks (SA) Limited BSE Scrip Code:

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1 Wires & Fabriks (SA) Limited BSE Scrip Code: Textiles September 17, 2012 Equity Statistics Current Market Price Rs Week High / Low Rs /68.50 Market Capitalisation Rs. crores 23.5 Free Float Rs. crores 7.0 Dividend Yield % 2.3 One Year Regression Beta Times 0.3 BSE Volumes Trend - Average = Thousand in '000s Business Summary Wires & Fabriks (SA) Ltd. (Wires & Fabriks) was incorporated in 1957 as Spinning Accessories Private Limited. It assumed its present name when it went public in M P Jatia is the Chairman, and B K Khaitan is the Managing Director. The company manufactures wire mesh, and fourdrinier wire cloth of all kinds. The company s product range now includes dryer screens (woven & spiral), pulp fabrics and technical fabrics for new industry segments where filtration/drying are required. The company was awarded accreditation under ISO 9002 system in 1994 and has been upgraded to 9001:2008 in The company is the first manufacturer of technical/industrial fabrics in the country to have in-house R&D recognized by Government of India. Currently, Wires & Fabriks is the market leader in India and the subcontinent for synthetic forming fabrics and among the few manufacturers in the world for SSB Fabrics, which represents the latest in synthetic forming fabrics technology. The company is able to maintain its leadership due to continuous thrust on R&D and technology up-gradation Relative Returns Sensex Wires & Fabriks In FY12, the company reported net sales of Rs.84.1 crore and net profit of Rs.5.1 crore. Geographically, the Indian market continues to be the key market contributing around 70% of net sales in FY12. Wires & Fabriks is currently trading at 4.6 times the FY12 EPS and 0.7 times the adjusted book value. Returns (%) 1M 3M 6M 1Yr Absolute 10% -15% -9% -24% Relative to Sensex 5% -23% -14% -31% Shareholding Pattern 100% 50% 0% Sep '11 Dec '11 Mar '12 Jun '12 Promoter DII FII Others Board of Directors Person Role M K Khaitan Executive Director & CEO K K Khaitan Joint Managing Director B K Khaitan Chairman & Managing Director S Ajmera Director M L Bhagat Director D D Trivedi Director Source: AR, Capitaline and CARE Research 1 Initiative of the BSE Investors Protection Fund

2 Background Wires & Fabriks was incorporated in 1957 as Spinning Accessories Private Limited. It assumed its present name when it went public in M P Jatia is the Chairman, and B K Khaitan is the Managing Director. The company manufactures wire mesh, and fourdrinier wire cloth of all kinds. The company s product range now includes dryer screens (woven & spiral), pulp fabrics and technical fabrics for new industry segments where filtration/drying are required. In November 1992, it came out with a rights issue aggregating Rs.3.66 cr. The amount was raised to part-finance the modernization of two of its weaving looms to produce higher-value-added multi-shaft double-layer synthetic fabrics. It entered into a technical collaboration with Hutter and Schrantz, Austria, for the same. As a part of its diversification process, it promoted Khaitan Paper Machines to rebuild paper machines, in technical collaboration with Neve Bruderhaus Machinen Fabrik, Germany. In , the company earned the distinction of being the first ISO 9002 company, in its field in India. Continuous inhouse R & D has resulted in the development of new fabric design facilitated to offer products matching to specific customer requirements. Business overview Wires & Fabriks derives its revenue primarily from two segments i.e. manufacturing of paper mill products (which comprise finished woven wired cloth and chemicals & equipments mainly for paper industry) and wind power. Geographically, the Indian market continues to be the key market contributing around 70% of net sales in FY12. Sales from the Indian market grew by around 4% in FY12 y-o-y, while the sales from overseas market exhibited a higher growth of around 28% y-o-y. Mono-filament yarn and chemicals are major raw materials (formed around 94% of the total cost of raw materials consumed in FY12) for Wires & Fabriks in manufacturing of wire mesh, and fourdrinier wire cloth. Strengths and growth drivers The company s core strength is in-house R & D. Due to continuous thrust on R & D and technology up gradation the company is able to maintain its leadership. The company mainly deals with technical products for the paper industry. The paper industry is growing higher than GDP growth rate and besides domestic sector growth opportunities also exist in the export sector. Risk and concerns Reduction in growth rate of Indian paper industry and increased competition both from domestic and overseas suppliers are main areas of concern. Foreign currency rate is also an area for concern given that about 75 % of the raw material is imported. Future strategy and expansion plans The company plans to add capacity through a new expansion-cum-modernization initiative for its new line of SSB forming fabrics with the help of the existing collaborator, M/s Albany International Corp. U.S.A Its future plans include development of new fabric design, new products and new types of seams for fabric joints. Industry outlook Indian textile industry largely depends on textile manufacturing and export. It also plays a major role in the economy of the country. India earns about 27 per cent of its total foreign exchange through textile exports. Furthermore, it contributes about 14 per cent to industrial production, 4 per cent to the gross domestic product (GDP), and 17% to the country's export earnings. The sector is the second-largest provider of employment after agriculture. It not only generates jobs in its own industry, but also opens up scopes for other ancillary sectors. The industry currently generates employment to more than 35 million people. The fibre and yarn produced in India is comparable to the best in the world. Indian fabrics are known for their excellent workmanship, colours and durability. Due to heavy investments in world-class manufacturing plants, continuous innovation, new product mix, and strategic market expansion, Indian man-made fibres (MMF) are all set to take centre stage in the global arena. The potential size of the Indian textile and apparel industry is expected to reach US$ 221 billion by 2021, according to Technopak's Textile and Apparel Compendium Initiative of the BSE Investors Protection Fund

3 Peer comparison Year ended March 31, 2012 Income statement (Rs. crore) Wires & Fabriks Lambodhara GTN Indian Total income Net sales EBITDA Ordinary PAT 4.7 (0.7) (4.4) 11.2 Adjusted PAT 4.7 (0.7) (4.4) 8.8 Per share data (Rs.) Adjusted BVPS Diluted EPS Growth (Y-o-Y) (%) Growth in total income (0.1) 28.3 Growth in net sales (6.2) 36.3 Growth in EBITDA (48.7) NM Growth in adjusted PAT 30.6 NM NM NM Growth in EPS* 19.6 NM NM NM Profitability ratio (%) EBITDA margin Adjusted PAT margin 5.6 NM NM NM Valuation ratios (Times) Price/EPS (P/E) 4.6 NM NM NM Price/Book value (P/BV) Enterprise value (EV)/EBITDA Note: Lambodhar: Lambodhar Textiles Limited., GTN: GTN Textiles Limited., Indian: Indian Card Clothing Co. Ltd. NM: Non Meaningful Quarterly financials Quarter ended June 30, 2012 Income statement (Rs. crore) Q1FY13 Q4FY12 Q3FY12 Q2FY12 Q1FY12 Total income Net sales EBITDA Ordinary PAT Adjusted PAT Growth (Q-o-Q) (%) Growth in net sales (12.6) 4.4 (6.9) 19.2 Profitability ratio (%) EBITDA margin Adjusted PAT margin Initiative of the BSE Investors Protection Fund

4 Financial analysis In FY12, the company reported net sales of Rs.82.5 crore up 12.5% y-o-y. Total income witnessed a growth of 11% during the same period. Raw materials form the largest portion of cost for the company. In FY12, raw materials cost as a percentage of net sales was at around 29%. The company reported EBITDA margins and adjusted PAT margins of 22.1% and 5.6%, respectively in FY12. The operating cycle of the company is around 106 days, i.e. around 3.5 months in FY12. Interest coverage ratio is comfortable, i.e. 2.3 times and the company s current ratio is 3.6, which shows that the company s liquid position to pay its current liability is comfortable. The company has paid a dividend of Rs.1.8 per share for FY12, resulting in a dividend yield of 2.3% at the current market price of Rs.77 per share. Annual financial statistics FY08 FY09 FY10 FY11 FY12 Income statement (Rs. crore) Total income Net sales EBITDA Depreciation and amortisation EBIT Interest PBT Ordinary PAT Adjusted PAT Balance sheet (Rs. crore) Adjusted networth Total debt Cash and bank Investments Net fixed assets (incl. CWIP) Net current assets (excl. cash, cash equivalents) Per share data (Rs.) Adjusted BVPS Diluted EPS* DPS Growth (Y-o-Y) (%) Growth in total income Growth in net sales Growth in EBITDA (0.1) 34.1 Growth in adjusted PAT Growth in EPS* Key financial ratio EBITDA margin (%) Adjusted PAT margin (%) RoCE (%) RoE (%) Gross debt - equity (times) Net debt - equity (times) Interest coverage (times) Current ratio (times) Inventory days Receivable days Financial Year (FY) refers to period from April, 1 to March, 31 4 Initiative of the BSE Investors Protection Fund

5 DISCLOSURES Each member of the team involved in the preparation of this grading report, hereby affirms that there exists no conflict of interest that can bias the grading recommendation of the company. This report has been sponsored by the BSE Investors Protection Fund. DISCLAIMER CARE Research, a division of Credit Analysis & REsearch Limited [CARE] has taken utmost care to ensure accuracy and objectivity while developing this report based on information available in public domain or from sources considered reliable. However, neither the accuracy nor completeness of information contained in this report is guaranteed. Opinions expressed herein are our current opinions as on the date of this report. Nothing in this report can be construed as either investment or any other advice or any solicitation, whatsoever. The subscriber / user assumes the entire risk of any use made of this report or data herein. CARE specifically states that it or any of its divisions or employees do not have any financial liabilities whatsoever to the subscribers / users of this report. This report is for personal information only of the authorised recipient in India only. This report or part of it should not be reproduced or redistributed or communicated directly or indirectly in any form to any other person or published or copied for any purpose. PUBLISHED BY CARE Research is an independent research division of CARE Ratings, a full-service rating company. CARE Research is involved in preparing detailed industry research reports with 5-year demand and 2-year profitability outlook on the industry besides providing comprehensive trend analysis and the current state of the industry. CARE Research also offers research that is customized to client requirements. Credit Analysis & REsearch Ltd. (CARE) is a full service rating company that offers a wide range of rating and grading services across sectors. CARE has an unparallel depth of expertise. CARE Ratings methodologies are in line with the best international practices. Head Office: 4th Floor Godrej Coliseum, Off Eastern Express Highway, Somaiya Hospital Road, Sion East, Mumbai Tel: Fax: Regional Offices: New Delhi Kolkata Ahmedabad Bangalore Hyderabad Chennai Pune Published on behalf of The Stock Exchange Investors' Protection Fund First Floor, P J Towers, Dalal Street, Mumbai. Tel: /34