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| Summary of Contents VIEWPOINT Plastiblends India
Current market price: Rs235
View: Positive Colourful growth outlook Key points - Plastiblends India, a leading manufacturer and exporter of polyolefins and additives & colour masterbatches in India (a 12% market share), is expected to see a strong growth in revenues on the back of an improving demand scenario for the packaging and plastic industries. In addition, the expansion in capacity, pick-up in volumes of its customers (both domestic and overseas) would further help to register a revenue growth of 20% (CAGR) while the OPM is expected to improve by 100BPS in FY2014-17 (due to operational efficiency and focus on speciality masterbatches, which are high-value products).
- The company is targeting to increase the export revenue contribution up to 50% (30% currently) by entering into high-growth Latin American and African regions. With a strong R&D set-up (comprising a team of 20 technical staff), the company will continue to introduce more value-added products at regular intervals, which would help to sustain the margin profile. Along with 800 varieties of products and a strong customer base (2,500 clients), we expect the earnings to grow at a CAGR of 23% in FY2014-17.
- The company has a strong balance-sheet (a D/E of 0.2x) and return ratios (14-18%), which would give enough cushion to borrow funds for its capex plan of Rs100 crore over the next three years (the D/E would remain in the range of 0.2-0.3x by FY2017). Moreover, an improvement in the working capital and better operating leverage would generate a strong cash flow (above Rs30 crore in the next three years) and a higher RoE (around 22%).
- We believe an improvement in the flexible packaging volumes, strong growth in the plastic industry, focus on high-value products and increase in export revenue share would help to accelerate the pace of revenue growth and improve the margin profile. In spite of the rise in the debt level (for capex), the balance sheet would remain comfortable. Therefore, we expect strong revenue and earnings CAGR of 20% and 23% in FY2014-17 respectively. Currently, the stock is trading at a P/E of 6x to its FY2017E earnings. We see a scope for a 15-20% return from the current level.
- Key risk: Delay in pick-up in volume growth and higher raw material cost could impact profitability and financial valuation.
| | | Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article. | |
| Regards,
The Sharekhan Research Team |
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