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Monday, April 4, 2016

Will Cello Coolers Chill Wim Plast Investors this Summer?

Dear Reader,

If you invest in fundamentally strong small and mid cap companies with a medium to long term horizon, you will get rewarded for sure that too in a big way. Wim Plast Ltd (BSE Code: 526586) is classic example of "Buy Right and Sit Tight" strategy.

Our equity analysts published Hidden Gem - Aug 2011 research report and shared it with all Hidden Gems members almost 4.5 years back on 30th Aug 2011. Hidden Gem stock - Aug'11 - Wim Plast Ltd was recommended at average price of Rs. 185 with target price of Rs. 430 over period of 1 to 2 years which was achieved sooner than later, however we suggested our members to continue to hold it and add more on dips considering strong fundamentals and reasonable valuations. 

In last 4.5 years, stock has multiplied investment of our Hidden Gems members by almost 10 times. Currently stock is trading at Rs. 1740 giving absolute returns of 841% since our initial recommendation. Moreover, we kept on advising our members to add this stock in their portfolio at higher levels during last 3 years for long term wealth creation post our initial recommendation in 2011. Stock price tested all time high of Rs. 2499 last year and is currently available at Rs. 1740, down by 30% from its 52 week high.
Wim Plast is a zero debt company with maximum promoters holding of 75%. Company is maintaining operating margins above 17% since last 5 years and is taking all right steps to deliver consistent growth. In last five years, Wim plast have shown healthy CAGR growth of 22.9% and 17.7% in Revenue and PAT, respectively. ROE is 23.9% in last 5  years, which is impressive for such a small cap company.

Wim Plast continuously introduced new range of products to drive revenue growth and profitability in past. Company has strengthened its brand equity of ‘cello’ branded products throughout country and has been continuously increasing the ad spend. Company has launched new models for its product range including various new designs. Another prominent brand of the company ‘Cello Bubble Guard Sheets’ has gained rich response from the users for applications like Tile Protector, False Ceiling, Wall Panel and Packaging materials in past.

In plastic furniture segment, Wim Plast is the third largest manufacturer after Nilkamal and Supreme. Among listed players, Wim Plast has an edge over its peers by reporting better margins. Balance sheet has remained strong for the company as it has zero debt in its balance sheet. Strong operating cash flows enable the company to remain debt free and fund the expansions through internal accruals.

Wim Plast Forays into Air Cooler Segment with Cello Coolers

India air cooler market is growing with a CAGR of 11.26% from last four years and market is projected to grow further due to rising mercury, increasing disposable income, growing demand in middle class people and low price of air coolers as compared to air conditioners. India air cooler market is divided into two parts viz. residential and industrial. Residential and Industrial air cooler market is growing with a CAGR of 15.68% and 9.04% respectively from past four years. Keeping in point, low capital expenditure and electricity benefits of air coolers, the middle income group majorly fuelled the sales in residential market. Whereas, industrial cooling is slowly gaining increasing importance as corporate are now looking to create an amiable working environment for their employees.

The Indian air cooler market size is estimated to be around Rs 3,000 crore in value term and around 30% of this is in the organised sector and rest is catered to by the unorganised segment players. According to “India Air Cooler Market Outlook, 2021”, India’s Air Cooler market is anticipated to reach INR 8,000 Crore by 2021 from current estimated size of 3000 crores. There are an estimated 247 million households in India and about 65% own fans, while only 4% of these households own air conditioners and 8% own air coolers. High and rising temperature levels are leading to greater demand for cooling solutions. With rising incomes, cooling solutions are increasingly viewed as necessities. Considering lower cost of ownership vis a vis ACs (70% lower capital costs and 90% lower running costs) and the constrained power supply situation in India, air coolers are the mass market option for Indian consumers. So, the potential customer base for cooling solutions in India is huge.

Symphony, Kenstar and Bajaj are the dominant players in the organized air cooler market. Voltas has also forayed into the industry and is expected to give fierce competition to the market leader Symphony. Room coolers account for almost two-third of the total market and is expected to dominate going forward, followed by desert coolers. North India caters to the largest revenue sales as the region is growing at a fast pace and the growth is fuelled by a shift from unorganized to the organized market.

Symphony is the market leader. Symphony domestic sales in FY 14-15 was ~ Rs. 462 crores with nearly 50% market share in organized market, other players too grown from zero to over 15% share of the organised market in value terms in last 3 to 5 years.  

Wim Plast is the new entrant in air cooler market and already started selling its coolers under brand “Cello” with all major online retailers – Amazon, Flipkart, Snapdeal, Paytm and Pepperfry. Various models of Cello coolers are launched in price range of Rs. 7,000 to Rs. 15,000 under Dessert, Mini Dessert, Personal and Window category with water capacity of 22 Litres to 60 Litres. Cello coolers are available in wide range with latest features to compete well with other major players to grab market share in organized air cooler industry. Cello Coolers TV commercial is already started by the company to position and market its products in this summer season.

As of now, we have not seen Wim Plast coolers at supermarket stores like Big Bazaar and D-Mart in places like Mumbai, Delhi and Bangalore where as other other brands like Symphony, Bajaj, Crompton Greaves, Kenstar and Orient coolers are available. We believe the same will be available soon to capture market share by the company.

Wim Plast has history of strong brand positioning under brand Cello to market and sell its products in moulded furniture (plastic furniture and material handling products) and boards (false ceiling, wall panel, bubble guard sheet etc) category.

We believe entry into air cooler business will augur well for the company as it will give a major boost in terms of revenue growth going forward. Even if company manages to grab market share of 5% going forward, it will add Rs. 50 crores revenue in company’s top line which will be ~14% contribution in company’s revenue of Rs. 365 crores in FY 14-15

Wim Plast has delivered EPS of Rs. 62 for financial year 2014-15. As per our estimates, Wim Plast can deliver EPS of Rs. 82 in FY 15-16 and Rs. 100 in FY 16-17. At CMP of Rs. 1725, stock is trading at forward PE multiple of 17.2 based on FY 16-17 earning estimates which make it reasonably valued at current price. We continue to like Wim Plast as long term investment opportunity, it’s a strong hold and must be considered as a buying opportunity in case of correction in stock price.

Below is the summary of Wim Plast Ltd - Hidden Gem - Aug'11 Research Report released on 30th August 2011.

Company Background

Wim Plast Limited incorporated on 7th October, 1988, and listed in the year 1994 at the Bombay Stock Exchange Ltd. (BSE) and the Ahemedabad Stock Exchange Ltd. (ASE).

In the year 1994 company setup manufacturing unit of plastic moulded furniture at Daman in which company got grand success in the business. In the process of diversification in 2005 company has setup plants at Baddi, Himachal Pradesh for processing of bubbleguard extrusion sheets and also moulded furniture which a new innovation in India in the field of extrusion technology.

Presently the company has manufacturing units at Daman, Baddi and Chennai also have Depots in Gujrat, Rajasthan, Andhra Pradesh, Haryana and Punjab and have strong consumer base through out the country.

Cello is the undisputed leader in plastic finished goods. Since 1975, the group has been shaping plastics into high quality convenience products for homes and industries making life better & easier. Ceaselessly endeavoring to set new bench marks in quality and constantly innovating to blaze new trails in the marketplace. Today Cello offers larger range of products than any other manufacturer in India.

All surpassing the highest international standards in quality Cell's R&D, manufacturing technology, production processes, materials, quality standards and the high skilled workforce of 5000 people are among the best in the world making Cello the no. 1 brand of plastic products in India.

Product Range: 

1.Plastic Moulded Furniture 2. Material Handling 3. Cello Bubble Guard Board  

False Ceiling

Stronger and Lifelong Revolutionary False Ceiling Panels (first time in Asia), a perfect product to fulfill all your needs of false ceiling.

Ideal for Offices, Warehouses, Stores, Industrial sheds, Textile Industries, Chemical Industries, Pharma Companies, Hospitals, Hotels, Docks, Ports & Commercial Complexes.

Inherent Advantage
  • Light Weight Strong & Durable
  • Moisture & Water Proof
  • Termite, Insect & Bacteria Proof
Wall Panels

Cello Bubble Guard Wall Panel has various advantages over other material namely, moisture & termite proof, Fire retardant, Economical, Maintenance free. Available in various designs.

Wall Panels can be directly pasted on the solid surface with the adhesive recommended (SG 1000 of 3 M / SP5 of Pidilite) and joints can be finished with sealants, tapes or decorative beadings.

The panels offers high tensile strength, resists stress cracking, retains stiffness & flex. These wall panels are also available in seamless appearance, clad with tongue & grove system offer permanent utility / decorative paneling designed to provide flexibility, durability & beauty.

Door Panel/Partition

Cello Bubble Guard Part ions / Door Panels are versatile to use available in various attractive designs, which don’t need paint or polish.

They are easy to install and easy to cut, can be fixed by any unskilled laborer. The panels are light weight, water proof, termite proof & non-toxic. The panel offers high tensile strength, resists stress cracking, retain stiffness & flex. These panels are used as filler of aluminium, PVC, Wood & other frame. They are non-staining. The panels are insured of better durability, longer functional life & also effective cost.

Floor Protector

In the under construction sites, the floor tiles are laid prior to the finishing of the buildings. All the electrical and other fittings are done after the flooring is completed. Portable scaffoldings, tools and other equipments move on the floor, to complete the remaining work.

To avoid the damage to the tiles, Plaster of Paris (POP) is laid on the Flooring and removed after the completion of the job. POP has many disadvantage as it is cumbersome to lay & remove, Skilled labour is required, Time Consuming , Disposition of debris after completion is the major problem, while removing / scrapping operation chances of getting scratches to the tiles. Construction site becomes shabby, uncomfortable, dusty, and unhygienic.

Recent Developments  (as on 30 Aug'11)

Business Expansion Plans, 24 August 2011

Wim Plast Ltd has informed BSE that the Company has initiated following expansion projects:

1. The Company has acquired land of 8092 sqmt. at Haridwar, for setting up of manufacturing unit of Plastic Moulded Products. The commercial production of the Unit will start by the end of last quarter of current financial year.

2. The Company is in the process of setting up of new extrusion plant at Daman for manufacturing of Flutted & S-flutted polypropylene sheets. The sheets will mainly used for packaging and advertisement. The Commercial production of the unit will start by the end of the second quarter of current financial year.

Total cost of the above projects will be funded by internal accruals of the Company.

Investment Rationale

1. Earnings Visibility: Wim Plast revenues are expected to improve significantly on the basis of manufacturing unit at Daman getting operational by the end of 2nd quarter of current financial year.

2. Innovative Product Launches: Management is focusing on innovative products like Cello Bubble guard board offering unique benefits to its consumers. Company has the advantage of early entrant in this segment with minimum competition and wide distribution network across the country.

3. Open Market Purchase of Shares by Promoters: Promoters share holding is 72.96%. Promoters have been continuously making open market purchase since last one year. During last one year, promoters have increased their stake by almost 1%. (as on date, promoters holding is maximum at 75%)
Saral Gyan Recommendation (30 Aug'11)

i) Management has been conservative in past but now with new developments with expansion plans for their existing facilities and set up of new plants at new locations give visibility for revenue growth in coming years. New facilities at new location will also give opportunities to company to move into new regions expanding their customer reach.

ii) The Management holds 72.96% equity in the company and has been continuously increasing its stake at current valuations (increased holding by 1% during last one year) which gives confidence of growth prospects in coming quarters.

iii) The stock is available at low valuations, existing P/E ratio of 6.5 make the stock valuations attractive while comparing it with peer stocks like Nilkamal and Supreme Industries.

iv) The operating margins and net profit has grown significantly. Since last 2 years, company has improved its margin and profit margins of 11-13% seems sustainable even after expansion due to less dependence on debt, currently cash balance is in excess of total debt of the company. No equity dilution since last many years is another positive.

v) At current market price of Rs 204.55, dividend yield works out to be more than 2% (Company has announced Rs. 4.50 dividend per share). On equity of Rs. 6 crore the estimated annualized EPS for FY 2011-12 works out to Rs. 38 and the Book value per share is Rs. 139.16. At a CMP of Rs. 204.55, stock price to book value is 1.47. Currently, the scrip is trading at 6X FY 2011-12 estimated earnings which make it an attractive buy at a price range of 175-180.

Saral Gyan Team recommends “BUY” for Wim Plast Ltd for a target price of Rs. 430 over a period of 12-18 months.

Buying Strategy:
  • 20% at current market price of 204.65
  • 80% at price range of 175-180
To Read/Download Hidden Gem Aug'11 Research Report - Click Here 

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Team - Saral Gyan.