Home
Saral Gyan Articles
Saral Gyan Services
Subscription
About Us
Contact Us
Dear Reader,
We are pleased to inform you that our Hidden Gem stock of Jan'15 - Plastiblends India Ltd (BSE Code: 523648, NSE Code: PLASTIBLEN) has given absolute returns of more than 100% to our Hidden Gems members within period of 12 months. Our team suggested Buy on Plastiblends India Ltd at price of Rs. 236.70 on 31 Jan'15 with a target price of Rs. 480. Target was already achieved in January this year, Plastiblends India stock made its 52 week high of Rs. 523.80 on 5th Jan'16 and yesterday closed at Rs. 458 giving as on date returns of 93% to our Hidden Gems members.
Plastiblends India has good consistent profit growth of 23.7% over 5 years, growth prospects of the company look bright with ongoing expansion plan.
Considering good demand and growth potential, the company is going through a Capex programme by increasing its manufacturing capacity. Company has successfully commenced commercial productoin in the new manufacturing unit at Palsana, Surat effective 25th March 2016. Moreover, considering market potential and demand, Plastiblends India plans to further increase the manufacturing capacity and has acquired land near Kolkata, West Bengal to set up a new manufacturing unit and intends to fund the same largely through internal accruals.
Company is virtually debt
free and currently trading at trailing PE multiple of 15.8. Dividend yield at CMP
is 1.2%. As valuations look reasonable, we suggest our members to continue to
hold the stock for long term.
Below is the summary of Plastiblends India Ltd shared by our team under Hidden Gem stock recommendation - Jan'15
1. Company Background:
Company’s
masterbatches are used to impart colors and various special properties to the
products manufactured from plastics. Masterbatches find applications in various
plastic processing industries (for colouring, corrosion and hardness), such as
flexible packaging (fast moving consumer goods and pharmaceuticals), paints,
irrigation, pipings and telecommunications wires. Masterbatches
are considered as a vital component in plastic industry worldwide, as it
consists of pigments and additives which provides aesthetic looks as well as
functional properties to polymer. With the development of anti-statics, flame
retardant, anti-microbial Masterbatches, its demand is set to boost
substantially across various end user industries. Additives are chemicals that
improve physical properties and other characteristics of polymer. The
improvement achieved in various functional properties of ordinary polymers
using additive masterbatches is significant in polymer industry.
Masterbatch
Industry is highly fragmented with few major players and large number of small
and medium players who account for majority of the market share. Plastiblends
India Limited a leading manufacturer of masterbatches in organized sector with
12% market share, produces a wide variety of specialty and high performance
masterbatches and compounds. Masterbatches constitute a highly successful and
an essential segment of the global plastics industry.
The
Company has in-house full-fledged Research & Development Department
equipped with a wide range of lab machines, equipments, instruments and testing
facilities that enables to deliver a broad spectrum of new & customized
solution for tailor made product and formulations like bio-degradable
masterbatches and masterbatches for BOPP Films, PP Yarns, Fibres etc. with
excellent price benefit ratio. The Company also has technical experts with
latest technical know-how & innovative abilities focusing on upgradation of
the existing masterbatches and development of new products. The manufacturing
units are highly automatic and equipped with sophisticated laboratory
facilities to conduct stringent tests.
Manufacturing
Facilities: Company operates with four facilities having manufacturing
capacity above 75000 MT annually. Plastiblends extensive manufacturing facilities include three
manufacturing units in the Union Territory of Daman (two owned and one on
lease) and one unit in Roorkee, Uttarakhand, consisting of state of the art
production lines employing advanced manufacturing technology to produce premium
quality products. The manufacturing capacity includes: High speed, high
capability LCM lines, Co rotation, Counter rotation Extruders, Specifically
designed mixers, High end Computerised Gravimetric Systems and sophisticated
Fully Computerised Process Control Systems, Electronically controlled Automatic
Weighing and Bagging Systems and Extensive Raw Material & Finished goods
stores and inventory management systems. These efficient production capacities
ensure consistent product quality and lower production time enabling faster
delivery to the customers. It has a product portfolio of 800 varieties in
masterbatches in colors and additives.
The Kolsite
Group: Plastiblends
Ltd is a part of Kolsite Group which came into existence over five decades ago.
The Kolsite Group, formed in 1960’s, is a leader in the manufacture of plastic
extrusion plants and masterbatches. Today, Kolsite is a brand synonymous with
quality and reliability with consistent commitment to develop and deliver
premium quality products. The Kolsite Group primarily consists of 2 divisions:
Machinery manufacturing & Processing. Each group company is a leader in its
line of business with unrivaled domain competence.
The
machinery manufacturing division consists of Kabra Extrusiontechnik Ltd. Kabra
Extrusiontechnik Ltd is engaged in the manufacture of single and twin screw
plastic extrusion plants with allied machines, is the market leader in the
production of pipe extrusion lines.
The
processing division consists of two companies – (i) Maharashtra Plastics &
Industries and (ii) Plastiblends India Ltd. Maharashtra Plastics &
Industries, has years of experience in the extrusion of HDPE / Polypropylene
strapping and is one of the largest manufacturers.
Kolsite
group has proven itself over the years, has strong financials, is a leader in
most areas of operations and has investor friendly polices (like bonus issues
and healthy dividend payments).
Product Range: Plastiblends
Masterbatches merge seamlessly with plastics enhancing their performance and
appearance. Company produces a large range of White, Black, Colour and Functional
Masterbatches, Additives and Compounds suitable for all major plastic
processing types.
Plastiblends products match international quality standards making
them globally acceptable. Countries exported to include Italy, Canada,
Australia, Middle East, SAARC countries etc. Currently, it exports to 60
countries, including South Africa, Kenya, Tanzania, the UAE, Sri Lanka and
Bangaldesh, and generates 30% of export revenues
Company leadership position is determined by continuously meeting
its customer’s requirements/expectations. Company uses latest manufacturing
technologies and methods for design development and manufacture of high quality
products to laid down specifications, both internal and those specified by the
customers.
The Quality Assurance Process Flow Chart
Indian
Masterbatch Market Forecast & Opportunities – 2018
Plastic industry is one of the fastest growing manufacturing
sectors in India and the demand of plastics has surged up as a result of
increased market penetration in industries such as packaging, agriculture,
healthcare, aerospace, electronics, automotive, consumer goods, etc.
Masterbatch is considered as a vital component in plastics industry worldwide,
as it consists of pigments and additives which impart required color and characteristics
to the end products.
According to India Masterbatch Market Forecast &
Opportunities, 2018, the Masterbatch volume sales in India are expected to grow
at 23% CAGR till 2018. The market for Masterbatch is driven by the growth in
its end user industries as well as the increasing penetration of plastic
products in the Indian market. However, use of plastics is being regulated by
Ministry of Environment & Forests, Government of India, as solid plastic
waste impacts the environment adversely and also causes blockage of gutters,
sewerage system and drains. With the development of bio-additives, usage of
masterbatches holds positive prospects for the manufacturing of bio-degradable
plastics. Other important innovations such as development of anti-microbial
masterbatches, flame retardant masterbatches, antioxidant masterbatches is set
to drive the market for masterbatches across various end user industries.
The leading players in Masterbatches market in India are:
- Plastiblends India
- Clariant Chemicals
- Poddar Pigments
Performance comparison of these companies is
covered under Peer Group Comparison section.
2. Recent Developments: (as on 31 Jan'15)
i) Plastiblends to double capacity by 2015 - Dec'13
Plastiblends India Ltd will double its manufacturing capacity by this year. Along with some nominal expansions that will take place at its existing plants that are situated in Daman in Western India and Roorkee, Uttarakhand, the company is setting up a new manufacturing unit.
2. Recent Developments: (as on 31 Jan'15)
i) Plastiblends to double capacity by 2015 - Dec'13
Plastiblends India Ltd will double its manufacturing capacity by this year. Along with some nominal expansions that will take place at its existing plants that are situated in Daman in Western India and Roorkee, Uttarakhand, the company is setting up a new manufacturing unit.
As per SN Kabra, Vice Chairman & Managing
Director, company has expanded capacities by 25% in its existing facilities.
Company is looking at setting up a new plant that will cater to demands of the
export market. Most likely this plant will be situated in one of the Special
Economic Zones (SEZs) in Gujarat. Close to 40% of the production from this new
plant would service the export market.
At present the company is actively exporting its
products to almost 60 countries with contribution of 30% in total revenue. Exports
during last financial year were 1414.6 million as against 1316.4 million in the
previous financial year registering an increase of 7.46 % over previous year.
Company exports to various countries around the globe with strong presence in
Middle East, Africa SAARC & CIS Countries. With
the addition of a new manufacturing facility, the company’s total export
business will increase by 50%.
ii) Increase in Share Holding by Promoters –
Dec’14
During last 5 years, promoters have
increase their stake in the company by 5.3%, from 56.5% in Mar’10 to 61.8% in
Dec’14.
Promoters
continue to buy shares of their company. Being a small company with low market
capital, the promoters buying shares from open market adds comfort in terms of
associated downside risk in stock price in case of market correction.
At the end of Dec’ 14, promoter shareholding stands at 61.76%. During
last financial year, promoters have increased their stake by 4.5%. During first
nine months of FY 14-15, promoters have increased stake by 0.08%. Considering
attractive valuations and good future prospects, we expect promoters will
continue to buy the shares from open market to further increase their stake in
the company.
Moreover, there has been no equity dilution for
the last 10 years, which is very impressive. There is no issuance of new shares
to raise capital, no dilution of stake by promoters which further strengthens
the company’s positioning.
3. Financial Performance:
Plastiblends India net profit rises 1.14% in the September 2014
quarter
Net profit of Plastiblends India rose 1.14% to Rs 89.0 million in
the quarter ended Sept 2014 as against Rs 88.0 million during the previous
quarter ended Sept 2013. Sales rose 19.41% to Rs 1334.2 million in the quarter
ended Sept 2014 as against Rs 1117.3 million during the previous quarter ended
Sept 2013.
Plastiblends India net profit rises 4.36% in the June 2014 quarter
Net profit of Plastiblends India rose 4.36% to
Rs 59.9 million in the quarter ended June 2014 as against Rs 57.4 million
during the previous quarter ended June 2013. Sales rose 4.17% to Rs 1169.7
million in the quarter ended June 2014 as against Rs 1122.9 million during the
previous quarter ended June 2013.
4. Peer Group Comparison:
In comparison to
Poddar Pigments, Plasiblends India has healthier profit margins and has grown
at a faster pace. Being larger in size, the stock also commands a slightly
higher P/E and P/BV multiple. Further, the company has a healthy dividend
policy, company has consistently paid 30-40% of PAT as dividend for the past
many years
5. Key Concerns & Risks:
i) Increasing
Competition from Domestic & Overseas Players: Company faces stiff competition in domestic and global market. Masterbatches
is a scattered industry in India, with more than 250 players. Key operators in
the organized segment hold about 50% of the market. Plastiblends competes with
Clariant Chemicals and Poddar Pigments in the organized segment. Increasing
competition from overseas manufacturers is putting pressure on the margins and
affecting performance of Company.
ii) No
Pricing Power: As company operates in highly fragmented industry, it would not be
able to pass on rise in cost to its clients due to competition from unorganized
sector. High volatility in crude oil prices can have negative impact on
production costs
iii) Forex
Exposure: Exports contribute about 30% of Plastiblends
sales while it imports raw materials like titanium dioxide. In FY14, exports
were valued at Rs. 141.7 crores while imports amounted to Rs. 140 crores.
Hence, company is impacted to the extent of difference between export
receivable days and import payable days.
6. Saral Gyan Recommendation:
i) Polymer consumption
in India is poised to grow multifold, with the help of new developments in
packaging applications, infrastructure growth, modernization of agriculture sector,
improved healthcare facilities, improved lifestyle and disposable incomes,
automobile demand and rural penetration. Masterbatch industry will get a direct
benefit by this growth in polymer consumption. Plastiblends produces almost 800
grades of Masterbatches and has over 2,500 customers which include polymer
producers like Reliance Industries, polymer processors like Supreme Industries,
Cosmo Films, Jain Irrigation etc and plastic moulding companies like Nilkamal
Plastics. About 10% of company’s sales are from direct sales to some large OEM
clients while the rest is though a distribution network of about 70 dealers.
Such a wide network enables Plastiblends to tap a larger number of customers
ii) Company’s EBITDA and
PAT margins have increased from FY 11-12 to FY 13-14 with ROE and ROCE above
20%. During FY2012-14, it reported CAGR of 17% in revenues with the net profit
margin improving by 100 basis points. Moreover, company has reduced its debt
significantly during last financial year and total debt to equity ratio is at
0.23. With fall in crude prices, we believe company will show significant
improvement in its profit margins by delivering strong growth in bottom line
going forward.
iii) Plastiblends has a
strong balance sheet with a debt to equity ratio of less than 0.3x. With
limited capex needs and strong internal cash generation, we expect the debt on
books to remain at the same levels. Investment in gross block accompanied with
higher sales will result in better return ratios.
iv) Product obsolescence
is a common feature in the masterbatch and other plastic product industry,
hence product innovation is the master key to future growth. Plastiblends focus
on R&D has enabled it to introduce new products in this segment in addition
to the manufacturing of more than 800 grades of masterbatches. Product
innovations, competitive cost structure, higher domestic market share and continuous
penetration into the exports markets makes the company well placed to capture
the surge in demand for masterbatches.
v) Plastiblends key raw
materials include polymers, titanium dioxide and pigments. Polymer is one of the major raw material and is directly co
related with international crude prices. As crude prices have fallen
significantly during last couple of months, company operating margins are expected
to improve with increase in profitability.
vi) Company focus towards value
added products in its portfolio is expected to improve its product mix in next
2 years. This will help company to achieve its target by increasing export
revenue contribution from 30% to 50% in next couple of years. Company has
increased its capacity from 52000 MT in 2011 to 75000 MT in 2014. Company is
now looking to grow in terms of volumes by exporting to new markets to meet
increase in demand of organized sector.
vii) Management has rewarded
shareholders by paying consistent dividend since last 14 years. Company has
been maintaining a healthy dividend payout above 20%, dividend yield at current
market price is 2.1%. With expected increase in revenue and profitability in
coming quarters, we believe company dividend payout to increase significantly.
viii) As per our estimates,
Plastiblends India Ltd can deliver bottom line of 368.7 million for full
financial year 2014 – 15, annualized EPS of Rs. 28.4 with forward P/E ratio of 8.3X
for FY 2014-15, which makes stock an attractive bet at current market price for
long term investors.
ix) On equity of Rs. 64.97 million, the estimated
annualized EPS for FY 14-15 works out to Rs. 28.4 and the Book Value per share
is Rs. 116.6. At current market price of Rs. 236.7, stock price to book value
is 2.
Considering
improvement in demand outlook and better operating efficiency coupled with
focus on higher revenues from exports and value added products, Saral Gyan
team recommends “Buy” on Plastiblends India Ltd at price of Rs. 236.70 for target of Rs. 480 over a period of 12
to 24 months.
Buying Strategy:
- 70% at
current market price of 236.70
- 30% at
price range of 190-210 (in case of correction in stock price in near term)
Portfolio
Allocation: 3% of your equity portfolio
To Read / Download Saral Gyan Hidden Gem - Jan'15 Research Report - Click Here
If you have patience and want to add extra power in your portfolio, start investing some portion of your savings in fundamentally strong small and mid cap companies - Hidden Gems & Value Picks.
The stocks we reveal through Hidden Gems & Value Picks are companies that either under-researched or not covered by other stock brokers and research firms. We keep on updating our members on our past recommendation suggesting them whether to hold / buy or sell stocks on the basis of company's performance and future outlook.
Subscribe to Hidden Gems & Value Picks and start investing systematically. Avail attractive discounts by subscribing to our combo packs, click here for details.
Do contact us in case of any queries, we will be delighted to assist you.
Wish you happy & safe Investing.
Regards,
Team - Saral Gyan.
