We are pleased to inform you that our Hidden Gem stock of June 2016 - Emmbi Industries Ltd (BSE Code: 533161, NSE Code: EMMBI) which was released on 17th July 2016 has achieved its target price giving as on date returns of 116% to our Hidden Gems members in period of 14 months. We suggested Buy on Emmbi Industries at price of Rs. 109.50 on 17th Jul'16 with a target price of Rs. 220. Stock has achieved our target price, Emmbi Industries share has made 52 week high of Rs. 246.50 today and closed at Rs. 236.75 on NSE giving absolute returns of 116% to our Hidden Gems members, we advise our members to continue to hold the stock.
In Jun'17 quarter, net profit of Emmbi Industries rose 21.09% to Rs 3.56 crore against Rs 2.94 crore during the previous quarter ended June 2016. Sales rose 10.83% to Rs 59.23 crore in the quarter ended June 2017 as against Rs 53.44 crore during the previous quarter ended June 2016.
Below is the summary of Emmbi Industries Ltd shared by us under Hidden Gem stock - Jun'16 released on 17th July 2016.
Note: This report is shared only for the purpose of information and not an investment advice. Kindly carry out your own due diligence in case of investment in Emmbi Industries.
1. Company Background:
Industries Limited (earlier known as Emmbi Polyarns Ltd.) is one of the well
established company in the field of woven polyethylene and polypropylene
product manufacturing. The company is engaged in the manufacture and sale of
FIBC (Flexible Intermediate Bulk Containers) and Woven Sacks and various woven
polymer based products like Container Liners, Protective Irrigation System,
Canal Liners, Flexi Tanks, Car Covers etc. Emmbi is an ISO certified Company,
it has a fully equipped manufacturing facility located at Silvassa in the Union
Territory of Dadra and Nagar Haveli.
products are mainly used in packaging, infrastructure, housing, disaster
management and Hazardous waste disposal industry.
supplies these products to various customers in domestic as well as
international markets. The major customers in the domestic market include
multinational companies in FMCG sector. Internationally, the customers are
major automobile manufacturers, major glass manufacturers, major cement
manufacturers, leading seed manufacturer, players in the petrochemical
industry, and various other international customers. Exports contributed 49% of
total revenue in FY16 with major contribution from Europe (32%) and American
Emmbi exports to
over 52 countries and is aiming to establish its own distribution network for
overseas business in coming years. All its products are polymer based with
polypropylene as its major raw material. In synthetic packaging, it
manufactures polymer based flexible intermediate bulk containers (FIBC) that
are both generalised as well as embedded with specific properties.
incorporated in 1994 by first generation entrepreneurs i.e. Makrand Appalwar
and Rinku Appalwar, with initial years confined to trading of FIBC with the
company venturing into manufacturing of the same in 1997 with a plant in
Silvassa. In 2005, Emmbi installed and commissioned the polypropylene based
packaging unit with a capacity of 6000 metric tonne.
In 2010, Emmbi got
listed on NSE and BSE. The IPO came in at a price of Rs. 45 per share and the
company garnered 39 crore, mainly for expanding its manufacturing facilities
domestically. Post IPO, Emmbi expanded its capacity from 6000 tonne to 18200
tonne in a phased manner. Capacity utilization in FY16 stood at 83% (up from
65% in the previous year), leading to better operational metrics. Emmbi’s
product profile is classified into four main segments, out of which Advance
Composites, Water Conservation Products and Agri products constitute the Value
added products in product portfolio of Emmbi. 1. Specialty Packaging
General Purpose FIBC, Baffle Bag, and FIBC of Different Shape Container Liner,
PWS & Films. 2. Advanced Composites
FIBCs, Anti Carcinogenic Packaging, Anti-Corrosive VCI Material, Water Sludge
Separator, Fall Arrest, Geo Cell. Nuclear Plant Waste Disposal 3. Water Conservation
Canal Liners, Pond Liners, Check Dams, Flexi Tank. 4. Agri Products: Crop Covers, Silage Incubator, Mulch Films,
Future Growth Outlook
polymer consumption is expected to grow close to 4 times in two decades from
2000. Production of Polymer is expected to reach 540 million TPA in 2020 from
365 million TPA in 2010. The completely man-made nature of polymers makes
innovation and creation of new materials virtually limitless. Moreover,
advances in material technology are creating new applications for polymers,
further fueling this growth.
consumption of polymers is still a third of the global average and is
significantly low compared to other countries like China and Brazil other than
USA. As the country urbanizes and grows economically, we see a significant
uptick in polymer consumption which is expected to augur well for Emmbi
main thrust of Emmbi Industries on water conservation and agri products which
are intended for domestic markets and are value added products, we expect
significant increase in revenues from domestic sales compared to exports.
company has set up the Emmbi Innovation Lab, an independent R&D Centre
which has received approval for the Lab by the Department of Industrial
Research, Science & Technology.
focused efforts in product development has resulted in 11 patents, which gives
Emmbi an edge over competitors in terms of product offerings and command better
margins. Continuous innovation has helped company to increase its share of
value added products in the product portfolio with shift in the product mix
towards high margin contributors. 2. Recent Development: (as on 17th July'16)
Emmbi Industries gets recognition as R & D Centre by
Ministry of Science & Technology – April 2016
Department of Scientific and Industrial Research (DSIR), Government of India,
issued Certificate of Registration on 19th April, 2016 w. e. f. 22nd March,
2016 recognizing Emmbi Innovation Lab an R & D Arm of Emmbi Industries Ltd
as “In House R & D Unit”. The certificate is valid from 22/03/2016 to
31/03/2018 (3 financial years)
management, the recognition enables Emmbi Industries to avail number of fiscal
incentives, the primary one being the ability to claim Weighted Deduction of
200% of the company’s total R&D expenditure subject to approval from Income
tax department. Excise & Custom Duty Exemptions for the products patented
by the company as per Govt. Notification No24 /2007 & 16 /2007 with the
right terms & Conditions.
Innovation Lab has filed Six Product Patents and Five process patents for
various products & processes over the past 2 years.
ii) Emmbi wins
“India SME 100 Awards, 2016” – April 2016
Industries won the prestigious “India SME 100 Awards, 2016” presented by SME
India Forum. Mrs. Rinku Appalwar, CFO of Emmbi Industries Ltd received the
award from Shri. Kalraj Mishra, Hon’ble Union Minister of MSME, Shri. Suresh
Prabhu, Hon’ble Union Minister of Railways, Govt. of India and Smt. Shika
Sharma, MD & CEO, Axis Bank.
Industries has won this award among total of 49023 nominations filed by SMEs
from all over the country.
Launch Of Positive Pressure Integrated Clean Room Facility for Food and Pharmaceutical
Grade FIBC Packaging – March 2016
Industries has started the construction of “Positive Pressure Clean Room
facility for manufacturing of Food and Pharmaceutical Grade FIBC Packaging
project will take 10 to 12 months to complete and start the production. Total
estimated cost of the project will be Rs. 10 Crores. Project will be funded by
internal generation and debt from the banks. Company is constructing the
building on the land which was already available with company.
will help company to produce the Food & Pharma Grade products for the
Export Market. This will enhance the value addition of the products, especially
in USA as the New USFDA guidelines recommends the use of food grade material
for packaging for the entire value-chain of Food and Pharma. 3. Financial Performance:
standalone net profit rises 28.82% in the March 2016 quarter
Net profit of Emmbi
Industries rose 28.82% to Rs 3.71 crore in the quarter ended March 2016 as
against Rs 2.88 crore during the previous quarter ended March 2015. Sales rose
14.15% to Rs 56.07 crore in the quarter ended March 2016 as against Rs 49.12
crore during the previous quarter ended March 2015. For the full year, net profit rose 77.55% to
Rs 10.60 crore in the year ended March 2016 as against Rs 5.97 crore during the
previous year ended March 2015. Sales rose 13.32% to Rs 206.94 crore in the
year ended March 2016 as against Rs 182.62 crore during the previous year ended
standalone net profit rises 54.60% in the December 2015 quarter
Net profit of Emmbi
Industries rose 54.60% to Rs 2.52 crore in the quarter ended December 2015 as
against Rs 1.63 crore during the previous quarter ended December 2014. Sales
rose 2.36% to Rs 52.87 crore in the quarter ended December 2015 as against Rs
51.65 crore during the previous quarter ended December 2014.
forward on the back of robust growth in profitability over next 2 years, we
expect further improvement in return ratios.
expect company will deliver sales CAGR of 19% with EBITDA growth of 22% over
next 2 years considering robust demand and increase in sales contribution from
value added products. 4. Peer Group Comparison:
5. Key Concerns & Risks:
in Raw Material Prices - The rise in raw material price can impact operating
margins of the company for its non-specialty products.
Intense Competition – There are many organized and unorganized players in the
Industry offering similar products without any pricing power due to which it’s
a low margin business. Hence, it is important for the company to adapt new
technologies, offer product innovation, identifying and meeting customer’s
expectations in term of high quality, product services and performance to
remain ahead of the competition. 6. Saral Gyan Recommendation: (as on 17th July'16)
i) In last few years, Emmbi has acquired substantial share
in the international market for various packaging needs for products like
Construction Aggregates, Chemicals, Seeds, Fertilizers, and Cement & Food
Grains etc. Some of the high value added products which company manufactures
for the international market includes Car/Automobile Covers, Container Liners,
Anti Corrosive Packaging, Electrically conductive polymer based packaging, etc.
To drive domestic growth, Emmbi introduced value added products in water
conservation and agriculture space and increased its focus on marketing efforts
to develop distribution network in rural India.
ii) Emmbi Innovation Lab i.e R & D arm of the company
has received Certificate of Registration from the Department of Scientific and
Industrial Research (DSIR), Ministry of science & Technology, Government of
India, which is valid till 31st March, 2018. Govt recognizes the innovation carried
out by Emmbi, this recognition enables Emmbi to avail number of fiscal incentives
and will results in tax benefits to the company during next 3 years.
iii) Emmbi has recently started the construction of Positive
Pressure Clean Room facility for manufacturing of Food and Pharmaceutical Grade
FIBC packaging material with estimated project cost of 10 crores. This facility
is expected to start production by April 2017 and will help the company to
enhance the value addition of the products, especially in USA as the new USFDA
guidelines recommends the use of food grade material for packaging for the
entire value-chain of Food and Pharma.
company is currently present in 52 countries and is planning to increase its
geographical reach to more than 65 countries in near future with increase in
its products offering. The company has already launched several innovative
products in last financial year whose applications can be found in food,
safety, water conservation, agriculture, infrastructure, e-commerce, crop
protection, hazardous waste management and solid waste management.
v) Company has registered sales CAGR of 28.81% and profit CAGR of
27.53% during last 5 years with significant improvement in ROE.The
Company has been able to improve its working capital cycle from 170 days in
FY15 to 130 days in FY16 owing to increased share of domestic business from 47%
in FY15 to 51% in FY16, which resulted in efficient application of funds
reducing interest burden & improving debt-equity ratio.
vi) As of Mar’16, promoter’s shareholding in the
company is at 57.86%, promoters have increased their holding in the company by 5.49%
during last two years. Increase in shareholding by promoters on every passing
quarter indicates the confidence of management in robust growth outlook and
business prospects, Company has not pledged any shares, Institution shareholding
is nil in the company.
vii) Management has
rewarded shareholders by paying regular dividend since last 5 years. The
company paid dividend of Rs. 0.30 per share for FY15 and we expect management
to declare dividend of Rs. 0.50 per share for FY16 considering significant
increase in EPS during last financial year. As the company has recently
initiated development of new facility with expected outgo of Rs. 10 crores, we
find dividend policy suitable in terms of sharing profit with minority
shareholders and retaining the balance for future growth.
viii) As per
our estimates, Emmbi Industries can deliver PAT of 14.85 crores for full
financial year 2016-17, annualized EPS of Rs 8.40 with forward P/E ratio of 13X
for FY16-17. Company’s valuation looks attractive considering improvement in
financials, better return ratios and robust growth outlook in domestic as well
as export market over next 2 years.
On equity of Rs. 17.69 crore, the estimated annualized EPS for FY 16-17 works
out to Rs. 8.40 and the Book Value per share is Rs. 41.84. At current market
price of Rs. 109.50, stock price to book value is 2.62.
increase in sales contribution from high margin value added product, better
working capital control with increasing share of domestic sales, tax benefits
to company’s R & D facility during next 3 years and higher earning
visibility in FY17-18 with upcoming food and pharmaceutical
grade FIBC packaging facility, Saral Gyan team recommends “Buy” on Emmbi Industries Ltd
at current market price of Rs. 109.50 for target of Rs. 220 over a
period of 12 to 24 months.
at current market price of 109.50
at price range of 87 - 92 (in case of correction in stock price in near
Allocation: 3% of your equity portfolio.
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