Polyplex Corporation – 3QFY2011 Result Update Angel Broking

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Polyplex Corporation – 3QFY2011 Result Update

Angel Broking maintains a Neutral on Polyplex Corporation.

Polyplex Corporation (PCL) reported strong set of numbers for 3QFY2011.

Net sales grew by whopping 132.7% yoy to `722cr (`310cr). The company

reported a 2,932bp yoy expansion in OPM to 47.2% (17.9%). Net profit surged

by 2,217% yoy to `591cr (`25cr) on account of strong demand and one-time

exceptional item of `425cr. We maintain our Neutral view on the stock.

Strong overall performance: PCL reported 132.7% yoy growth in its top line to

`722cr (`310cr) on higher capacity utilisation, commencement of the new BOPP

and PET plants in India and higher selling price due to favourable market

conditions and strong demand. PCL reported OPM of 47.2% (17.9%) for the

quarter, an expansion of 2,932bp yoy, as the company was able to increase

product prices without incurring any increase in raw-material prices. Net profit

surged by 2,217% yoy to `591cr (`25cr) on higher top-line and OPM expansion

and exceptional item.

Outlook and valuation: The polyester films segment’s demand cycle is on an

uptrend. We believe such demand uptrend will be short-lived and such high

margins will be unsustainable. We believe all PET film companies will generate

huge cash reserves, which would be deployed to increase capacity, thus creating

ample supply in the coming future. This situation could again bring down margins

to historical levels. Owing to these concerns, we remain Neutral on the stock.

Revenue up 132.7% yoy on strong realisation and demand: PCL’s net sales grew

by 132.7% yoy to `722cr (`606cr) for the quarter, driven by a strong spurt in

realisation, which has more than doubled in the last two quarters; better capacity

utilisation; commencement of the new BOPP and PET units in 4QFY2010; and

higher selling price due to favourable market conditions and strong demand. On a

qoq basis, the company managed 19.3% growth in revenue. We expect the

company’s revenue to decline in 4QFY2011, as PET films prices have declined and

are expected to remain at these levels in the coming quarter.

OPM expands on better realisations: PCL reported OPM of 47.2% (17.9%) for the

quarter, which expanded by 2,932bp yoy as the company was able to increase the

prices of its products without incurring any increase in raw-material prices. On a

qoq basis, OPM increased by 1,099bp on strong demand for polyester films and a

further increase in selling price.

Bottom line jumps on OPM expansion and exceptional item: In 3QFY2011, net

profit spiked to `591cr (`25cr), up by a significant 2,217% yoy on higher top-line

and OPM expansion and due to one-time exceptional item of `425cr, which the

company generated from the sale of 10% stake in its subsidiary Polyplex Thailand.

Outlook and valuation: The polyester films segment’s demand cycle is on an

uptrend. We believe such demand uptrend will be short-lived and such high

margins will be unsustainable. We believe all PET film companies will generate

huge cash reserves, which would be deployed to increase capacity, thus

creating ample supply in the coming future. This situation could again bring

down margins to historical levels. Owing to these concerns, we remain Neutral

on the stock.