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Company Background and Business Model
Promoted by Parekh family, Nilkamal is one of the leading companies engaged in
manufacturing injection moulded plastic products. It manufactures and markets
injection moulded plastic products like furniture, material handling equipment &
OEM supplies for specific customers. It has manufacturing facilities at seven
locations across India with a combined production capacity 88,680 MTPA. Nilkamal
operates with 44 regional offices and 77 warehouses situated all across India. It
has wide distribution reach with 77 warehouses; 1,400 distributors; 44 branch &
regional offices. The company exports its products to Europe, US, Middle East, Far
East countries, African countries and Asia.
Financials
After a lull period of FY09, Nilkamal has managed to bounce back with its FY11 net
sales expanding by 21.5% with PAT growing by 11%. Its plastics business suffered
a set-back in FY11 due to high raw material prices which increased by 20% yoy.
Raw Material cost forms a major portion (66% of net sales). With the recent drop in
crude oil prices, margins are expected to improve in the coming quarters with a lag
effect. Going forward, the management expects 15-20% growth in Moulded
Furniture business and a 15% growth in Material Handling business. It is looking at
improving its margin to 14% to 15% in coming years.
Growth Drivers
• Moulded plastics industry is one of the fastest growing industries, increasingly
substituting other materials like wood and penetrating major sectors like
building and construction, transportation etc. We anticipate that the Company
being a market leader and having national presence will benefit immensely
from the India consumption story.
• Nilkamal is the No.1 player in the moulded furniture business with a 38%
market share and is 2.5-3x bigger than the No.2 player. The moulded furniture
business contributes 38% to the total revenue. Its Material Handling business
has a market share of 70% and Nilkamal is a market leader with size 2.5 x
bigger than its closest competitor. It contributes 47% to the total revenues.
• In 2005, Nilkamal has made a successful foray into Life Style furniture
retailing business through its @home retail ventures. It currently operates 17
stores across 12 cities covering an aggregate carpet area of 268,831 sq.ft. It
broke even at the operating level in FY11. The management expects 25%
growth in FY12.
• It plans to enter Monolithic construction business where it senses huge
opportunity as usage of plastics instead of metals is expected to reduce the
construction cost by 20%. Nilkamal does not need a capex for this business.
Margins are more than 15%. Sintex, CCC, Man Infra are some of the players.
• We are comfortable with Nilkamal’s Debt: Equity ratio of 0.83x which has
reduced from 1.54x in FY08. With major capex already undertaken in the last
few years and no major capex planned for the ensuing years, we expect
strong cash accruals and improvement in its working capital going forward.
Valuations:
It is currently trading at P/E of 7.4x based on TTM earnings which is lower than its
peers like Time Technoplast and Supreme Industries which cater to mainly
institutions (characterized by higher EBIDTA margins) as against Nilkamal which
caters to mainly retail segment. Its sound financial structure and improving
operating performance (reducing working capital, increasing sales from @home)
along with a dividend paying history makes Nilkamal a good investment bet.
Technicals
Nilkamal has rallied from Rs 42 to Rs 442 in just eighteen months gaining ten
times. Subsequent ten months of consolidation has given enough leg room for this
stock that too after correcting approximately 50% at Rs 240 levels. We opine that
this stock is now poised to regain the lost ground and continue its upward journey.
Rs 240 would act as strong support, 50% Fibonacci level, while immediate
resistance is at Rs 288 and later Rs 300 would be hurdle.
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