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Emmbi Polyarns Ltd (Emmbi) manufactures flexible intermediate bulk containers (FIBCs) and
other woven polypropylene (PP) and polyethylene (PE) specialty packaging products. It
serves both domestic and export markets (exports contributed 36% of revenues in FY11).
Given Emmbi’s relatively small scale of operations in a highly competitive flexible packaging
industry, we assign the company a fundamental grade of 2/5, indicating that its fundamentals
are moderate relative to other listed securities in India.
Capacity expanded three fold
Emmbi expanded its capacity to 18,200 MTPA (metric tonne per annum) as of September
2011 from 5000 MTPA in FY10 largely to increase its export footprint and the share of
specialty products (which comprised around 14% of revenues in FY11).
Share of value added products on the rise
Emmbi is diversifying into various high-margin woven polypropylene and polyethylene
speciality products to expand beyond its woven sacks and FIBC manufacturing. Its target is
to improve its operating profitability over the long term with increased sales contribution from
these newer products.
Client concentration risk, offtake risks remain
Emmbi’s top two clients account for ~30% of its overall revenues. While good client
management has ensured repeat orders, it also exposes Emmbi to client concentration risk.
Any change in clients’ procurement policies can have a negative impact. Further, given its
export concentration (over 90% to the US and Europe), we believe Emmbi will soon find it
challenging to fully utilise its expanded capacity with the slowdown in key export destinations.
Working capital to be stretched
Emmbi has to pay in advance for a large portion of its raw material purchases, whereas its
cash conversion cycles are long. Its working capital cycle is expected to be stretched further
as it would be required to aggressively market its increased production.
Valuations – the current price has ‘strong upside’
CRISIL Research has used the discounted cash flow method to value Emmbi and arrived at a
fair value of Rs 23 per share. This fair value implies P/E multiples of 8.4 FY12E, 9.0 FY13E
and 6.2x FY14E earnings. We initiate coverage on Emmbi with a valuation grade of 5/5.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Emmbi Polyarns Ltd (Emmbi) manufactures flexible intermediate bulk containers (FIBCs) and
other woven polypropylene (PP) and polyethylene (PE) specialty packaging products. It
serves both domestic and export markets (exports contributed 36% of revenues in FY11).
Given Emmbi’s relatively small scale of operations in a highly competitive flexible packaging
industry, we assign the company a fundamental grade of 2/5, indicating that its fundamentals
are moderate relative to other listed securities in India.
Capacity expanded three fold
Emmbi expanded its capacity to 18,200 MTPA (metric tonne per annum) as of September
2011 from 5000 MTPA in FY10 largely to increase its export footprint and the share of
specialty products (which comprised around 14% of revenues in FY11).
Share of value added products on the rise
Emmbi is diversifying into various high-margin woven polypropylene and polyethylene
speciality products to expand beyond its woven sacks and FIBC manufacturing. Its target is
to improve its operating profitability over the long term with increased sales contribution from
these newer products.
Client concentration risk, offtake risks remain
Emmbi’s top two clients account for ~30% of its overall revenues. While good client
management has ensured repeat orders, it also exposes Emmbi to client concentration risk.
Any change in clients’ procurement policies can have a negative impact. Further, given its
export concentration (over 90% to the US and Europe), we believe Emmbi will soon find it
challenging to fully utilise its expanded capacity with the slowdown in key export destinations.
Working capital to be stretched
Emmbi has to pay in advance for a large portion of its raw material purchases, whereas its
cash conversion cycles are long. Its working capital cycle is expected to be stretched further
as it would be required to aggressively market its increased production.
Valuations – the current price has ‘strong upside’
CRISIL Research has used the discounted cash flow method to value Emmbi and arrived at a
fair value of Rs 23 per share. This fair value implies P/E multiples of 8.4 FY12E, 9.0 FY13E
and 6.2x FY14E earnings. We initiate coverage on Emmbi with a valuation grade of 5/5.
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