Visit http://indiaer.blogspot.com/ for complete details �� ��
Bonus 1:1 & Results better
Polyplex on last Friday, declared its Sept. quarter results, which were slightly better then expected; plus company alsodeclared 1:1 Bonus. We revised upwards our annual estimate of EPS from Rs 334 to Rs 344/‐ and revising our stock price target to Rs 1200/‐.
Polyplex corporation is one of the leading player in Polyster filmindustry in India as well as globally, with subsidiaries in Thailandand Turkey, where in it owns 70% stake. Thai subsidiary is listed and its latest market cap of appx. Rs 2000 Crs is morethen double of Parent Polyplex, which is below Rs 950 Crs.
It has Polyster film capacity of 51,000 MTs in India, 58,000 MTs in Turkey and 42,000 MTs in Thailand. In India, of 51,000 capacity, 30,000 capacity was commissioned during current financial year only in April.’10 and this line has achieved90% utilization recently in Aug.’10. So, full benefit of this line will be available in second half only.
With Input prices stable and realizations on fire, margins arerising like anything. The average realizations for June quarter were Rs 115/‐ while that of Sept. quarter will go up to 145‐150; and for next Dec quarter this may be around Rs 175/‐ per Kg.
This will lead to a significant growth in PAT, quarter on quarter basis. As raw material prices are stable, whole incremental risein revenue may boost profits, so Sept.’10 quarter results may be much better then June’10 quarter? Similarly the Dec.quarter will be much better then Sept quarter.
The manufacturing units of company in all countries is located strategically in Tax free zones and hence tax out go is minimum.
This very strong cash flow period will improve the debt profile and balance sheets of company and thus the stocks should getre‐rated.
Background
The companyis amongst top 5 players in Polyster film globally, with manufacturing facilities at Uttaranchal in India, in Thailand and inTurkey. It has combined capacity of around 1,51,000 MTs of Polyster film [with 22,000 MTs of metalizing facility and necessary PET chips facilities] and 35,000 BOPP films capacity in India.
The company owns 70% each in Thailand and Turkey subsidiariesand Thai subsidiary is a listed company, with Market Cap of Appx Rs 2000 Crs [While Polyplex’s Mkt Cap is even below Rs 950 Crs].Company’s operations are in tax efficient zones as – including India, both subsidiaries are also in tax free zones. So, overall tax liabilityis very low, [only to the extent of MAT for Indian operations].
With strong revival in polyster film demand globally, the prices ofPolyster film is on the fire. The prices which were just Rs 98/‐per Kg in Feb.’10 have moved up gradually to Rs 150 till Aug and fromSept.’10 there is further rise of Rs 25/‐, leading to latest price being Rs 175/‐ per Kg.
The beauty or comfort for industry is derived from the fact that during this period and so far, there is no material rise in key input prices i.e. PET & MEG. Therefore margins of the whole industry arerising rapidly, as whole of the incremental rise in realizations is adding to profits. So, industry right now is earning supernormal profits and as per industry sources, no major capacities are comingup in production at least for next 2‐4 quarters. So, realization will remain strong for couple of more quarters. Even after that, may be realizations cools off some what, but they will remain quite healthy,giving good margins to industry going forward also.
Another positive fall out of strong cash flows in current year will beon balance sheets of all companies; which should look muchhealthier from FY’11 onwards, with reduced debts. This should also lead to re‐rating of sector,as in past most of the companies were having high debts, which they will be able to shed now.
Risks and concerns
Any sharp decline in realizations of PET films or any spike in PTA or MEG prices may affect the super margins of industry.
Recommendation
Polyplex on last Friday, declared its Sept. quarter results, which were slightly better then expected; plus company alsodeclared 1:1 Bonus. We revised upwards our annual estimate of EPS from Rs 334 to Rs 344/‐ and revising our stock price target to Rs 1200/‐.
No comments:
Post a Comment