Nilkamal Ltd :Strong brand in plastic play…management meeting : ICICI Securities, report

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Strong brand in plastic play…
We met the management of Nilkamal Ltd to get an insight into its
business and future plans. The company operates mainly in three
business segments i.e. plastics (contributed ~82% to FY14 topline), life
style furniture, furnishing & accessories (contributed ~12% to FY14
topline) and other segments (contributed ~6% to FY14 topline). Nilkamal
is one of the strong brands in the plastic segment that can be further
classified into material handling (value market share ~36%) and moulded
furniture category (value market share 40%). The company has 1200
distributors and over 5000 touch points across India. Further, Nilkamal’s
retail stores ‘@home’ cater to the life style furniture, furnishing and
accessories segment. The @home stores provide furniture, soft
furnishings & home accessories. Currently, Nilkamal has 19 stores
operating across India with average store size at ~16,000 sq ft. The other
segment includes revenues from relatively new products i.e. mattress &
mass housing business. Consolidated revenues recorded 12.5% CAGR in
FY10-14 while the EBITDA margin remained under pressure due to losses
from its retail segment at the operating level (till FY13). PAT remained
flattish in FY10-14 due to a decline in margin and rising interest cost.
Strong foothold in plastic division, retail segment yet to perform
Nilkamal has nine manufacturing units for manufacture of plastic moulded
furniture and material handling solutions. Material handling and moulded
furniture contribute 57% and 43% to segment revenues, respectively. The
material handling business is largely categorised under the B2B segment
and provides products to various industries such as dairy, agriculture,
food processing, beverages and railways. The moulded furniture segment
includes chairs, tables, racks, ready to assemble furniture, etc) while sales
happened through retail outlets in India. Demand from the material
handling segment remained lacklustre, resulting in a decline in overall
volume by 13% YoY during FY14. The retail segment recorded sales
growth of 7% YoY to | 218 crore.
Drag in EBITDA margin due to lower operating leverage
The financial performance in the last five years was dragged down by
lower volume of the plastic division coupled with losses from the retail
segment. This finally resulted in higher working capital requirement and
lower return ratios (RoE: 9%, RoCE: 12%). However, the management
guided at an improvement in EBITDA margin, going forward, due to
benign raw material prices (crude derivatives) & volume growth in plastic
division. Nilkamal is currently trading at 17x FY14 EPS.

LINK
http://content.icicidirect.com/mailimages/IDirect_Nilkamal_MgmtNote.pdf