Margin pressure continues… • Wim Plast ::ICICI Securities, report link

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Margin pressure continues… • Wim Plast (WPL) recorded sales growth of ~22% YoY to ~| 89 crore in Q3FY15, largely driven by volume growth (up ~18% YoY). EBITDA margins declined ~273 bps YoY to 16% due to a rise in purchase of trading goods & other expenses by ~549 bps and ~124 bps YoY (as a percentage of sales), respectively. EBITDA margins were largely hit by a change in product mix as proportion of trading income increased in topline. Finally, PAT grew ~8% YoY to | 9 crore in Q3 • During Q3FY15, the company decided to enter the air cooler business by setting up a manufacturing plant in Daman. WPL has done a capex of | 10 crore and will utilise its existing land to set up a new air cooler unit that will be fully operational from FY16 onwards • Considering the current quarter’s performance and lower-thanexpected price hike we have tweaked our estimate for FY15E and FY16E, respectively. Considering the company’s future expansion plan, we have introduced our FY17 estimates Focus on garnering market share from unorganised segment The plastic moulded furniture business is largely dominated by the unorganised segment (market share ~55%). Over the last four years, WPL has done a capex of over ~| 40 crore to increase the manufacturing capacity in order to expand into new geographies. Growing demand for plastic furniture coupled with a gradual shift towards the branded products category would further help WPL gain substantial market share (currently 12% in value terms) along with other major brands like Nilkamal and Supreme. The company has a strong dealer network (~10,000 across India) and has been targeting the higher middle class. However, the management has guided that WPL would be expanding its dealer network in rural India (by adding 1000 dealers in future). In addition, the company is also looking for opportunities to expand in new geographies like Andhra Pradesh and Tamil Nadu. We have modelled revenue, PAT CAGR of 18% each, led by volume CAGR of 14% in FY15- 17E. We have revised our EBITDA margin estimates downwards by 200 bps and 70 bps YoY for FY15E and FY16E, respectively, as the benefit of raw material prices was partially offset by higher purchase of traded goods. In addition, entrants into the new segment would keep margins under check in the initial years (due to lower operating leverage). Launch of premium products to help maintain margin As part of diversification and to leverage its existing strong dealer network, the company plans to enter the air cooler business with an initial outlay of | 10 crore. We have built in revenue of | 7.5 crore and | 9.5 crore for FY16E and FY17E, respectively. Also, the company plans to introduce bathroom accessories and storage materials in the coming years. WPL has maintained its EBITDA margin in the range of 17-18% considering its capability to pass on price hikes to dealers. However, with the recent expansion, the margin would remain under pressure considering lower operating leverage. Diversification into other category may hit profitability: maintain HOLD The stock has run up substantially in the past six months and is richly valued at this price. We believe WPL may face a challenge to improve the EBITDA margin to the historical level (~18%) due to entrants into new product lines and higher proportion of trading revenue in the topline. At the CMP, the stock is trading at 20x FY16E and 17x FY17E earnings. We roll over our valuation on FY17E and value the stock at 16x FY17E earnings with a revised target price of | 1425/share and a HOLD rating.

LINK
 http://content.icicidirect.com/mailimages/IDirect_Wimplast_Q3FY15.pdf