Fwd: Angel Puts A Buy On Polyplex With A Target of Rs 419

 

Polyplex-A Good Package
 
Polyplex Corporation (PCL) is one of the leading manufacturers of biaxially oriented polyester (PET) films globally with manufacturing facilities in India, Thailand and Turkey. PCL garners a major part of its revenues from the packaging industry, which is expected to register around 15% CAGR over FY2010-12E.
 
Moreover, the company's foray into the BOPP segment is expected to yield good returns for it, as demand for BOPP far exceeds supply. We initiate coverage on the stock with a Buy recommendation and Target Price of Rs418, valuing the stock at 0.7x FY2012E
P/BV implying into an upside of 57%.
 
Capacity expansion to drive robust growth in revenues: PCL has recently forayed
into the lucrative, high-growth BOPP and CPP segments. In FY2010, global demand
for BOPP far exceeded supply, with an estimated BOPP production of ~6,046kilo
tonne/year v/s ~6,648kilo tonne/year of demand.
 
To meet such growing demand, PCL has set up new BOPP capacity of 35,000tpa in India as well as a new 10,000 tpa CPP plant in Thailand. In PET films, PCL increased capacity in India by 155% in FY2010.
 
Overall, on the back of the company's capacity expansion moves, we expect it to post 20% CAGR in consolidated sales over FY2010-12E.
 
Available at a discount to Peers: PCL holds 70% stake in its listed Thailand subsidiary
Polyplex Thailand (PTL), which has a market cap of Rs950cr and is available at 1.3x P/BV. However, PCL has a market cap of Rs426cr or 0.6x FY2010E P/BV, which is at more than 55% discount to PTL's market cap and at a discount of nearly 36% to PCL's 70% stake in PTL, which works out to around Rs665cr.
 
In comparison to its peers too, PCL is available at inexpensive valuations of 0.6x FY2010E P/BV, with Uflex, Jindal Poly and Ester trading between 0.7x-1.1x FY2010E P/BV, respectively. Over the past five years, PCL has traded in the range of 0.3-0.7x one year forward P/BV, considering the 46% CAGR in earnings over FY10-12E, we value PCL at the upper band (0.7x) FY2012E P/BV.

Safe Harbor Statement:

Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.
 
Nothing in this article is, or should be construed as, investment advice.