Fwd: Anand Rathi Forecasts An FY11 EPS of Rs 300/share for Polyplex

 

13th Sept.'10

 
Why Madness in Packaging film sector......
 
PACKAGING FILM SECTOR - TREND & TOP PICK
 
We were bullish on Polyster Film Industry since December 2009; when we first recommended JBF Ind. (@ Rs.99/- in December 2009), after visiting JBF-RAK, Dubai facilities [engaged in Polyster Film manufacturing]. There after in March 2010 we recommended Garware Polyster (@ Rs. 53.50) based on improving realisation for polyster films on month-on-month basis. Again based on further improvement in realisation of Ployster Films we suggested an integrated flexible packaging player UFLEX (@ Rs. 125 in May 2010) which is also a big player in Polyster Film and having global manufacturing facilities also. There after we suggested buying ESTER IND. (@ Rs.30in July 2010). In this trend, our latest recommendation was Polyplex. Since beginning of the year, we are tracking the price realization in this sector along with trends in input cost which are as follows. Now after significant improvement in PET film prices, the trend is percolating down to BOPP films also.
Latest indications suggest that - now the BOPP prices are also likely to go up by Rs.20-22 per Kg soon.   
 
Trend in industry
 
The latest strong price trend in PET films were surprising and unexpected for industry also, which was expecting a moderate demand growth and modest price improvements. In fact no one bothered to notice and anticipate that - during last three years global crisis, due to demand slump - capacities of appx. 2.5 lakh MTs closed down in Europe, Japan and US due to high costs. This along with superb demand recovery in Asian & Ems [from FMCG & household] and newer usages for Polyster film viz. - in LCD/LED displays, Mobile/I-Pode screens, industrial packaging and expected uses in Solar panels; boosted demand much more then expected. The sudden demand spurt with no commensurate increase in capacities in past, led to sharp spurt in prices of PET films in last 6 months.
 
Standard PET film prices risen Month on Month basis since Feb'10; as follows - Rs.98/Kg in Feb'10 to Rs.101 March ;Rs.106 April ;Rs. 113 May ;Rs.125, from Mid-June ;Rs.140 in late June and Rs.145 in July'10 & 150 in Aug. Further Rs 25/- per Kg hike in Polyster Film prices were affected from September 2010 taking current prices to Rs 175/-. This suggests that average realization which was Rs.114/ Kg for June'10 Qtr may go up to Rs 145 plus in Sept Qtr and Rs 175/- per Kg in Dec Qtr. So Sept Qtr performance will be extremely good for the industry. (Much much better than June Qtr.) while Dec. Qtr will be superb for this industry.  This is so because inputs (MEG & PTA) prices were more or less stable since last eight months, due to abundant supplies in global markets. It means that whole of the incremental growth in revenue is actually added to PBT. 
 
There fore, we are expecting a quantum jump in September quarter PAT [in most cases it will be double or more then double of June quarter PAT]. Further, the Dec Qtr will be still better and it will be at least 50% more then even Sept Qtr PAT. [Apart from better average realization, this qtr may experience some fall in input prices also, as PTA & MEG prices actually fell from Aug-Sept.'10.
 
Strong cash flow for industry this year, will make their balance sheets much healthier (Reduction in debt burden) going forward and interest burden will come done significantly for the industry as a whole. Considering the overall trend we expect the sector to be re-rated in next couple of quarters, due to extra-ordinary healthy margins, improved debt profile and good growth prospects. Companies may pay liberal dividends and bonuses. [Jindal Poly already announced 1:1 bonus recently. We expect Polyplex to be next in line.]
 
According to industry sources, the strength in PET films [polyster films] prices will be maintained till Dec.'11; as till then no major capacities will be commissioned, based on present expansion plans of industry. So there is possibility that in next few months' prices may go up further.
 
As BOPP prices also started firming up now, many players who are also having BOPP capacities along with PET films, will show still better margins.
 
Our Top Pick
 
In our view, based on latest price trend, FY'11 EPS estimates for various companies will be as follows:-
 
POLYPLEX - This is our top pick right now, as the company is having all its manufacturing plants in Tax free regions in India as well abroad. So where as on PBT level all companies may so similar growth, on PAT basis this company will show much better growth. Further its latest expansion in India , commissioned in current financial year, adding more to top line and bottom line. Further, its equity is smallest in sector, while capacity is closer to top producer - jindal Poly. So, in EPS terms, its performance will be superb this year. Based on most latest updates, we expect Polyplex EPS to be close to Rs 300/- in FY'11 [compared to our earlier estimate of Rs 200/- given in report] So, stock is available at just 2X of FY'11 earnings. Finally adding to flavor is - this year is 25th year of company, so in this year of record profits - shareholders can expect liberal special dividend and Bonus from company. Company's AGM is due soon in last week of Sept. Hope
for some good news.......
 
 
We continue to be bullish on all other stocks from the sector including our old picks - Garware Poly, Uflex, Ester etc. but definitely our top pick pick will be - Polyplex, which may become star of the sector.

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.