Sensex
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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.
Benefits of Investing in Small cap stocks.
ü Huge growth potential in short to medium term due to growing economy and freeing up of markets and reforms.
ü Potential to become big-caps or large companies after years.
ü Potential benefit by corporate actions such as mergers, acquisitions, demergers, bonus shares, issue of more shares through rights issue, follow on offer, value unlocking,, back-ward integration, forward integration, raising of equity capital, such other events resulting into expansion of equity capital as well focusing attention of market participants.
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ü It is easier to double a sale of 5 cr into 10 cr for a small cap company than say Reliance Industries or take any large cap or may be Sensex Company.
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ü Finding Your L & T and Reliance:
It is highly less likely that any investor would be able to make enormous wealth, if so then comparable to those who made it by investing into Reliance or L and t of the sorts before years. Because this companies are large caps and already usually running on several times PE. In one sense they have already grown. They are there from decades. Yes, they will continue to create value for their share holders. But they have lost the capacity to give similar returns to investors investing afresh than those investors who invested years ago at when it was growing.
ü If you are finding for next Big thing, Obviously you've got to look at Small!
ü According to Motilal Oswal Wealth Studies,
74 of the top 100 wealth creating companies in 2009 had a base market capitalization of less than Rs.5000 crore in 2004.
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