Packaging-Polyester Film
...
Polyplex Corporation | Initiating Coverage
Initiate Coverage with Buy and Target Price of Rs478
...
Polyplex Corporation | Initiating Coverage
Valuation - Available at discount to subsidiary (PTL) and pe...
Polyplex Corporation | Initiating Coverage
Investment Arguments
...
Polyplex Corporation | Initiating Coverage
Exhibit 5: World BOPP demand by...
Polyplex Corporation | Initiating Coverage
High capacity utilisation to hold...
Polyplex Corporation | Initiating Coverage
Going ahead, we expect PTL standalone
’s ...
Polyplex Corporation | Initiating Coverage
Turkey
In Turkey, Polyplex Eu...
Polyplex Corporation | Initiating Coverage
With the ongoing revival in ...
Polyplex Corporation | Initiating Coverage
PET films demand growing on back of burgeoning Packaging sec...
Polyplex Corporation | Initiating Coverage
Financial Analysis
...
Polyplex Corporation | Initiating Coverage
Exhibit 13: OPM to remain stable...
Polyplex Corporation | Initiating Coverage
Company Background
PCL, headquarter located i...
Polyplex Corporation | Initiating Coverage
Polyplex Europa Polyester Film Sanayi Ve Ticaret Anonim Srke...
Polyplex Corporation | Initiating Coverage
Profit & Loss Statement (Consolidated) ...
Polyplex Corporation | Initiating Coverage
Balance Sheet (Consolidated) ...
Polyplex Corporation | Initiating Coverage
Cash Flow Statement (Consolidated) ...
Polyplex Corporation | Initiating Coverage
Key Ratios
Y/E March ...
Polyplex Corporation
Disclaimer
This document is solely for the personal information of the recipient, and must not be...
Polyplex Corporation
Address: Acme Plaza, ‘A’ Wing, 3rd Floor, M.V. Road, Opp. Sangam Cinema, Andheri (...
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Polyplex Corporation - Initiating Coverage

Published on: Mar 4, 2016
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Transcripts - Polyplex Corporation - Initiating Coverage

  • 1. Packaging-Polyester Film ackaging-P Initiating Coverage | Packaging-Polyester Film July 7, 2010 Polyplex Corporation BUY CMP Rs267 A Good Package Target Price Rs418 Polyplex Corporation (PCL) is one of the leading manufacturers of biaxially oriented Investment Period 12 Months polyester (PET) films globally with manufacturing facilities in India, Thailand and Stock Info 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 Sector Packaging-Polyester Film company's foray into the BOPP segment is expected to yield good returns for it, as Market Cap (Rs cr) 426 demand for BOPP far exceeds supply. We initiate coverage on the stock with a Buy Beta 0.4 Target Price recommendation and Target Price of Rs418, valuing the stock at 0.7x FY2012E 52 Week High / Low 271/164 P/BV P/BV implying into an upside of 57%. Avg. Daily Volume 6019 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 Face Value (Rs) 10 for BOPP far exceeded supply, with an estimated BOPP production of ~6,046kilo BSE Sensex 17,471 tonne/year v/s ~6,648kilo tonne/year of demand. To meet such growing demand, Nifty 5,241 PCL has set up new BOPP capacity of 35,000tpa in India as well as a new 10,000 Reuters Code PLYP.BO 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 Bloomberg Code PPC@IN expect it to post 20% CAGR in consolidated sales over FY2010-12E. Shareholding Pattern (%) Peers: 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 Promoters 46.9 1.3x P/BV. However, PCL has a market cap of Rs426cr or 0.6x FY2010E P/BV, MF / Banks / Indian FIs 19.2 which is at more than 55% discount to PTL's market cap and at a discount of nearly FII / NRIs / OCBs 11.6 36% to PCL's 70% stake in PTL, which works out to around Rs665cr. In comparison Indian Public / Others 22.3 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, Abs. (%) 3m 1yr 3yr respectively. Over the past five years, PCL has traded in the range of 0.3-0.7x one Sensex (2.8) 23.3 16.8 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. Polyplex 24.8 48.4 84.9 Key Financials (Consolidated) Y/E March (Rs cr) FY2009 FY2010E FY2011E FY2012E Net Sales 1,121 1,201 1,581 1,733 % chg 11.9 7.1 31.7 9.6 Profit Net Profit 110 72 129 154 % chg 10.4 (34.6) 79.4 19.0 FDEPS (Rs) 69.0 45.1 81.0 96.4 EBITDA Margin (%) 20.9 18.2 18.5 19.0 P/E (x) 3.9 5.9 3.3 2.8 RoE (%) 19.4 10.8 17.1 17.4 RoCE (%) 13.6 10.6 15.0 16.4 P/BV (x) 0.7 0.6 0.5 0.4 Sharan Lillaney EV/Sales (x) 0.9 0.7 0.5 0.3 +91 22 4040 3800 Ext: 338 EV/EBITDA (x) 4.3 4.1 2.5 1.7 Email: sharanb.lillaney@angeltrade.com Source: Company, Angel Research Please refer to important disclosures at the end of this report
  • 2. Polyplex Corporation | Initiating Coverage Initiate Coverage with Buy and Target Price of Rs478 Outlook PCL is well placed to service future demand on account of having one the largest PET film production capacities in the world, which is complemented by its excellent geographical reach through its plants in Thailand, Turkey and India. Pertinently, 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 biaxially oriented polypropylene (BOPP) segment is expected to yield good returns for it, as demand for BOPP far exceeds supply. Overall, we estimate the company to register 20% CAGR in sales over FY2010-12E. The company's profitability is also expected to improve with the company expanding capacity of its PET film unit in India along with the setting up of new BOPP and Cast Polypropylene (CPP) units. Exhibit 1: Segment-wise capacity and revenue break-up FY2010E FY2012E Segment Capacity Revenues Capacity Revenues (tpa) (Rs cr) (tpa) (Rs cr) PET film India 22,900 242 51,000 499 Thailand 42,000 310 42,000 348 Turkey 58,000 344 58,000 382 Total 122,900 896 151,000 1,229 Metallised film Thailand 11,000 89 11,000 100 Turkey 11,000 90 11,000 101 Total 22,000 179 22,000 202 Extrusion Coating film Thailand 9,000 43 9,000 48 BOPP film India - - 35,000 186 CPP film Thailand 10,000 2 10,000 62 Others 80 5 Total revenues 1,201 1,733 Source: Company, Angel Research July 7, 2010 2
  • 3. Polyplex Corporation | Initiating Coverage Valuation - Available at discount to subsidiary (PTL) and peers PCL holds 70% stake in its listed Thailand subsidiary 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 at 0.7x, 0.9x and 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. Thus, on the back of high growth potential and inexpensive valuations, we expect the PCL stock to get rerated going ahead. We initiate coverage Target Price on the stock with a Buy recommendation and Target Price of Rs418, valuing the stock P/BV at 0.7x FY2012E P/BV implying a into an upside of 57%. Exhibit 2: Comparative valuation FY2010 Company P/BV (x) P/BV Polyplex 0.6 Uflex 0.7 Jindal Poly 0.9 Ester Industries 1.1 Source: Company, Angel Research Exhibit 3: One year forward P/BV band 600 500 400 300 200 100 0 Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Price 0.2x 0.4x 0.6x 0.8x 1x Source: Company, Angel Research July 7, 2010 3
  • 4. Polyplex Corporation | Initiating Coverage Investment Arguments Capacity expansions to drive robust growth in revenues PCL has recently forayed into the lucrative, high-growth biaxially oriented polypropylene (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/yr of demand. To meet such growing demand, PCL set up new BOPP capacity of 35,000tonne/year in India as well as enhanced capacity of its CPP plant in Thailand. In PET films, PCL expanded capacity in India by 155% in FY2010. On the back of the company's capacity Overall, on the back of the company's capacity expansion moves, we expect it to post expansion moves, we expect it to post 20% CAGR in consolidated sales over FY2010-12E. In absolute terms, the company is 20% CAGR in consolidated sales over expected to increase their consolidated revenues from Rs1201cr in FY2010E to FY2010-12E Rs1,581cr and Rs1733cr in FY2011E and FY2012E respectively. This inturn is expected to boost their bottom line with an expected increase from Rs72cr in FY2010E to Rs154cr in FY2012. BOPP films - Global demand outstrips supply In FY2010, BOPP demand was estimated Over FY2008-10 there was scarce supply of BOPP films the world over. In the last two at 6,648,000tpa, while supply was only years particularly due to the economic meltdown, the BOPP market faced a setback 6,046,000tpa, a shortfall of nearly 10% with many manufacturers shutting down plants aggravating the situation. In FY2010, BOPP demand was estimated at 6,648,000 tonnes per annum (tpa), while supply was only 6,046,000tpa, a shortfall of nearly 10%. Going ahead, the demand for BOPP is expected to be strong and grow by 8% pa globally and around 15% in developing nations such as China, India, Indonesia, etc. Exhibit 4: BOPP supply constrained (kilo tonnes) 7,000 6,648 6,156 6,046 6,000 5,700 5,722 5,000 5,000 4,000 3,000 2,000 1,000 0 FY2008 FY2009 FY2010E Supply Demand Source: Bruckner, Angel Research BOPP - Growth drivers Increasing per capita consumption in developing countries due to higher standard of living in countries like China, India, South America and etc. Substitution to other plastic films ie. PE film, LDPE film, Cellophane film, PVC film and paper. In terms of yield and price per sq. meter, BOPP film is a better alternative. Higher consumer demand for better sanitation and environment-friendly issues. July 7, 2010 4
  • 5. Polyplex Corporation | Initiating Coverage Exhibit 5: World BOPP demand by application 4% 4% 20% 15% 11% 20% 20% 6% Tape Pasta/Noodle Other Dried Food Confectionery Other Foods Biscuits/Bakery Tobacco Others Source: Bruckner, Angel Research BOPP plant to generate revenues of PCL’s BOPP plant started production in 4QFY2010 and is expected to generate revenues around Rs219cr at full capacity of around Rs219cr at full capacity. We expect the company to achieve 60% utilisation in its first year operations on back of strong BOPP demand world over. We estimate the segment to register Revenues of around Rs175cr and Rs197cr in FY2011E and FY2012E, respectively. PET films demand in India to remain strong Demand for PET films in India is stood at The estimated demand for PET films in India stood at ~2,20,000tpa in FY2009, which ~2,20,000tpa in FY2009, which is is expected to grow by ~16% pa to 346,000tpa by FY2012. To cater to this growing expected to grow by ~15% pa to demand, PCL increased capacity from 20,000tpa in FY2009 to 51,000tpa in FY2010. 346,000tpa by FY2012E Due to the growing demand for PET films especially in the developing nations, all major players have planned strategic increase in their capacity, which is estimated to go on-stream over FY2011-12E. In FY2009, the production capacity in India was around 290,000tpa, which is expected to grow to ~434,000tpa in FY2012. With the demand expected to reach around 346,000tpa by FY2012, PET film exports will remain under pressure due to capacity constraints and is expected to reduce from the 93,000tpa in FY2007 to 66,000tpa in FY2012E. However, if exports do not reduce as expected, we believe that there will be an acute shortage of PET films in India, which will in turn result in prices spurting which inturn help PCL to record better profitability by taking advantage of the situation. Exhibit 6: India PET utilisation on rise Particulars (kilo tonnes) 2002 2007 2012E Capacity 159 294 434 Production 142 261 403 Exports 71 93 66 Imports 1 2 9 Demand 72 170 346 Capacity Utilisation (%) 89 89 93 Source: PCI Films Consulting, Angel Research July 7, 2010 5
  • 6. Polyplex Corporation | Initiating Coverage High capacity utilisation to hold prices We estimate PCL's PET segment to clock Average capacity utilisation of Indian companies is expected to be around 90-93% on revenues of around Rs471cr and Rs499cr the back of growing demand over FY2010-12E. We expect PCL's PET Films segment in FY2011E and FY2012E, respectively to attain 85% capacity utilisation in FY2011E, which is expected to move up to 90% in FY2012E. Thus, with utilisation levels expected to be high, we expect PET film prices to remain firm. As a result, we estimate PCL's PET segment to clock revenues of around Rs471cr and Rs499cr in FY2011E and FY2012E, respectively. Thailand, Turkey subsidiaries major contributors to revenues In FY2010, PCL generated 80% of its PCL's subsidiaries in Thailand and Turkey are major contributors to its overall revenues. consolidated revenues from its units in Currently, PCL is the largest producer of PET films in these countries. In FY2010, PCL Thailand and Turkey generated 80% of its consolidated revenues from these units. Thailand Benign demand-supply scenario for PET films The demand-supply scenario for PET films in Thailand is unlikely to witness any major changes in the near term, as demand is expected to grow in line with supply till FY2012E. For the companies in Thailand engaged in this business, capacity utilisation is expected to be around 78-80% till FY2012E. Thus, we believe that the PET film prices are unlikely to fluctuate due to demand-supply mismatch on the back of which we expect the companies to maintain their profitability. Exhibit 7: Thailand - Capacity utilisation to remain stable Particulars (kilo tonnes) 2002 2007 2012E Capacity 16 73 108 Production 14 57 85 Exports 6 32 45 Imports 15 8 4 Demand 23 33 44 Capacity utilisation (%) 90 79 79 Source: PCI Films Consulting Ltd.; Angel Research In case of Polyplex Thailand (PTL), currently it has capacity of 42,000tpa of PET films and 11,000tpa of metalised films. Going ahead, we expect the company to generate around Rs466cr and Rs492cr in FY2011E and FY2012E respectively from these lines. PTL is also starting a 10,000tpa CPP line in Thailand, which is estimated to generate around Rs89cr of revenues at full capacity. In CPP we estimate the company to achieve , capacity utilisation of 50% in FY2011E and register revenues of around Rs45cr in the same year. In FY2012E, we expect capacity utilisation to increase to 70% and generate around Rs62cr revenues from the CPP line. Exports account for 80% of PTL’s PTL meets the requirements of both the domestic and overseas markets with a focus standalone sales revenues on exports, which constitutes around 80% of its standalone sales revenues. July 7, 2010 6
  • 7. Polyplex Corporation | Initiating Coverage Going ahead, we expect PTL standalone ’s Exhibit 8: PTL - Revenue break-up (Standalone) operations to register revenues of around Particulars 2008-09 Rs511cr and Rs554cr in FY2011E and Market (%) FY2012E, respectively Asia 42 North America 20 Europe 10 Others 9 Total Exports 80 Domestic Sales 20 Total Sales 100 Source: Company, Angel Research Imports on the rise In the US, the manufacturers of PET films had filed an anti-dumping petition against PET imports from China, Brazil, Thailand and UAE. However, the International Trade Commission's (ITC) final ruling on the matter favoured Thailand, while the following anti-dumping duty rates were notified against imports from China (3.5 - 76.7%), Brazil (28.7 - 44.4%) and UAE (4.8%). Thus, going ahead, we expect PTL to increase its share in the US market on account of being exempt from pay anti-dumping duties v/s the other players. Exhibit 9: USA - Imports to increase Particulars (kilo tonnes) 2002 2007 2012E Capacity 346 333 347 Production 304 286 290 Exports 30 22 14 Imports 53 80 105 Demand 327 344 381 Capacity utilisation (%) 88 86 84 Imports (as a % to demand) 16 23 28 Source: PCI Films Consulting; Angel Research Going ahead, we expect the PTL’s standalone operations to register revenues of around Rs511cr and Rs554cr in FY2011E and FY2012E, respectively. July 7, 2010 7
  • 8. Polyplex Corporation | Initiating Coverage Turkey In Turkey, Polyplex Europa being the PCL has a presence in Turkey through Polyplex Europa, a subsidiary of PTL. The company largest producer of PET films coupled with is currently the largest producer of PET films in Turkey. The company has built a strong its excellent geographical reach is position in Western Europe due to lack of capacity in the region along with getting expected to enhance its capacity around the dumping issues and other duties imposed on India-produced films. utilisation gradually from 90% in FY2010E to 100% in FY2012E Exhibit 10: Turkey - Demand-supply scenario of PET films Particulars (kilo tonnes) 2002 2007 2012E Capacity - 49 78 Production - 39 63 Exports - 23 42 Imports 13 2 2 Demand 13 18 24 Capacity Utilisation (%) - 80 81 Source: PCI Films Consulting; Angel Research The packaging sector is expected to grow In Turkey, the major growth drivers in terms of consumption are expected to come by around 8% pa till FY2012E, while from the Packaging sector, which accounts for nearly two-thirds of the demand. The demand for PET films is expected to Packaging sector is expected to grow by around 8% pa till FY2012E, while demand register 7% CAGR over FY2007-12E for PET films is expected to register 7% CAGR over FY2007-12E. Thus, given the healthy demand- supply scenario we expect the average capacity utilisation levels to remain high at around 81% till FY2012E. Polyplex Europa being the largest producer coupled with its excellent geographical reach is expected to enhance its capacity utilisation gradually from 90% in FY2010E to 100% in FY2012E. The company currently has capacity of 58,000tpa of PET films and is estimated to generate around Rs434cr in FY2010E. We expect revenues to post 6% CAGR over FY2010-12E. In absolute terms, the company is expected to generate around Rs460cr and Rs483cr in FY2011E and FY2012E, respectively. The company's exports account for 80% of its total production, with 40% accounted by its Western Europe customers, 25% by Russia and CIS countries, 15% by the US and the remainder is exported to the Middle East and Eastern Europe. Polyplex Europa supplies films for signs, labels and tape release liners to five or six overseas companies. Global demand for PET films to remain firm Prior to the economic crisis, the PET film industry faced significant overcapacity issues in FY2006 and FY2007 globally. Due to over capacity, companies across the globe registered a drastic decline in profit due to stiff competition in turn denting profit margins. The global meltdown thereafter aggravated the situation with demand falling on further reduction in inventory. PCL too faced tough competition along with falling demand leading to decline in profit margins from 12.2% in FY2005 to 7.2% and 4.2% in FY2006 and FY2007, respectively. In 2007, average capacity utilisation for the Thin PET producers globally stood at around 80%. July 7, 2010 8
  • 9. Polyplex Corporation | Initiating Coverage With the ongoing revival in the economy, demand has picked up with the developing nations registering the highest growth (expected to record 15% growth pa). Going ahead, the demand and supply situation is expected to move in sync resulting in average capacity utilisation of 85% for thin films and 80% for thick films in FY2012E globally leading to better profitability and pricing power for the PET manufacturers. Exhibit 11: Global capacity utilisation on increasing trend (kilo tonnes) Total World Supply Total World Total World Demand Total World Region 2002 2007 2012E 2002 2007 2012E Western Europe Thin 159.0 203.0 218.0 203.7 200.5 232.5 Thick 143.0 99.0 97.0 101.5 92.5 96.5 Total 302.0 302.0 315.0 305.2 293.0 329.0 Eastern Europe Thin 12.7 16.7 28.7 20.8 33.9 44.9 Thick 10.5 2.5 2.5 3.1 2.6 3.8 Total 23.2 19.2 31.2 23.9 36.5 48.7 North America Thin 181.0 188.0 244.0 236.9 273.6 314.6 Thick 165.0 145.0 159.0 137.6 136.4 152.8 Total 346.0 333.0 403.0 374.5 410.0 467.4 Central & South America Thin 17.0 31.0 31.0 28.3 43.1 59.1 Thick 1.0 1.0 1.0 6.1 5.5 5.4 Total 18.0 32.0 32.0 34.4 48.6 64.5 Centra & East Asia Thin 582.0 1,007.0 1,135.5 445.5 657.6 836.0 Thick 253.0 380.0 527.0 229.5 295.9 413.5 Total 835.0 1,387.0 1,662.5 675.0 953.5 1,249.5 South East Asia & Oceanic Thin 235.0 455.0 610.0 152.6 293.9 490.7 Thick 44.0 63.5 83.5 13.0 25.6 36.0 Total 279.0 518.5 693.5 165.6 319.5 526.7 Middle East & Africa Thin - 35.0 156.0 35.9 55.8 79.4 Thick - - 18.0 1.1 1.2 1.6 Total - 35.0 174.0 37.0 57.0 81.0 Total World Thin 1,186.7 1,935.7 2,423.2 1,123.7 1,558.4 2,057.2 Thick 616.5 691.0 888.0 491.9 559.7 709.6 Total 1,803.2 2,626.7 3,311.2 1,615.6 2,118.1 2,766.8 Capacity utilisation (%) Thin 94.7 80.5 84.9 Thick 79.8 81.0 79.9 Total 89.6 80.6 83.6 Source: PCI Films Consulting, Angel Research July 7, 2010 9
  • 10. Polyplex Corporation | Initiating Coverage PET films demand growing on back of burgeoning Packaging sector PCL is currently present in the Thin Films segment with around 76% of its revenues are derived from the Packaging and Metalising segment and 15% of the revenues derived from the Industrial segment. Going ahead, the Packaging segment is set to witness highest demand worldwide with the developing nations leading the pack in terms of growth. The global Packaging and Metalising segment is expected to register a CAGR of 9% over FY2007-12E. Excise, Corporate Tax Exemption benefits Polyplex Thailand enjoys 100% corporate tax exemptions till FY2012. PCL's new capacity expansion (PET and BOPP) will also avail 100% corporate tax exemptions till FY2015. As a result of these exemptions, the company's tax rate would further reduce which will inturn boost its bottom-line. Concerns Higher crude oil prices PCL's two major raw materials include PTA and MED, which are derivatives of crude oil. Pertinently, raw material costs account for nearly 55% of the company's total expenditure. In the short term, prices of PTA and MEG would depend on the demand and supply of the final products. In the long run however, they would move in line with the crude price. Thus, an increase in crude oil prices will lead to an increase in the raw material price. Depending on the demand- supply scenario, PCL may or may not be able to pass on such increase in prices in turn impacting profitability. Changes in Anti-Dumping duties Any change in the Anti-Dumping duties will have a direct impact on PCL as most of the company's products are exported. A negative change could impact sales and hit profitability. July 7, 2010 10
  • 11. Polyplex Corporation | Initiating Coverage Financial Analysis Top-line to ramp up in FY2011E on capacity expansion, new lines Overall, we expect PCL to register 20% Even amidst the economic downturn, PCL on a consolidated basis registered a moderate CAGR in top-line over FY2010-12E 11.9% yoy growth in sales in FY2009. For 9MFY2010, net sales grew 5.4% yoy to Rs898cr from Rs852cr in the corresponding period of the previous year. Going ahead, for in 4QFY2010 we expect sales to come in flat with no capacity addition done during the year. For FY2010, we expect sales to increase by a modest 7.1% to Rs1,201cr (Rs1,121cr). However, for FY2011E we expect revenues to grow by a robust 32% yoy on the back of expansion in the PET films capacity and the company's foray into the BOPP and CPP films segments. For FY2012E, we expect growth to taper down to a modest 9.6%. Thus, we expect the company to increase its revenues from Rs1,201cr in FY2010E to Rs1,581cr and 1,733cr in FY2011E and FY2012E, respectively. After FY2010E volume growth will be mainly driven by the new PET film capacity and BOPP line in India as well as the CPP line in Thailand. Overall, we expect top-line to register 20% CAGR over FY2010-12E. Exhibit 12: Strong growth in revenues in FY2011E 2,000 1,800 1,733 % 32 1,581 1,600 1,400 1,201 (Rs cr) 1,200 1,121 1,001 1,000 767 800 600 531 400 200 - FY2006 FY2007 FY2008 FY2009 FY2010E FY2011E FY2012E Source: Company, Angel Research Operating margins We expect PCL to register modest increase Operating profit margins (OPM) improved by 4.2% yoy to 21% in FY2009 largely due in OPM to 18.5% and 19.0% in FY2011E to the decline in raw material costs. Total manufacturing expenses in FY2009 fell by and FY2012E respectively, on the back 8% yoy to 61% of net sales v/s 69% in FY2008. For 9MFY2010, OPM fell by a marginal of better demand and increasing 4% yoy to 18% on the back of increase in stock adjustments and other expenses. For utilisation 4QFY2010E, we expect margins to remain flat on a qoq basis. Overall, for FY2010E we expect PCL to register OPM of around 18.2%. Going ahead, we expect the company to register modest increase in margins to 18.5% and 19.0% in FY2011E and FY2012E respectively, on the back of better demand and increasing utilisation. We estimate the company to record EBITDA of around Rs219cr (Rs235cr) in FY2010E, which is expected to increase to Rs293cr and Rs330cr in FY2011E and FY2012E respectively, mainly owing to increase in revenues. July 7, 2010 11
  • 12. Polyplex Corporation | Initiating Coverage Exhibit 13: OPM to remain stable 350 330 25 293 300 20 250 235 219 200 15 (Rs cr) 168 (%) 150 10 86 93 100 5 50 - 0 FY2006 FY2007 FY2008 FY2009 FY2010E FY2011E FY2012E Operating Profit Margin Source: Company, Angel Research Net profit to register secular growth We estimate net profit of around Rs129cr In FY2009, increase in OPM was offset by higher depreciation, interest and tax costs and Rs155cr in FY2011E and FY2012E, during the year. Depreciation increased by 157% yoy to Rs54cr (Rs21cr) in FY2009, respectively while interest cost spiked by 82% yoy to Rs35cr (Rs19cr) mainly due to higher gross block and debt resulting from capacity expansion. Hence, net profit remained flat at at Rs110cr in FY2009, with net profit margin at a mere 10%. For 9MFY2010, net profit fell by 56.3% yoy largely because of the increase in overall expenditure and tax expenses, which increased by 146% to Rs25cr (Rs10cr). For FY2010E, we expect net profit margin to be around 6.0% at Rs72cr after minority interest. For FY2011E and FY2012E, we expect a gradual increase in net profit margin to around 8.2% and 9.0% respectively, on the back of lower interest cost and increasing OPM. In absolute terms, we estimate net profit of around Rs129cr and Rs154cr in FY2011E and FY2012E, respectively. Exhibit 14: Net profit to improve 180 12 160 154 10 140 129 120 110 8 100 (Rs cr) 100 (%) 6 80 72 60 4 38 40 32 2 20 - 0 FY2006 FY2007 FY2008 FY2009 FY2010E FY2011E FY2012E Net Profit Margin Source: Company, Angel Research July 7, 2010 12
  • 13. Polyplex Corporation | Initiating Coverage Company Background PCL, headquarter located in Nodia in Uttar Pardesh, is the world's fourth largest manufacturer of thin polyester (PET) films. The company has three manufacturing facilities one located at Khatima in Uttarakhand, another at Rayong province in Thailand owned and operated by subsidiary PTL and the recent facility at Çorlu in Turkey, which is owned and operated by Polyplex Europa Polyester Film San. ve Tic. A.S. (PE), a wholly-owned subsidiary of PTL. PCL has established itself as one of the most profitable producers of PET films globally on account of having cost-efficient operations resulting from high productivity and low overheads. The company's products have gained wide acceptance in the global markets such as USA, Europe, South-East Asia, South America and Australia. The company has a dynamic workforce of more than 347 employees in India, more than 295 employees in Thailand and more than 228 employees in Turkey. With its planned expansion in India, Polyplex capacity has reached 147,000tpa of PET film; 187,700tpa of PET chips; 42,500tpa of metalliser; 35,000tpa of BOPP; 10,000tpa of CPP and 310mn sqm of coating. With its planned capacity expansion of PET films in Thailand by 2010, PCL is set to emerge the third largest PET producer in the world. Subsidiary background Polyplex (Asia) Pte. Ltd. (PAPL) PAPL was established as a 100% subsidiary of PCL in July, 2004 and is now a major shareholder of PTL. PAPL was incorporated as an investment vehicle of PCL for its overseas investments (including PTL). The issued and paid up capital of PAPL as of March 31, 2009 stands at USD 1.59 million. Polyplex Thailand (PTL) Polyplex (Thailand) Plc. (PTL) was incorporated as a private company on March 26, 2002 with an initial registered capital of Bt. 400,000 to manufacture and distribute PET film (polyethylene terephthalate film or PET film). The Company was promoted by Polyplex Corporation Limited (PCL). The registered capital of the Company was subsequently increased to Bt. 400 million in April/May, 2002. In August 2004, the Company was transformed into a Public Company and the IPO was subsequently made in December 2004. As on date, PCL has 70%stake in the Company through both direct and indirect shareholding and the balance 30% is with the general public. Polyplex (Singapore) Pte. Ltd. (PSPL) As Thailand and Turkey did not have an effective Double Taxation Avoidance Agreement (DTAA), PTL decided to set up its wholly owned investment holding company in Singapore to invest in the PET film manufacturing factory in Turkey so as to serve the demand in European and other proximate markets. During the financial year 2008- 09, PTL has invested USD 3.5 million in the Preference Shares of PSPL. The issued and paid up capital of PSPL as of March 31, 2009 stands at Euro 44.85 million. July 7, 2010 13
  • 14. Polyplex Corporation | Initiating Coverage Polyplex Europa Polyester Film Sanayi Ve Ticaret Anonim Srketi (PE) PSPL had incorporated a 100% owned subsidiary company, PE in Turkey for operation of Greenfield polyester film plant for export to European and other proximate markets. The commercial operations had started in December, 2005 with the start up of the first thin PET film line. The first Metallizer plant had started production in March, 2006. The PET resin plant commenced commercial production from December, 2006. The second thin PET film line and Metallized Film line commenced commercial production in May2008.The issued and paid up capital of PE as of March 31, 2009 stands at Euro 4.04 million. Polyplex (Americas) Inc. PTL had acquired 80.24% equity stake in Spectrum Marketing Inc. (since renamed as Polyplex (Americas) Inc) with effect from January 1, 2006 to enhance its distribution network in the North American market. PCL, PTL's parent company also has a 9.88% stake while the balance 9.88% is held by a foreign US-based shareholder. During the financial year 2008-09, PTL invested USD 4 million in PA's Redeemable Preference Shares, in order to finance PA's working capital requirement. The issued and paid up capital of PA as of March 31, 2009 stands at USD 5.425 million. Applications: CPP films and packaging CPP films are used in household paper packing, stationery packaging, portfolios and food packaging. In stationery industry, they are used for photo albums and page protectors. They are used as a lamination layer, both as sealant and as heat resistant layer and in the pressure sensitive industry for adhesive coating and diaper closures. Also used as anti-leak layer for diapers, material for automatic packing of electrical and hardware products and covering films for audio and video cassettes, CDs and DVD cases. Ideal for textile industry for packaging of hosiery, socks, shirts; for floral wraps as sleeves and sheets for cut flowers, pots, dried flowers; food industry for packaging of bread, vegetables, and candies. Various packaging products made from these films are: Packaging rolls Packaging pouch Packaging bags Food packaging laminates Dairy packaging Cosmetic packaging Pharma packaging materials July 7, 2010 14
  • 15. Polyplex Corporation | Initiating Coverage Profit & Loss Statement (Consolidated) Rs crore Y/E March FY2007 FY2008 FY2009 FY2010 FY2011E FY2012E Net Sales 767 1,001 1,121 1,201 1,581 1,733 % chg 44.4 30.5 11.9 7.1 31.7 9.6 Total Expenditure 674 834 886 982 1,288 1,403 Net Raw Materials 550 691 681 792 1,039 1,130 Other Mfg costs 127 145 199 196 258 283 Personnel - - - - - - Other (3) (2) 6 (7) (9) (10) EBITDA EBITDA 93 168 235 219 293 330 % chg 7.8 80.6 39.9 (6.7) 33.8 12.6 (% of Net Sales) 12.1 16.7 20.9 18.2 18.5 19.0 Depreciation& Amortisation 35 21 54 59 65 72 EBIT 58 146 181 159 227 258 % chg (3.2) 153.8 23.3 (11.8) 42.7 13.3 (% of Net Sales) 7.5 14.6 16.1 13.3 14.4 14.9 Interest & other Charges 20 19 35 37 30 22 Other Income 11 10 21 6 8 9 (% of PBT) 22.2 7.2 12.4 4.4 3.9 3.8 Share in profit of Associates - - - - - - Recurring PBT 48 137 166 128 206 245 % chg (16.6) 181.9 22.4 (22.9) 60.6 19.0 Extraordinary Expense/(Inc.) - - - - - - PBT (reported) 48 137 166 128 206 245 Tax 3 5 12 25 21 24 (% of PBT) 7.3 3.7 7.1 19.4 10.0 10.0 PAT (reported) 45 132 154 103 185 220 Add: Share of earnings of associate - - - - - - Less: Minority interest (MI) 13 30 44 31 55 66 Prior period items - - - - - - PAT after MI (reported) 32 102 110 72 129 154 ADJ. PAT ADJ. PA 32 102 110 72 129 154 % chg (16.6) 213.6 10.4 (34.6) 79.4 19.0 (% of Net Sales) 4.2 10.1 9.9 6.0 8.2 8.9 Basic EPS (Rs) 22 63 69 45 81 96 Fully Diluted EPS (Rs) 22 63 69 45 81 96 % chg (16.6) 187.2 10.4 (34.6) 79.4 19.0 July 7, 2010 15
  • 16. Polyplex Corporation | Initiating Coverage Balance Sheet (Consolidated) Rs crore Y/E March FY2007 FY2008 FY2009 FY2010 FY2011E FY2012E SOURCES OF FUNDS Equity Share Capital 15 19 19 19 19 19 Preference Capital - - - - - - Reserves& Surplus 392 481 620 679 795 936 Funds Shareholders Funds 407 500 639 698 814 955 Minority Interest 138 158 198 229 285 351 Total Loans 335 455 681 549 449 294 Deferred Tax Liability 16 14 15 - - - Total Liabilities 897 1,127 1,533 1,476 1,547 1,600 APPLICATION OF FUNDS APPLICATION Gross Block 827 825 1,205 1,351 1,423 1,494 Less: Acc. Depreciation 191 227 293 352 417 489 Net Block 636 598 912 998 1,005 1,004 Capital Work-in-Progress 26 264 218 72 - - Goodwill 1 0 1 1 1 1 Investments 52 15 50 50 50 50 Current Assets 291 390 503 521 702 776 Cash 29 20 93 80 134 153 Loans & Advances 28 43 52 57 63 69 Inventories 106 122 160 171 225 247 Debtors 128 205 198 212 279 306 Other - - - - - - Current liabilities 110 150 153 165 210 231 Net Current Assets 181 241 350 355 492 545 Mis. Exp. not written off 8 3 - - - Total Assets 897 1,127 1,533 1,476 1,547 1,600 July 7, 2010 16
  • 17. Polyplex Corporation | Initiating Coverage Cash Flow Statement (Consolidated) Rs crore Y/E March FY2007 FY2008 FY2009 FY2010 FY2011E FY2012E Profit before tax 37 126 145 122 197 235 Depreciation 35 21 54 59 65 72 Change in Working Capital 5 (68) (36) (17) (80) (32) Other income 11 10 21 6 8 9 Direct taxes paid 6 1 3 5 12 25 Cash Flow from Operations 83 88 181 166 179 260 (Inc)./ Dec. in Fixed Assets (159) (236) (333) - - (71) (Inc)./ Dec. in Investments (23) 37 (35) - - - (Inc)./ Dec. in loans and advances 15 (16) (9) (5) (6) (6) Other income Cash Flow from Investing (167) (215) (377) (5) (6) (77) Issue of Equity - - - - - - Inc./(Dec.) in loans 37 120 226 (132) (101) (154) Dividend Paid (Incl. Tax) (7) (11) (13) (13) (13) (13) Others 60 10 56 (29) (5) 4 Financing Cash Flow from Financing 91 118 269 (174) (119) (163) Inc./(Dec.) in Cash 6 (9) 73 (13) 54 19 Opening Cash balances 23 29 20 93 80 134 Closing Cash balances 29 20 93 80 134 153 July 7, 2010 17
  • 18. Polyplex Corporation | Initiating Coverage Key Ratios Y/E March FY2007 FY2008 FY2009 FY2010 FY2011E FY2012E Valuation Ratios (x) P/E (on FDEPS) 12.3 4.3 3.9 5.9 3.3 2.8 P/E (on basic, reported EPS) 12.3 4.3 3.9 5.9 3.3 2.8 P/CEPS 5.8 3.5 2.6 3.2 2.2 1.9 P/BV 1.0 0.9 0.7 0.6 0.5 0.4 Dividend yield (%) 1.5 2.2 2.6 2.6 2.6 2.6 Market cap. / Sales 0.5 0.4 0.4 0.4 0.3 0.2 EV/Sales 0.9 0.9 0.9 0.7 0.5 0.3 EV/EBITDA 7.5 5.1 4.3 4.1 2.5 1.7 EV / Total Assets 0.8 0.8 0.7 0.6 0.5 0.4 Per Share Data (Rs) EPS (Basic) 22 63 69 45 81 96 EPS (fully diluted) 22 63 69 45 81 96 Cash EPS 56 115 144 109 170 199 DPS 4.0 6.0 7.0 7.0 7.0 7.0 Book Value 278 313 399 436 509 597 Dupont Analysis (%) EBIT margin 7.5 14.6 16.1 13.3 14.4 14.9 Tax retention ratio 92.7 96.3 92.9 80.6 90.0 90.0 Asset turnover (x) 0.9 0.9 0.8 0.9 1.2 1.2 ROIC (Post-tax) 6.6 12.9 12.1 9.5 15.0 16.6 Cost of Debt (Post Tax) 6.0 4.7 5.8 4.8 5.4 5.4 Leverage (x) 0.6 0.7 0.7 0.7 0.4 0.2 Operating RoE 6.9 18.4 16.8 12.8 19.1 18.7 Returns (%) RoCE (Pre-tax) 6.9 14.5 13.6 10.6 15.0 16.4 Angel RoIC (Pre-tax) 7.3 17.7 15.4 12.5 16.7 18.5 RoE 8.5 22.4 19.4 10.8 17.1 17.4 Turnover ratios (x) Asset Turnover (Gross Block) 1.0 1.2 1.1 0.9 1.1 1.2 Asset Turnover (Net Block) 1.3 1.6 1.5 1.3 1.6 1.7 Asset Turnover (Total Assets) 0.9 1.0 0.8 0.8 1.0 1.1 Operating Income / Invested Capital 0.9 1.1 0.9 0.9 1.2 1.3 Inventory / Sales (days) 53 41 46 50 46 50 Receivables (days) 54 61 66 62 57 62 Payables (days) 43 42 41 39 35 38 Working capital cycle (ex-cash) (days) 78 68 78 81 73 79 Solvency ratios (x) Gross debt to equity 0.8 0.9 1.1 0.8 0.6 0.3 Net debt to equity 0.6 0.8 0.8 0.6 0.3 0.1 Net debt to EBITDA 2.7 2.5 2.3 1.9 0.9 0.3 Interest Coverage (EBIT / Interest) 2.8 7.5 5.1 4.3 7.6 11.6 July 7, 2010 18
  • 19. Polyplex Corporation Disclaimer This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Angel Securities Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, and is for general guidance only. Angel Securities Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Securities Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Securities Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. Neither Angel Securities Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Disclosure of Interest Statement Polyplex Corporation 1. Analyst ownership of the stock No 2. Angel and its Group companies ownership of the stock Yes 3. Angel and its Group companies' Directors ownership of the stock No 4. Broking relationship with company covered No Note: We have not considered any Exposure below Rs 1 lakh for Angel, its Group companies and Directors. Ratings (Returns) : Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%) Reduce (-5% to -15%) Sell (< -15%)
  • 20. Polyplex Corporation Address: Acme Plaza, ‘A’ Wing, 3rd Floor, M.V. Road, Opp. Sangam Cinema, Andheri (E), Mumbai - 400 059. Tel : (022) 3952 4568 / 4040 3800 Research Team Fundamental: Sarabjit Kour Nangra VP-Research, Pharmaceutical sarabjit@angeltrade.com Vaibhav Agrawal VP-Research, Banking vaibhav.agrawal@angeltrade.com Vaishali Jajoo Automobile vaishali.jajoo@angeltrade.com Shailesh Kanani Infrastructure, Real Estate shailesh.kanani@angeltrade.com Anand Shah FMCG , Media anand.shah@angeltrade.com Deepak Pareek Oil & Gas deepak.pareek@angeltrade.com Sushant Dalmia Pharmaceutical sushant.dalmia@angeltrade.com Rupesh Sankhe Cement, Power rupeshd.sankhe@angeltrade.com Param Desai Real Estate, Logistics, Shipping paramv.desai@angeltrade.com Sageraj Bariya Fertiliser, Mid-cap sageraj.bariya@angeltrade.com Viraj Nadkarni Retail, Hotels, Mid-cap virajm.nadkarni@angeltrade.com Paresh Jain Metals & Mining pareshn.jain@angeltrade.com Amit Rane Banking amitn.rane@angeltrade.com Jai Sharda Mid-cap jai.sharda@angeltrade.com Sharan Lillaney Mid-cap sharanb.lillaney@angeltrade.com Amit Vora Research Associate (Oil & Gas) amit.vora@angeltrade.com V Srinivasan Research Associate (Cement, Power) v.srinivasan@angeltrade.com Aniruddha Mate Research Associate (Infra, Real Estate) aniruddha.mate@angeltrade.com Mihir Salot Research Associate (Logistics, Shipping) mihirr.salot@angeltrade.com Chitrangda Kapur Research Associate (FMCG, Media) chitrangdar.kapur@angeltrade.com Vibha Salvi Research Associate (IT, Telecom) vibhas.salvi@angeltrade.com Pooja Jain Research Associate (Metals & Mining) pooja.j@angeltrade.com Technicals: Shardul Kulkarni Sr. Technical Analyst shardul.kulkarni@angeltrade.com Mileen Vasudeo Technical Analyst vasudeo.kamalakant@angeltrade.com Derivatives: Siddarth Bhamre Head - Derivatives siddarth.bhamre@angeltrade.com Jaya Agarwal Derivative Analyst jaya.agarwal@angeltrade.com Sandeep Patil Jr. Derivative Analyst patil.sandeep@angeltrade.com Institutional Sales Team: Mayuresh Joshi VP - Institutional Sales mayuresh.joshi@angeltrade.com Abhimanyu Sofat AVP - Institutional Sales abhimanyu.sofat@angeltrade.com Nitesh Jalan Sr. Manager niteshk.jalan@angeltrade.com Pranav Modi Sr. Manager pranavs.modi@angeltrade.com Sandeep Jangir Sr. Manager sandeepp.jangir@angeltrade.com Ganesh Iyer Sr. Manager ganeshb.Iyer@angeltrade.com Jay Harsora Sr. Dealer jayr.harsora@angeltrade.com Meenakshi Chavan Dealer meenakshis.chavan@angeltrade.com Gaurang Tisani Dealer gaurangp.tisani@angeltrade.com Production Team: Bharathi Shetty Research Editor bharathi.shetty@angeltrade.com Bharat Patil Production bharat.patil@angeltrade.com Dilip Patel Production dilipm.patel@angeltrade.com Angel Broking Ltd: BSE Sebi Regn No : INB 010996539 / CDSL Regn No: IN - DP - CDSL - 234 - 2004 / PMS Regn Code: PM/INP000001546 Angel Securities Ltd:BSE: INB010994639/INF010994639 NSE: INB230994635/INF230994635 Membership numbers: BSE 028/NSE:09946 Angel Capital & Debt Market Ltd: INB 231279838 / NSE FNO: INF 231279838 / NSE Member code -12798 Angel Commodities Broking (P) Ltd: MCX Member ID: 12685 / FMC Regn No: MCX / TCM / CORP / 0037 NCDEX : Member ID 00220 / FMC Regn No: NCDEX / TCM / CORP / 0302

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