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1. October 22, 2010
Recommendations <= 1 year 1 - 2 yrs 2 - 5 yrs
POLYPLEX CORPORATION LTD BUY
Strong Buy
Buy
Polyplex Corporation (PCL) is the world’s 4th largest producer of thin polyester film with
Hold
manufacturing facilities in India, Thailand and Turkey. It has recently ventured into the Reduce
other substitute products like BOPP and CPP. Sell
Strong Buy – Expected Returns > 20% p.a.
• PCL is augmenting its capacities in BOPET, CPP and BOPP segments and its capacities are Buy – Expected Returns from 10 to 20% p.a.
expected to be 151,000tpa (tones per annum) for BOPET and 35,000tpa for BOPP Hold – Expected Returns from 0 % to 10% p.a.
Reduce – Expected Returns from 0 % to 10% p.a. with possible downside risk
segment by FY12. Sell – Returns < 0 %
• The prices of BOPET are on the rise on the back of huge demand – supply mismatch.
While the demand currently is increasing by 25% the supply is rising by just 4%. The
prices of BOPET have risen by 125% in past six months.
• The company’s operations are geographically well spread thus reducing the risk of
geographical concentration, thereby insulating its operations from a downturn in a STOCK DATA
BSE / NSE Code 524051/ POLYPLEX
particular location. Bloomberg Code PPC IN EQUITY
• The management of the company has a good track record of executing its capacity No. of Shares (Mn) 16
Sensex / Nifty 19,872/5,982
expansion and navigating the company through various trade cycles. PRICE DATA
th
• We expect PCL’s revenues to grow at a CAGR of 35.6% over FY2010-12 to Rs 22.41bn by CMP Rs (20 Oct' 10) 869.2
Beta 0.54
FY2012. We further estimate that the PAT would grow at a CAGR of 37.4% over FY2010- Market Cap (Rs mn) 13,899
12 to Rs 1,775bn in FY2012 from Rs 940mn in FY2010. 52 Week High-low 984.40/164
Average Daily Volume 47,592
Based on a consolidated FY12 P/E multiple of 10, the fair value for the
STOCK RETURN (%)
company works out to Rs 1109 30D 3M 6M 1Y
Polyplex Corporation 14% 197% 312% 369%
Financial Snapshot Sensex -1% 11% 15% 15%
Projections (Rs Mn) FY08A FY09A FY10A FY11E FY12E Nifty -1% 12% 16% 17%
Revenue 10,013 11,206 12,180 20,589 22,410 SHARE HOLDING PATTERN (%)
Promoter 46.9
Y-o-Y Growth % 30.4% 11.9% 8.7% 69.0% 8.8%
Institution 4.9
EBIDTA 1,776 2,567 2,436 3,872 4,234 Non Institution 48.2
Y-o-Y Growth % 70.4% 44.5% -5.1% 59.0% 9.4% Total 100.0
PAT 824 1,104 940 1,660 1,775 1 Year Price Performance (Rel. to Sensex)
Y-o-Y Growth % 158.2% 34.0% -14.9% 76.6% 6.9% 450
EPS Rs 48.7 69.0 58.8 103.8 111.0 400
Sensex PCL
BVPS Rs 300.3 384.0 400.1 492.5 587.9 350
300
EBIDTA % 17.7% 22.9% 20.0% 18.8% 18.9%
250
NPM % 8.2% 9.9% 7.7% 8.1% 7.9% 200
ROE % 16.2% 18.0% 14.7% 21.1% 18.9% 150
PER x 8.4 7.8 100
P/B Ratio 1.8 1.5 50
0
-50
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2. October 22, 2010
BUSINESS PROFILE
Polyplex Corporation is the 4th largest producer of thin BOPET films in the world. The company currently has presence in
PET films, BOPP films, CPP, Metalized Films and Extrusion Coating.It has manufacturing facilities in India, Thailand and
Turkey, and has distribution setups in the United States and China. The plants in India are located at Khatima and Bajpur in 85% of its revenues come
from overseas markets
Uttarakand. It also has a captive production of BOPET chips used in the production of BOPET films, which helps the company
to have a better cost control over the entire value chain. The PET chips are produced using Purified Terephthalic Acid and
Mono- Ethylene Glycol which are by products of crude oil processing and therefore are subjected to price fluctuations.
BOPET (Bi-axially Oriented polyethylene terephthalate Films) – BOPET films are high electrical resistance, high
printability plastic films used in the FMCG, food packaging, electrical insulation, magnetic applications. It is also used in
Touch Screen Panels, Solar Power Cells, Flat Screen TVs and Computers and LEDs which is driving the demand. The demand
for BOPET films is growing at 25-30% worldwide while the growth in supply is meager 4% leading to increase in prices which
have been beneficial for the company. The prices of PET films have increased by 125% in the past six months. The BOPET
film market in India is estimated at 228,000 tpa for 2010 with the total capacity of 360,000 tpa,
BOPP (Bi-axially Oriented polypropylene) – BOPP films have the high moisture resistant, higher tensile strength and are
puncture resistant and is used in FMCG, food packaging and medical packaging. BOPET has better quality and is preferred Three- fourth of Polyplex
over BOPP as a packaging product. The BOPP market in India is estimated at about 162,000 tons for the 2010 with a capacity products are used in the
FMCG segment.
base of 350,000 tons. Demand is expected to grow at more than 15%. In India the penetration of BOPP in packaging was
low which has improved over a period of time resulting in higher growth in BOPP.
CPP (Cast polypropylene) – PCL has recently entered the CPP segment. CPP is polypropylene based, and offers impressive
transparency and external glossy qualities and used in FMCG and food packaging.
Segment wise capacity Capacity (In tpa)
Geographical Segmentation Segment FY2010 FY2012E
PET 122,900 151,000
Europe
BOPP - 35000
South America Metallised Film 22,000 22,000
32%
2%
SE Asia CPP 2000 10000
19% India
17% Extrusion Coating (in mn sqm) 19,000 19,000
North America Segment wise Revenue (Rs crores)
21% Segment FY2010
Other Asia
Middle East
PET 74%
6%
3% Extrusion Coating 4%
CPP 7%
Capacity expansion to drive robust growth … Metalized Films 15%
Total 100%
The company is in the process of augmenting its capacities and is setting up a new PET line in India. The company is also
in the process of setting a 35,000 TPA BOPP line in Thailand which is expected to commence operations in FY11. Recently,
the company has added a new CPP line to its Thailand facility. These capacities would drive the growth for the company.
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3. October 22, 2010
BUSINESS PERFORMANCE
Better than expected performance...
The Net sales grew 41.7% Y-o-Y to Rs4.27bn as against Rs3.01bn in the previous corresponding quarter on the back of
higher capacity utilization, commencement of new BOPP and PET plants in India and higher selling price due to The manufacturing units of
company in all countries are
favourable market conditions and strong demand. The company reported a 247 bps expansion in OPM to 20.8% from located strategically in Tax free
18.4% in Q1FY10 on the back of strong demand for polyester films and increase in selling price, which was much zones and hence tax out go is
minimum.
higher than the increase in the raw material cost. Net profit surged 461%Y-o-Y to Rs390mn from Rs70mn in Q1FY10
on strong demand. We expect the FY11 revenues to jump by 69% to Rs 20.5bn on higher capacities.
Annual Revenues & Margins Quarterly Performance
25000 25% 4500 30%
4000
25%
20000 20% Revenues (Rs mn) 3500
Revenues (Rs mn)
3000 20%
Margins(%)
Margins(%)
15000 15% 2500
15%
2000
10000 10% 1500 10%
1000
5000 5%
5%
500
0 0%
0 0%
Revenue (Rs mn) PAT Margins EBITDA Margins Net Revenue (Rs mn) EBITDA Margins
Peer Group Comparison
EBIDTA PAT
Revenue ROE P/E P/B CMP FV
Companies Margin Margin
(Rs. mn) (%) (x) (x) (Rs.) (Rs.)
(%) (%)
Polyplex Corporation 12180 20% 8% 14% 15.3 2.2 869 10
Jindal Poly 17036 24% 12% 19% 13.0 2.5 1134 10
Uflex 22910 21% 8% 18% 10.1 1.8 286 10
Cosmo films 9590 15% 7% 23% 4.7 1.1 161 10
* FY10 consolidated figures
Peer Comparison
PCL operates at comparable margins. The company currently trades at a P/E of 15.3 and commands a premium
compared to its peers on the back of strong capacity expansion initiatives as well as a geographically diversified Strong revenue visibility
business model. Going forward we expect the company to post better results on the back of strong growth in
expected in FY11
revenues.
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4. October 22, 2010
Key Risks and Concerns
PCL operates in the packaging industry which has low entry barriers. The cost of setting up a 30,000 tpa capacity
plant is roughly around USD 45-55mn and takes around 12-18 months. The current realization of Rs 225/kg is 125% The company has a Debt to
Equity ratio of 1.28
higher than the long term average of Rs 100/kg due to the demand and supply scenario. Any incremental capacity
addition might hurt realizations. New PET lines with incremental capacities in the range of 250,000 tpa are
expected to commission by FY12 with India and China having the major share. The Exports by PCL are subjected to
Countervailing and Anti Dumping duties and any increase in the same would pressurize the margins. Any increase
in raw material prices would also hurt the margins.
VALUATION
We expect PCL’s revenues to grow at a CAGR of 35.6% over FY2010-12 to Rs 22.41bn by FY2012. We further Based on a consolidated
estimate that the PAT would grow at a CAGR of 37.4% over FY2010-12 to Rs 1,775bn in FY2012 from Rs 940mn FY12 P/E multiple of 10, the
fair value for the company
in FY2010.
works out to Rs 1109
Based on a consolidated FY12 P/E multiple of 10, the fair value for the company works out to Rs
1109
We recommend a ‘BUY’ rating on the stock.
Financial Analysis and Projections
Particulars (Rs Mn) FY08A FY09A FY10A FY11E FY12E
Net Revenue 10,013 11,206 12,180 20,589 22,410
Other Income 117 221 249 371 434
Total Income 10,130 11,427 12,429 20,960 22,844
Operating Expenditure 8,354 8,860 9,993 17,087 18,610
Depreciation 387 540 599 781 846
EBIT 1,390 2,027 1,837 3,091 3,388
EBIT Margin (%) 13.9% 18.1% 15.1% 15.0% 15.1%
Interest 211 368 274 326 347
Profit Before Tax 1,178 1,659 1,563 2,765 3,042
Less: Tax 51 119 190 361 404
PAT 824 1,104 940 1,660 1,775
PAT Margin (%) 8.2% 9.9% 7.7% 8.1% 7.9%
ROE (%) 16.2% 18.0% 14.7% 21.1% 18.9%
EPS (Rs) 48.7 69.0 58.8 103.8 111.0
BVPS (Rs) 300.3 384.0 400.1 492.5 587.9
Valuation Ratios (x) FY11E FY12E
P/E 8.4 7.8
P/B 1.8 1.5
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5. October 22, 2010
Board of Directors
Director Name Current Position Description
Shri. Sanjiv Saraf is Non Independent Non-Executive Chairman of the Board of Polyplex Corporation Ltd. He is promoter Director of the
Company and is associated with the Company since its inception. Shri Sanjiv Saraf is B.Tech from Indian Institute of Technology (IIT),
Shri. Sanjiv Saraf Chairman Kharagpur. Shri Saraf has guided the Company from the time of the setting up of Company's first Polyester Film project in 1988 to the
subsequent expansions and diversifications in India as well as through its subsidiaries abroad. He was the Managing Director of the
Company for over sixteen years. He is currently non-executive director and the Chairman of the Company.
Shri. Pranay Kothari is Chief Executive Officer, Non-Independent Whole Time Director of Polyplex Corporation Ltd. He is a qualified
Chartered Accountant and Company Secretary and has been associated with the Company since 1985. During his tenure with the
Shri. Pranay Kothari Chief Executive Officer Company he has held the positions of Company Secretary, Director (Operations) (Whole Time Director). He was last appointed as
Whole Time Director designated as Executive Director for a term of three years w.e.f. September 7, 2006. Shri Pranay Kothari is a
professional director of the Company.
Independent Non-
Subrahmanyan S. Executive Vice Subrahmanyan S. is currently serving as an Independent Non-Executive Vice Chairman on the Board of Polyplex Corporation.
Chairman
Shri. Ranjit Singh is Chief Operating Officer, Non Independent Whole Time Director of Polyplex Corporation Ltd. He is COO, joined
Polyplex in 1996 and currently has overall charge of the Film Business. Mr. Singh has been instrumental in enhancement in productivity
Chief Operating
Shri. Ranjit Singh and quality levels at plant, besides institutionalizing cost cutting measures and a process driven approach in the Company. He is a
Officer
qualified Mechanical Engineer and an MBA from the Indian Institute of Management, Ahmedabad.
Shri. Jitender Balakrishnan was appointed as an Additional Director of Polyplex Corporation Limited., with effect from July 20, 2010. He
Shri. Jitender Balakrishnan Additional Director has done his B.E. (Mech.) from National Institute of Technology (NIT), Madras University. He has served on the Board of IDBI Bank
Limited as Executive Director and thereafter as Deputy Managing Director and Group Head - Corporate Banking.
Shri. Sanjiv Chadha is Non Independent Non-Executive Director of Polyplex Corporation Ltd. He is a Non Resident Indian and practicing
Non-Executive as an Architect in the United States of America. Shri Sanjiv Chadha is B. Arch from Indian Institute of Technology (IIT) and has done M.S.
Shri. Sanjiv Chadha
Independent Director Architecture from Illinois Institute of Technology, U.S.A. He is member of American Institute of Architecture, Association of Licensed
Architect, International Council of Shopping Centers and International Facilities Management Association.
Non-Executive
O. Mehra O. Mehra currently serves as an Independent Non-Executive Director on the Board of Polyplex Corporation.
Independent Director
Non-Executive
Brij Soni Brij Soni currently serves as an Independent Non-Executive Director on the Board of Polyplex Corporation.
Independent Director
Non-Executive
Suresh Surana Suresh Surana currently serves as an Independent Non-Executive Director on the Board of Polyplex Corporation.
Independent Director
Non-Executive
Ravi Kumar Ravi Kumar currently serves as an Independent Non-Executive Director on the Board of Polyplex Corporation.
Independent Director
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