DSIJ Mindshare

Stock Pick from Forest Products

LOW PRICE SCRIP

Here Is Why

Diversification of sales mix from manufacturing of plywood to include laminates, decorative veneers, etc.

Increased focus on retail segment by aggressively targeting Tier II cities.

Strong promoters’ holding and comfortable debt to equity ratio at 0.47x.

Archidply Industries: Broad Spectrum, Higher Profits

The company now has a very well-balanced mix of sales from both institutional and retail segments

Sometimes it makes sense to focus on scrips that are ignored by investors at large despite having good potential. Archidply Industries (APIL) is one such counter, which has a strong brand presence in the institutional segment in engineered wood products (EWPs) and noteworthy financials. The company’s sales in the last four years ending FY14 grew at a CAGR of 13.6 per cent while its profit in the same period increased from Rs 0.01 crore to Rs 4.01 crore. What is also attractive about the scrip is that it is still available at a trailing 12-month price to earnings ratio of 14.6x.

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APIL is in the business of manufacturing and marketing of EWPs like laminates, plywood, medium density fibre (MDF) and particle board. The plywood and block board accounts for nearly 62 per cent of the company’s revenues and has nearly 5 per cent market share in the organised segment. APIL’s presence at multiple price points across multiple products enables it to target a large market spectrum and benefit from the high growth potential of the industry.

The company has established a strong presence in the institutional segment of the wood panel industry with its product being approved and recommended by most of the leading architects and construction firms. The bulk of the revenues is derived from institutional sales and has some of the leading and high-end industrial consumers as its customers. To diversify its sales mix, the company has increased its focus on the retail segment by aggressively targeting Tier II cities and expanding its network of distributors and dealers to widen the market reach.

APIL recognised the need to cater to customers with a growing supply of varied interior products. Hence, the company extended from manufacturing of plywood to include laminates, decorative veneers, etc. For FY14 the laminates segment contributed 38 per cent as against 19 per cent in FY09. The company is continuously making efforts to widen its product offering in this particular segment.

For 9M FY15 the company has delivered 18.6 per cent revenue growth and profit growth of 31.5 per cent on a yearly basis. The EBIDTA margin in the same period stood at around 8.6 per cent, which is an improvement of 34 bps from the same period last year. As on September 2014, the company has debt of Rs 53.57 crore, consequently translating the debt to equity ratio at 0.47x. The promoters have increased their stake from 72 per cent as on March 2014 to 72.61 per cent at the end of December 2014.

On the valuation front, APIL is trading at a TTM PE ratio of 14.6x with a EPS of Rs 2.26 and in terms of its price to book value, it trades at 0.64x. As such, the stock seems worth buying with 35-40 per cent upside in the next one year.

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