Recommendation From Rubber Sector

This section gives a recommendation of a stock having stock price below Rs 100 with sound fundamentals and expected to give handsome returns over a one-year time horizon.  

RUBFILA INTERNATIONAL LTD : WIDE MARKET APPEAL 

HERE IS WHY
✓   High growth potential
✓   Market leader
✓   Good returns on capital employed

Rubfila International Ltd. (RIL) is the largest manufacturer of extruded round latex rubber thread in India. It is promoted by Rubpro Sdn. Bhd., Malaysia and Kerala State Industrial Development Corporation (KSIDC). It is also the only manufacturer in India that manufactures both talcum-coated and silicon-coated rubber threads which find application in highly niche areas like toys, fishing, bungee jumping, meat packing, medical webbing, apparels, etc. During the pandemic, RIL’s rubber threads found place in millions of masks, PPE kits and catheters used all around the world.

Despite the challenging times, the company reported its highest ever revenues in its history with net sales of Rs 322.94 crore in FY21 compared to Rs 258.01 crore in FY20. That is a growth of nearly 25.2 per cent. The first quarter of FY21 witnessed a slowdown due to strict lockdown but the company registered supplies in tune with the increasing demand domestically as well as internationally since the second quarter. It witnessed a 75 per cent hike in exports during FY21. Its EBIDTA stood at Rs 51.62 crore in FY21 as against Rs 28.68 crore in the previous year. That is a growth of over 80 per cent.

Also, the PAT grew by 101.2 per cent, rising from Rs 16.58 crore to Rs 33.43 crore from FY20 to FY21 respectively. A decline of nearly 62 per cent can be seen in the cash flows from operating activities, decreasing from Rs 37 crore in FY20 to Rs 14 crore in FY21. Net sales for the quarter ended June 2021 stood at almost Rs 97.8 crore. That implies degrowth of 14.38 per cent QoQ basis and a growth of 129.3 per cent YoY basis. The EBITDA (exclusive of other income) was Rs 17.21 crore which saw a growth of 7.17 per cent QoQ and nearly 372 per cent YoY.

The EBITDA margin stood at 18.76 per cent, a jump of 383 bps from the previous quarter’s margin. The net profit stood at Rs 12.15 crore, a growth of 5.32 per cent QoQ and a growth of 870 per cent YoY. The PAT margin saw a sequential growth of 232 bps translating into 12.42 per cent. In FY21, it commissioned its second line for its manufacturing unit by adding 2,500 MT, making it a total of 20,000 MT per annum capacity, which is the largest in India. This commissioning boosted the capacity and production in the last quarter of FY21.

The company plans to expand aggressively in the international markets to acquire further market share by adding yet another 5,000 MT capacity as the demand for its products grow. A hike in international prices for rubber thread has led to a cut in imports and hence a rise in domestic demand. It has a strong base in America and European countries and aims for exports contributing to 25 per cent of its revenues. Its whollyowned subsidiary, Premium Tissues India Ltd., operates in the hygiene paper segment.

It is a popular brand in South India. India has the lowest consumption of tissue paper products on per capita basis. The industry is gaining traction and offers huge potential in the future. On the returns front, the company delivered attractive returns to its investors. The ROE and ROCE stood at 17.6 per cent and 23.5 per cent, respectively. The stock is relatively cheaper with the PE multiple trading at 13.6. On top of this, the company has been paying good amount of dividends with dividend yield standing at 1.2 per cent. The company is almost debt-free. By virtue of these factors, we recommend our readerinvestors to BUY the stock.