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Stock Pick From The Packaging Sector

| 5/17/2012 9:00 PM Thursday

Low Priced Scrip is hidden gem, today's underdog, a stock with future potential that is expected to fetch returns within 1 year. This is a stock picked carefully based on a fundamental analysis of the company.

The company recommended as the Low Priced Scrip for this issue is the single largest provider of packaging solutions in India, catering primarily to the defensive FMCG, pharma, chemicals and beverages industries.

At times when the equity markets seem volatile, investors shun risky investment bets and flock towards defensive investment havens like FMCG and Pharma stocks. We, at DSIJ, suggest that you take one step backwards, broaden your investment horizon and consider Manjushree Technopack (MTL), our low priced scrip for the fortnight.

MTL is into the manufacturing of PET bottles, and caters to industries such as FMCG, pharmaceuticals, beverages and chemicals. The production capacity is divided into two elements, viz. PET preforms and containers. Currently, the company has a total capacity of 40000 tonnes per annum (TPA). Its products are sold only to OEMs, and 80 per cent of the business comes from the FMCG and pharmaceutical sectors. Owing to the defensive nature of its user industries, MTL would not be impacted by any slowdown in the business cycle, making it virtually recession-proof.

Going forward, the packaging industry is expected to continue its growth story in leaps and bounds, registering a robust growth rate of around 16-18 per cent over the next couple of years. The industry also seems to be witnessing a shift in trend from the age-old glass and other forms of packaging to plastics products, as customers are demanding better and more innovative packaging solutions than ever before. Backed by its emphasis on the usage of the most up-to date technologies for its manufacturing activities, MTL would certainly be able to capture these opportunities and reap the benefits.

Moreover, MTL’s envisaged capacity expansion plans would also play a major role, as this would power the company with the ability to meet the growing demands of its customers. After having recently increasing its installed capacity to 40000 TPA, it plans to make further investments of up to Rs 150 crore for two new facilities in the Bidadi and Harohalli industrial areas in Bengaluru to increase the capacity to 60000 TPA. About the funding, Vimal Kedia, MD of MTL has stated that, “We are funding our capex through the SBI, which has already sactioned Rs 92 crore, and the balance will come through internal accruals. The project is already in its advanced stage of implementation, and should be completed by October 2012”. In this regard, the increasing debt burden is where our only concern lies. As on date, the total debt of Rs 55 crore on MTL’s balance sheet translated into a D/E ratio of approximately 0.60x, and this may raise some concerns. However, an interest cover ratio of 4x could provide a good cushion to its financial indebtedness. There are no immediate plans of equity dilution.

Financially, the company has performed well over the past five years, as its topline and bottomline grew at a CAGR of 32 per cent and 48 per cent respectively. The company has also done well on its return ratio front, reporting an ROE of 19 per cent and an ROCE of 18.7 per cent in FY11. For the period between April-December 2011, SPL has reported a net profit of Rs 13.94 crore on sales amounting to Rs 222.19 crore. For the full year ended March 2012, the company is targeting revenues of close to Rs 300 crore.

Sticking by the management’s expectations, we estimate the EPS to stand at around Rs 14.67 for FY12E. Based on our earnings estimate, the shares of MTL at current levels of Rs 79.85 apiece are available at a PE multiple of 5.4x. Investors may buy this scrip with a price target of Rs 96.

BEST OF LAST ONE YEAR
Name of CompanyReco Price (Rs)CMP (Rs)Gain %
JK Lakshmi Cement  48.50 62.00 27.84
Omkar Specialty Chemicals  58.50 69.00 17.95
PTC India 45.00 52.00 15.56
IDBI Bank  81.00 91.00 12.35
Power Grid Corp. of India 96.00 103.00 7.29
Chambal Fertiliser & Chemicals 69.00 73.00 5.80
Dena Bank  80.5 84.00 4.35
Ind-Swift Laboratories  79.10 82.00 3.67
GIC Housing Finance  84.00 86.50 2.98

SHAREHOLDING PATTERN AS ON 31/03/2012
Indian Promoters 64.01
Mutual Fund and UTI 0.74
FIIs 0.44
Corporate Bodies 10.23
General Public 24.58
Grand Total 100

LAST FIVE QUARTERS (Rs/Cr)
11-Dec11-Sep11-Jun11-Mar10-Dec
Sales  70.81 59.98 91.4 67.36 49.4
Other Income 0.49 0.44 0.12 -0.08 0.06
Operating Profit 11.75 11.68 19.41 13.97 11.22
Interest 1.81 3.83 1.9 3.01 1.17
Gross Profit 10.43 8.29 17.63 10.89 10.11
Depreciation 4.95 4.72 4.51 5.39 5.23
Net Profit/Loss 2.55 2.68 8.71 3.61 3.15

 

Find More Articles on: DSIJ Magazine, Low Priced Scrip, Stock Recommendations, Fundamental Picks, Product, Small Cap, Large Cap

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