Nilkamal - Back on Track?

Hi,

Stock: Nilkaml.CMP )- 288

Picking up from other thread, Would like to discuss on a Plastic/Furniture company - Nilkamal in Consumer Space.

During last consumer boom period form 2009 - 2014, we have seen some unnoticed companies like Hawkins, Prestige, La opala, Supreme Ind, VIP Ind have become fancy of the markets. And many FMCG companies has also given multibagger returns.

I feel now the time has come for some left over companies like Nilkamal & Wimplast. Both I teat on the lines of Prestige and Hawkins.

Today’s focus is on Nilkamal.

Nilkamal is the superior brand name and much larger the WImplast in comparison but still lagging behind in PE and Market cap.

Nilkamal was facing problems due to its retail division @ Home and which was in losses till now, and turned into profits this year. This was mainly due to Interiors come into Discretionary spending nature rather than a need.But times are changing and Indian consumers are moving towards Next level and high spends are expected in this segment.

The company is into Several segments -Moulded Furniture,Material Handling,Mattress,@home, and Home ideas.

Today VP blog also recommended this company again. I am reproducing the same below.

The brand a Nilkamala is familiar to everyone and it is the worldas largestmoulded furniture maker and Asia’s largest plastic processor.Company operating through five different divisions viz a Moulded Furniture,Material Handling,Mattress,@home, and Home ideas.Its manufacturing facilities are strategically located at each zones of our country .Company own seven factories in India and one in Sri Lanka. Under the moulded furniture division ,company manufacturing plastic moulded chairs , sofas ,ready to assemble furniture …etc .Its material handling division selling crates, pallets, Pallet Trucks ,Stackers, Forklifts …etc. Company is the market leader in each of these products.

What went against managements expectation was the performance of @home division.This division comprises 19 large format retail stores with an average size of 16,000 sq.ft. per store.Even after spending close to Rs.100 Cr for this division ,performance of this division was not up to the mark for a long time.Performance of this division affected companyas over all profitability and its share price.Now management took a decision to control spending for this division and concentrate in other core businesses.It is planning to spend Rs.50 Cr to start two manufacturing facilities for mattresses in next three years.At present company owns twomattress manufacturing facilities located at Bangalore and Kolkatta . Management is confident to achieve over Rs.100 Cr turnover from this division alone in this financial year (2014-14) itself. Mattress division is comparatively high margin one for the company .After a long wait , companyas @home division also came to profitability in previous financial year (2013-14) .In all other divisions company having enough capacity and hence not expecting substantial spending for capacity addition in near future . This situation will help the company to improve its cash flow and debt reduction going forward. Nilkamal Bito Storage Systems ( LinkHERE) , the joint venture company with BITO Langertechnic of Germany also reported profit in latest FY .Combro Nilkamal Pvt Ltd is another joint venture with US based Cambro Manufacturing Company ( Company ProfileHERE) .This joint venture company is operating in the field of commercial food service & hospitality segment which also reported good performance in FY 2013-14

All together ,this is the changing time in Nilkamal with managementas prudent decisions.Promoters holding about 63 % stake in this company and not a single share pledged. Company reported substantial improvement in its profitability in latest March quarter. For the full year, Company reported a consolidated top line of Rs.1752 Cr and a net profit of Rs 48 Cr . EPS for the year is Rs.32 .Company also declared a dividend of Rs.4 per share . Companyas book value is close to Rs.300 and currently trading even below this @ Rs.288.

Financials

Compounded Sales Growth

10 YEARS:

20.04%

5 YEARS:

15.66%

3 YEARS:

16.15%

TTM:

2.86%

CoCompounded Profit Growth

10 YEARS:

8.46%

5 YEARS:

22.83%

3 YEARS:

-16.31%

TTM:

28.34%

Return on Equity

10 YEARS:

13.81%

5 YEARS:

12.73%

3 YEARS:

12.85%

LAST YEAR:

7.48%

Negatives:

High Debt. Interest payment is higher than profits.

Need to track closely various divisions.

Discl: Have a tracking position

Views invited.

Some questions Sridhar:

a) Do you think the company can grow at 25% for the next three years?

b) How are the free cash flows? Profits are a mirage and the business by itself can act as a permanent sink unless you have a predictable free cash flow.

c) Currently the receivables + inventory - payable to sales days is > 90 and has not changed since last results. It shows that the company’s operations have not improved.

Hi Anant,

a) sales may not but net profits because of low base. its visible in Q4 results.

b) free cash flows are - ve. but with D/E <1 i dont think business is in sink.

c) Some of the operations are started to improve and green now.

overall it is a turn around story with focus in on MFG ( Material handling), Housing ( Furniture), Consumer spend( Interiors).

When Govt is focussing on MFG and craving for Made in India theme, indirect industry which benefits is material handling.

We have seen the crazyness for housing Finance companies. Indirect industry which benefits is Furniture and Interiors. Every one has to buy furniture/interiors after buying/constructing a new house.

If it plays out as expected, re-rating a possibility and stock price out pace NP growth.

)- Sridhar

Excerpts from the Nirmal Bang Institutional Equities Report on Nilkamal:


**

We had a meeting recently with the management of Nilkamal, a company

listed on the bourses in 1991 and currently operating in three main segments

)- material handling, moulded furniture (together accounting for 80% of FY13

sales) and furniture retail (12%). We believe all negatives like aggressive

capex, moderation in volume and the pressure on margins is factored in its

valuation at 6.9x/4.0x FY14E P/E and EV/EBTIDA, respectively. Likely

improvement in volumes and margins and free cash flow generation can lead

to a rerating of the stock. Following are the key takeaways:

Significant scope for operating leverage: Nilkamalâs consolidated EBITDA

**Nilkamalâs consolidated EBITDA

margin stands compressed from 11%/12.1% in FY09/FY10 to 8%/8.6% in

FY13/9MFY14, respectively, largely on account of the losses incurred by its retail

venture @Home, pressure on modular furniture division from unorganised players

and muted volume in its key business of material handling following the moderation

in industrial activity. @Home has already achieved break-even in 9MFY14. In the

long run, each division has the potential to post improvement in margin.

EBITDA/PAT, which declined 14.1%/41.2%, respectively, in FY13, posted growth

of 22.9%/29.5%, respectively, in 2QFY14 and 11.2%/30.5%, respectively, in

3QFY14.

**

Material handling segment has the potential to report healthy growth/margin:

**

Nilkamal is the market leader in moulded plastic products and plastic crates. The

products offered by its largest division, material handling, are sold (on B2B basis)

directly by its more than 350 sales personnel to engineering, automobile,

pharmaceutical industries etc. The company enjoys a market share of ~60% in this

segment, with the second-largest player being Supreme Industries (SIL). The

material handling divisionâs revenue, which posted a 17.7% CAGR over FY11-

FY13, is expected to remain flat in FY14E. Prospects for this division could turn

brighter with likely revival in the economy (tentatively by FY16), thereby leading to

expansion in volume and EBITDA margin.

)-

FY13, is expected to remain flat in FY14E. Prospects for this division could turn

brighter with likely revival in the economy (tentatively by FY16), thereby leading to

expansion in volume and EBITDA margin.

**

Value addition to moderate competition in furniture and mattress

businesses: The contribution from moulded furniture business declined by 350bps

over FY11-FY13, while the profitability reduced on account of increased

competition from unorganised players (over 70 players), apart from companies like

SIL,Cello etc. Revenue growth moderated to 8.4% over FY11-FY13 and is likely to

be at 6.4% in FY14E. Nilkamal, which serves 12,000-15,000 dealers/distributors,

has started offering value-added products like polycarbonated chairs etc. The

company ventured into mattress business in FY12, which has an asset-light model

and enjoys low working capital requirement of ~25 days. With a rising share of

premium products, the margin of this division is expected to improve in future.

**The contribution from moulded furniture business declined by 350bps

over FY11-FY13, while the profitability reduced on account of increased

competition from unorganised players (over 70 players), apart from companies like

SIL,Cello etc. Revenue growth moderated to 8.4% over FY11-FY13 and is likely to

be at 6.4% in FY14E. Nilkamal, which serves 12,000-15,000 dealers/distributors,

has started offering value-added products like polycarbonated chairs etc. The

company ventured into mattress business in FY12, which has an asset-light model

and enjoys low working capital requirement of ~25 days. With a rising share of

premium products, the margin of this division is expected to improve in future.

**

Limit on @Homeâs cash burn: Nilkamalâs @Home division, which posted FY13

**Nilkamalâs @Home division, which posted FY13

revenue of Rs2,039mn, has a presence across India through 19 large store

formats having an average size of 20,000-25,000 sqft. The company invested

~Rs1bn in @Home till now, which contributes negatively to the return ratios and

profitability. Nilkamal has decided to go slow in @Home business and we believe it

may look at divesting its stake also to focus on its core business.

**

Likely to turn free cash flow positive: Nilkamal went for aggressive capex of

Rs4.6bn over FY07-FY13 and consequently, free cash flow was negative in five

out of the past six years. With enough capacity in each division, annual capex is

expected to moderate to Rs250mn only and consequently, Nilkamal is likely to

generate free cash flow from FY14 onwards and the D/E ratio is also expected to

fall significantly from the current level of 0.8x.


Discl: Have been invested at lower levels.

**Nilkamal went for aggressive capex of

Rs4.6bn over FY07-FY13 and consequently, free cash flow was negative in five

out of the past six years. With enough capacity in each division, annual capex is

expected to moderate to Rs250mn only and consequently, Nilkamal is likely to

generate free cash flow from FY14 onwards and the D/E ratio is also expected to

fall significantly from the current level of 0.8x.


Discl: Have been invested at lower levels.

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Please Note: Above report is dated 7th April’ 2014.

‘Dolly Khanna’ recently acquired more than 1% share. She is/was invested inWimplast too.

company announced good qtr result and declared dividen 50%.

Nilkamal Has been doing good from the last 3 quarters… reduced debt in Fy15 & H2FY16 also.
Market is still not giving right PE for this like wimplast… any comments?

Disl: Invested.has vested interests

Any recent update on Nilkamal ?

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Why are consolidated numbers not updated on https://www.screener.in/company/NILKAMAL/ for annual results and balance sheet of Mar17?

Its hitting its 2 year long trend line…

Though technically it looks like good entry point, however considering last quarter result , fundamentally its bit concerning if it shows bad numbers this quarter as well and this trend line is broken it could lead to severe fall.

Disc : Not invested, only analyzing the story.

Nilkamal is back in action it seems, just sharing last 6 months path after last post

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Is Nilkamal in any way a beneficiary to falling crude oil prices?

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Falling crude prices should definitely help NILKAMAL as RM is derivative of crude.

Does anyone have transcripts for conference calls of Nilkamal?

low crude prices are not helping the margins , which is reflected in the stock price. But the extent of fall points to something else. Maybe the market knows something , which we don’t.

Result update

Doesn’t seem a turnaround here. Neither the charts are supporting

I see most of the plastic companies declared average results with stagnant top line. Despite that the fall in share price of Nilkamal is more compared to others like Supreme, Astral or Moldtek. Are future prospects so bleak here? Any Nilkamal investors can throw some light. Do they conduct concall?

I don’t think they conduct con call.