|Main Products||Main Customer Industries|
|Plastic Containers for packaging, PET/PP Jars & bottles, PET Preforms, Multilayer Containers, Hot fillable PET bottles, Injection Moulded Products||FMCG, Pharma, F&B, AgroChemicals|
|Bullish Arguments||Bearish Arguments|
|Best Margins & Returns in the business - OPM stands at 16% vs industry median at~10%; (global majors like Rexam Plc and Amcor operate at less than 9% OPM); both returns and margins have been trending up over the years in a very competitive industry||Highly competitive and fragmented industry - the unorganised sector also plays a significant hand|
|More than tripled its sales in last 5 years while earnings per share (EPS) has gone up 8x (on an adjusted basis) in the same period||Raw material price volatility - PET resin the key raw material is linked to crude prices|
|Top marquee MNC clients in FMCG & Pharma space - Coke, Pepsico, Bisleri, Nestle, P&G, GlaxoSmithkline, Pfizer, Britannia, Kraft||Environmental Regulations & Compliance stipulations of Regulatory bodies on Plastics remains a concern|
|Capacity expansion up from ~9000 MTPA to ~22000 MTPA in FY09 and further upto ~29000 MTPA in FY10 on the back of strong long term job work contracts||Entry of MNC Plastics Packaging companies in the domestic market can be a threat|
|Nice clean balance sheet - strengthened progressively over the years with adequate liquidity, very decent inventory and debtors management, andlow debt to equity (<0.5). However FY10 D/E is slated to go up (> 1) due to fresh Term Loans for ongoing Capex .|
|Barriers to entry||Interesting Viewpoints|
|While Investments in Capex may seem low; of the order of 5-10 Cr per machine, passing stringent business and quality requirements and forming successful relationships with MNC clients usually takes upwards of 2 years||Signed long term 3 year contracts with Coke|
|Management is confident of maintaining a 30% YoY growth record|
|Designs and Customer Acceptance trials ongoing for catering to Liquor Industry. Beer Consumption is 50 lakh bottles a day in India!|
You may first like to read in-depth research backgrounders on Manjushree Technopack, to understand better and benefit from the stock update that follows:
We spoke to Manjushree Management yesterday 11 May 2010. This is what the Management had to say:
1). Results will be out End-May. They have had a good 4th Qr FY10. They have delivered all that was promised (capacity additions, 30-40% growth, etc.)
2). (Total capacity stands ~29000MT) of which about 20-22000 MT is Preforms. Preforms capacity is used in jobwork with higher OPMs
3). (9m OPM was around ~20-21% up from ~16% in FY09.)They affirmed that yes OPM is sustained at these levels for the full year FY10
4). Debt levels are at 93 Cr (30 cr FY09+64 cr Term loan).
Anything new to report
5). They are under pressure to further augment capacity from the marquee clients - we have to wait for an announcement. My hunch is they are adding another 3000-4000 MT capacity based on some of the generic answers
6). They are continuing to see good performance in the 1Q FY11 and hopeful of a very good FY11
Finally the auditor resignation question
7). The official reason given is that the auditors cited personal and family reasons for not being able to continue.
I questioned that these folks were your long term auditors -how can they resign on such grounds? What to do, we would have definitely wanted them to continue, but if they cant cope up…we had to look elsewhere. They have appointed another firm …Bagaharia…forget the name.
I am not sure what to make of the last, but having met first-hand with Management seeing their down-to-earth style, their commitment and drive, and their obvious pride in products, I am inclined to give them the benefit of doubt.
EPS FY10 should be around 7-7.5 implies a 5.5-6x multiple at current levels (41)! and ~0.85xBV FY10.
Disclosure: For me this is pretty attractive and am accumulating at current levels. Manjushree is a very small company. If things go wrong somewhere (execution, quality,) the company may find it difficult to absorb the impact…one is well advised not to put all eggs in one basket!
Please check out Manjushree Stock Analysis updated.
There is some traction on the Manjushree Counter. It has moved up by over 20% in the last 2-3 days!
The stock has been on fire off late, what is happening anyone has any idea or is it just the stock getting re-rated. Anyways i am not complaining :).
Yup. went up 10% again today. Some funds may have been buying -on the back of outstanding results I presume.
Last time round on 12 August (results announced on 10th/11th) 1.75 lakh shares were picked up in a bulk deal @64, reportedly by Novostar International fund. tommorrrow check bulk deal declarations for today herehttp://www.bseindia.com/bseplus/StockReach/AdvanceStockReach.aspx?scripcode=532950
|Quick look at the Results update
|Operating Profit Margin||23.26%||15.30%|
|Power & Fuel/Sales||6.71%||7.45%|
Apr-June -the hottest months in the South (Manjushree's market) is the best quarter for Manjushree historically. Possibly momentum will taper down in coming quarters.
What are you expecting FY 2011 EPS to be? I’m expecting something close to 12-13+
First quarter of June is usually the best for Manjushree in terms of sales and profits. Sep and Dec are relatively dull quarters and March is usually good. So annualising profits based on june qtr will not work here. Plus I dont know if margins in first quarter will be sustained through the next few quarters.
For fy 1 my conservative estimate would be around 10-11 and optimistic projections would be around 13-14. On some forums we know about, people are talking about eps of around 15 for fy 11 and that might probably induce stock outperformance in the short term because of high hopes. Come sep quarter and there might be some negative surprise which might offer better entry point for those left behind.
Nice forum by the way donald, where people talk seriously and no poppycocks and smilies to fill the space.
I would say Manjushree should do a 35-40% growth in Net Sales in FY11. Taking the higher side which looks doable to me or ~210 Cr (150*1.4). Net Margins should average to ~8.5% (1QFY11 9.2%) for a PAT of 17.85. That would mean a EPS of ~13. 12-13 EPS is what is possible. Anything more is a happy bonus For all those who are going gung-ho with the projections, here's another way to look at the possibilities
Capacity available-start of year
I would say Manjushree should do a 35-40% growth in Net Sales in FY11. Taking the higher side which looks doable to me or ~210 Cr (150*1.4). Net Margins should average to ~8.5% (1QFY11 9.2%) for a PAT of 17.85. That would mean a EPS of ~13.
12-13 EPS is what is possible. Anything more is a happy bonus
For all those who are going gung-ho with the projections, here's another way to look at the possibilities
Because of the low float the stock really shoots up whenever bulk deals happen. There was another bulk deal @83.44 for 82,000 shares on Friday which was responsible for the rise. it remains to be seen whether the scrip has got re rated or will it correct back after the bulk deals. Guessing the eps is anybody’s guess but i feel this stock should be fairly valued at about 2x BV above that i shall be selling. Has anyone received the Latest Annual report ?? I am still intrigued by the low interest of about 5% they are paying on Total debt. How long will it last?? If it were to increase to normal levels margins will be hit.
emailed the annual report of last two years.
Who is this Shruti Lodha who has purchased 82000/ shares of manjushree on friday @ 83.2
seems to be a discerning Calcutta based Marwari stock picker???
From a TED post…thought to pose some questions based on this background.
Few of us had attended AGM yesterday and had one to one discussions with Mr. Vimal Kedia for half an hour and with Mr.K. Sameernath, AGM-Finance & Admin for more than one hour. In between we also saw their factory.
I summarise below our observations:
Promoters are completely committed to the business. Two sons of the Chairman have been inducted into the business as Directors
Since promoters own around 57%, there will be no equity dilution
Big list of reputed customers. Orders are flowing (75 days already booked). Job works is expected to increase 25% every year. They have got a good order from Tupperwear
Capacity expansion are already on track for next two years. There is no place at the current factory place for the further expansion post FY12. Hence they have bought 15acres at Bidadi and 10 acres at Hornahalli. They would have to spend 60crores in FY11 and 80crores in FY12 for 7000MT capacity expansion
They have a mechanism to pass on the increase in the raw material price which is done every month
Got prizes for their designs and they are the leader. The nearest competitor does not even have 50% of the capacity
Multilayer technology and supplies to beer companies will take some time to happen
They should do around Rs.200cr during the current year
Cash flow generated from the operating activities is not sufficient to fund expansions. They have to bank on loans from the banks
Whatever the expansion they do in any year, they are reaching more than 90% capacity utilisation in the subsequent year. So if the sales has to grow, they need to keep on adding capacities
Their present debt interest rate is 12%. They are trying for alternative cheap source of funds like FCCB
If there is any further increase in the interest rate, it will affect their earnings
Since they have done expansion in a big way for the last two to three years, depreciation as well as interest costs will go up. While depreciation was 10Cr for FY10, it would be around Rs.18Cr for the current year. Similarly interest was Rs.3.4Cr for FY10 and could be Rs.8Cr during the current year
Q1 & Q4 are best seasons while Q2 & Q3 are the off seasons. Q1 margins are difficult to maintain in the subsequent quarters. Depreciation cost and Interest charge will have major effect.
Hope I have given all the details.
It is upto each one of you to take a call onBUY/SELL/HOLD
Some questions that immediately come to mind:
1). Capex costs mentioned seem disproportionate. 60 Cr capex for capacity to go from 30000 MTPA to 36000 MTPA; they incurred ~44 cr to go from 21000 MTPA to 29000 MTPA. Its in the existing premises, so land/building costs are not part of this?
2). Increased capex will have to be funded by debt. Increased depreciation costs and increased interest burden will start impacting margins. The recent surge in margins will be impacted??
3). The business side looks promising though. They are increasingly racing away from competition. They already have the largest Preforms capacity, and will probably be double the nearest competitor. 35% CAGR as promised by Management looks doable in the medium term
4). RoCE at <15% probably cannot be bettered and may come under more pressure.
Is this still an attractive investment? Please comment
I was just looking into Manjushree last Qurter number.
Interest Expense: Q1 FY11 interest expense in Rs 1.22 Cr (Debt as per last AR was approx Rs 50 Cr excluding the machine supplier credit). Thus Approximate interest is 10 % for this quarter this year. Q1 FY10 interest expese was Rs 0.23 Cr approx. Thus a big jump in interest would ease out some concerns expressed by Siddharth :).
Interest is 10-15 % of EBIT, large enough not to be ignored.
Despite a big jump in interest, net profit doubled.
Raw Material cost as % of sales increased from 58.1 % to 59.8 %.Still the PAT increasedand Operting Margins improved.
Expenditure excluding Raw Materialsas a % ofTotal expenditureis 28-30 %. It decrased significantly asa % of sales to 24.2 % from 29.5 % last year. All the cost heads under it except depreciation decreased as a % of sales. Power and Fuel, Employee Cost, Admin and Selling etc are down as a % of sales. May be some economies of scale effect here. That suggest these costs migt grow at a rate less that sales growth and thus expanding or supporingthe operating margins in future.
A question arises as to what percentage of these costs are fixed (or relatively fixed).
What kind of admin and selling expenses can we expect going forward. Are they increasing the sales to existing client or are they adding new clients at a faster rate? If they add new client they admin and selling expenses as a % of sales might rise faster than sales growth.
Employee cost, intuitively, should grow at slower than sales (unless they setup new plants or new facilities). What % of employee cost is from labors and what percentge is from management personnel. Employee cost due to managment might not grow in line with sales. Labor cost might grow in line with sales growth.
Power and Fuel expense should also get some benefits of scale (hopefully)
Do we expect a further increase in debt this year?
Is this still an attractive investment? Please comment
In my opinion, at current prices Manjushree does not remain attractive for fresh investment. For those holding it since lower levels, it may make sense to keep holding for some more upsides. If true to form the company gives lacklustre results in sep and dec quarters, the stock may provide lower more attractive entry points.
Thanks Yogendar. I am seeing some different figures. raw material/Sales had actually come down!
Maybe we can compare our sheets. Here’s a quarterly tracker I use for Majushree. Figures are form the Results PDF announcements.File attached, we can attach small files upto 100 Kb for everyones benefit, at the forum.
re: Debt - as per the AGM notes Mgmt indicated taking on some 60 cr debt; perhaps some 40 cr will be utilised for the proposed increase in capacity to 36000 MTPA
%.Still the PAT increasedand
Manjushree-results-tracker.xls (33 KB)
I echo Hitesh’s comment.
Fresh investments should be made at lower valuations…further opportunities should present themselves in subsequent quarters.