Recent price movements aside, I was researching on this stock for the past week and thought would put down the story for your views -
I think a lot of details on this story are on this page, but just a quick recap along with an update on the latest -
a) Manjushree is majorly into manufacturing PET bottles and Preforms (small test tube like plastic tubes, which can be later blown into full sized bottles)
b) They have marquee customers list - Coke, Pepsi, Bisleri, recently Diageo, Kingfisher and other FMCG companies.
c) They have a capacity of 85000 MTPA. Last year, it was around 71000 MTPA. Next year, they have indicated it would be 100,000 MTPA
d) Their major RM is a derivative of crude oil. Hence, it comes with all the oil and forex related risks.
Observations:
i) They have to keep adding capacity to generate additional revenues and profits.
ii) Their capacity additions over the years are as below -
|
2014E |
2013 |
2012 |
2011 |
2010 |
2009 |
2008 |
2007 |
| Capacity (in
MT) |
85000 |
71075 |
48505 |
36650 |
29210 |
21740 |
9120 |
4140 |
As you can see, there has not been even 1 year in the middle where they have consolidated.
iii) This capacity addition has been majorly for preforms rather than PET containers. With Coke and Pepsi, they supply preforms on a conversion basis (i.e., Coke/Pepsi give them the RM, and these guys do a preform - no RM risk) and on RM risk basis with other customers. Their margins are better in Preforms.
iv) Hence, if you look at it, their OMs have been consistently increasing and have sustained about 20% levels in the recent past because of the decisive shift in product mix into preforms.
v) However, with the increased demand on preforms, Manjushree had to continuously set up capacities - and with loans - which did not help the NPMs. Even though OPMs increased and have sustained about 20%, NPMs have not moved an inch beyond 6.5%-7% even though the capacities have gone 4x (and 5x shortly).
vi) This indicates that unless Manjushree consolidates and stops adding capacities, pay back loans, the possibility of NPM improvement is remote.
vii) The management has indicated a revenue of Rs.600 cr in FY15. With 7% NPM, we are looking at roughly 40 cr net profits. At the current market cap of 230 cr, it quoting at 6x FY15E, which I think is fairly/slightly over valued.
viii) The way to play this looks like buy at 4-5 PE and sell at 7-8PE (PE re-rating may not happen because of no pricing power, high debt, low RoE etc. etc.) .
Rough estimate:
|
FY13 |
FY14E |
FY15E |
| Revenue |
361 |
470 |
600 |
| Growth (%) |
|
30% |
28% |
| NPM |
6.70% |
6.70% |
6.70% |
| Profit |
24.2 |
31.5 |
40.2 |
| Mkt cap at 7
P/E |
169.3 |
220.4 |
281.4 |
| CAGR |
|
-4.2% |
22.3% |
Interested in your views.
