At a market cap of less than 100 crores with a revenue of 300+crores, this stock is a pretty good industrial company to be in. The company is growing steadily, and its product,master-batchesis infact imported, so there is no question of shortfall in demand. Also, the debt-quity is pretty reasonable.
The management quality is quite strong. I look for change in promoter holding as a major barometer of management quality. They dont indulge in trading in their own shares. They are regular dividend payers and generally they increase their dividends or keep it constant except in very rare cases, when profitability does get impacted hugely, do they resort to dividend cuts. The book value is also reasonable given the price.
Thus, in my opinion, its a decent stock to own wuth a decent upside potential.
One major thing which I have learnt in this market is that whatever we ask for, we have to pay the price for it. You wont get companies which have declared growth plans at these prices. We have to scout for value. And that would always be available with some element of unpredictability.
Coming back to the main point, I would like it to have slightly reduced level of debt. Of all the kind of asset to own, the most volatile and hence the most vulnerable and dangerous, is inventory. So, too much investment in working capital, and especially if its financed with borrowing, is a very big risk. Plastiblends does carry a big net working capital, and although till now they havent faced any major issues with that, but that may be a source of problem.
Actually with most companies, I have found that Net Current Assets grows faster than the sales. That surely needs to be watched very carefully. If sales growth comes with financing working capital, such growth doesnt benefit the company majorly. Ideally, the sales growth should translate into higher cash profits, and which in turn should be used to finance productive asset addition or reduce borrowings. That ways, we make our capital structure more robust.
Now, this Net Current Asset, may be a handy tool for business expansion, but it does require strict monitoring. Other than that, I dont see any major issue with Plastiblends India Limited.
Also, given that the capital is quite small relevant to its turnover, I guess, a couple of years down the line, the company may decide to go for a bonus issue. That can be another positive for the stock…
Very true, when valuations are cheap limited info is there. You have raised a very important point on the net current asset part…I also look at this ratio over the years very closely. In this ref, I would like to bring to your notice a co - Smruthi Organics. This co has been growing at 33% CAGR for last 5 yrs and during this period the co has reduced the working capital (inventory + debtors)to half of the % levels earlier. Do share your views
