One of our subscribers S Paul thinks we should look at Plastiblends India -recommended by HDFC Securities on Oct 7 @191. The stock hasn’t moved up much, CMP 195.
Thanks Paul, this looks a good stock with strong balance sheet, 30%plus dividend payout record which tells us this is a shareholder-friendly company, market leadership in a fragmented industry, growing at ~30%. Please help dig more on the stock.
PIL produces a large range of White, Black, Color and Functional Masterbatches, Additives and Compounds suitable for all majorplastic processing types. Its products are highly compatible with a wide range of polymers like polyolefin, polystyrenes, polyamides,PBT, PET and a diverse range of engineering plastics. PIL is backed by years of experience and is able to offer optimum solutions to itscustomers by constantly monitoring market demand and customersâ changing needs. With a base of more than 2,500 customers, thereis no excessive dependence on any single customer. The overall future business outlook for Masterbatch Industry is very encouragingbecause the total Indian Plastic Industry is expected to maintain annual growth rate of about 15% for years to come.
PIL has maintained its leadership position, amid intense competition due to its ability in identifying and meeting the customers’expectation in terms of high quality, prompt services & performance. The management expertise and their association with the plasticindustry for last four decades have always been an added advantage for the company. PIL also has a presence in the export marketwith exports contributing about 25% of sales in FY10. This emphasizes the fact that in overseas markets as well PILâs products arewell-accepted and used in spite of acute global competition.
Going ahead, the management expects topline growth of about 30% in FY11 and decent profitability. We expect PIL to report a toplineof Rs. 266.8 cr in FY11 and Rs. 306.2 cr in FY12, reflecting a 26.9% and 14.7% y-o-y growth rate respectively. Margins could stabilizein the 10.4% - 10.7% range. PIL could report a PAT of Rs. 15.7 cr and Rs. 18.9 cr in FY11 and FY12, representing a growth of 50.4%and 20.2% respectively. This translates into an EPS of Rs. 24.1 for FY11 and Rs. 29 for FY12.
In comparison to Poddar Pigments, PIL has healthier profit margins and has grown as a faster pace in Q1. Being larger in size, thestock also commands a slightly higher P/E and P/BV multiple. Further, the company has a healthy dividend policy while PoddarPigments does not pay any dividend. PIL has consistently paid 30-40% of PAT as dividend for the past few years. PIL is available at aprice to book value of 1.3, a P/E of 7.9 and dividend yield of 3.7% (based on FY11 numbers).
Investors could buy the stock at the current levels and add on declines to the Rs. 169-177 band for sequential price targets of Rs. 217.5and Rs. 246 (7.5x-8.5x FY12 (E) EPS of Rs. 29) over the next 2-3 quarters.