Plastiblends India Ltd (PIL)

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.

The Plastiblends India HDFC Securities report of Oct 7.

The quick takes from first look:

1). Likely to do a 30% plus growth on topline. Latest results shows very healthy bottomline growth -6 month bottomline growth atover 66%. last Qr PAT growth over 109%. If this trend continues, this stock will be available cheaper than the ~9.5x TTM currently

2). Market leadership in a really fragmented industry -organised players, unorganised and imports too. It has about 12% marketshare and grows at much higher than industry rates as per the HDFC sec report. Big name clients so product quality is well excepted.

3). Strong Balance sheet, D/E is 0.2. After a relatively poorer 2010, margins and returns should be back to regular levels (OPM 11% RoCE 20%) -going by 6 month results. If the tempo of 6 months is maintained could be posting solid results in next 6 months -we should track closely.

4). Rising crude prices ($85 per barrel) can play spoilsport for next 6 months margins - we must track well.

Perhaps this RM volatility spectre has been the reason for the stock not yet catching an upmove since the report?

Over to members to start digging more on the opportunity. It is a decent company.

Plastiblends looks like a good stock to own with good dividend yield and steady business with market leadership. Only problem is net profit margins are very volatile q-on-q.

Plastiblends q3 results out and look good especially on 9m basis.

qtr q3 fy 11 q3 fy 10

sales 73.57 57

np 4.32 2.1

**
**

9m numbers

period 9m fy 11 9m fy 10

sales 198 153

np 11.4 6.82

eps 17.5 10.5*

*** 9months and not annualised**

based on these full year eps could be around 23-24.

dividend could be around 7-8 rs per share.

the stock looks good if it were to decline along with the markets

cmp 164 as of today’s closing

A little late to the party here. Here is my 2 paisa on this stock.

  1. Produces masterbatches. Basically color pigments for plastics industry. Can be used in variety of plastic packaging and plastic moulds. They are part of the Kabra family (the Kabra Extrusion company waala).

  2. Very good volume growth, and given the FMCG and the Packaged foods story in India, volumes seem sustainable (especially with 60% market share).

  3. The closest competitors are Jai Corp Ltd. and Poddar Pigments. Just for some figures - Plastiblends has a capacity of 60000 TPA while Jai Corp+Poddar is close to 20000 TPA. Unorganized sector is another threat. There is no moat in terms of capital investments or technological fancys in this business.

  4. Decent dividend yield (and they have not cut dividend even during the downturn).

  5. Seems like a stable story.

However,

a) Absolutely no pricing power. The major raw material cost is that of polymers (a derivative of crude oil). All their suppliers pass on the increases of crude oil prices to Plastiblends. However, Plastiblends is squeezed on margins as they are unable to pass on any increases of costs to their customers. Their major customers account for 35% of their revenues. Some of them includeReliance Industries,Cosmo Films, Rachana Polymers, JBF Industries. Yeah, so good luck with the pricing power.

b) Again, if crude oil prices remain high for a certain period of time, all the estimates go out of the window (raw material cost is 75% of its total costs)

c) Since they are not a debt free company, rise in interest costs would have started affecting them. Although the gearing is not too high, any incremental increase in revenues (say 2-3% increase) would be offset by the interest costs.

d) Absolutely no moat in the product produced. Big moat in the 100+ dealer distribution network.

All said and done, I am not trying to value Plastiblends here. One of my major criteria in buying a stock is pricing power (atleast some pricing power, if not something on the lines of Gillette). Lack of pricing power is not drawing me to this stock now.

I believe there is no margin of safety as such at these price levels (Rs. 200 today) and unless there is a significant price discrepancy in this stock, I am not buying it.

(And I checked up on Plastiblends vis-a-vis the market for the past 8 years - the market has always performed much better than Plastiblends in terms of capital appreciation. I haven’t considered the value of dividends in this analysis. So, would you rather buy Nifty/Sensex or this stock?)

Disclosure: No position.

includeReliance Industries,Cosmo

Sorry for reviving a comatose thread. However, with the fall in crude prices, the stock story is being rewritten. It is quoting at a decent PE of 13 even after doubling in price over the last one year. Prakash Diwan has rated this stock as one among his top picks for 2016. There was a report in ET that use of plastics is increasing with the drop in crude. All in all, it might mean the unfurling of wings for this market leader stock.

Disc; Am invested, comprises about 5% of my portfolio

Hiteshbhai and Donald your views please

The stock is looking up could you pl. share your views

The stock price is a function which is not figured by anybody. We discuss stock fundamentals details which I think are in abundance on this thread for you to make a decision for investment yourself. If you are waiting for somebody to give you advice about whether to invest or not at particular price then I think my friend you are at wrong place. With the details given in this thread you will be able to take decision yourself.

Attaching some details from balance sheet:

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Clariant Chemicals is also present in masterbatches that serve plastic industry. They acquired M/s Plastichemix Industries in FY15. Post the acquisition, the AR states that they have total sales of 242cr.
The company claims that this is growth of 120% for them. Also their facility is working at full capacity.
Just thought of adding a word on competition.

I also read in AR of Poddar Pigments that their plant is also working at full capacity.
So question is why are these guys not expanding capacities?
It seems that Plastiblends is taking lead and increasing capacity.

Another small technical detail I would like add from Clarient Chemicals AR - particularly the last line in the image below. Masterbatches are created by simply mixing chemicals and heating them.

Disc - No Position

Why has the tax been paid in the ninth month of current year lower than previous year comparative 9 months figure. Can anyone shed light on this. It seems that all EPS growth is due to lower tax outgo

Decent Q4 and FY16 results from Plastiblends.
Topline grew by 4%, Bottomline grew by 25%.

Since master batches is straight forward product, company really do not have pricing power.
We need to check volume growth somehow.

http://www.bseindia.com/xml-data/corpfiling/AttachLive/24FD03E9_AFCA_4E35_ABB1_422549D37A89_141909.pdf

The story is based on two factors -

  • Increase in the margins due to lower commodity prices (petrochemical products is raw material input)
  • Capacity expansion

The thesis in point number (1) does not seem to be playing out and I do not know why? (Government of India taxing petrol and hence reduction is not passed on?)

The thesis in point (2) is being played out as disclosed by management.
It is also reflected in Q4FY16 results. The company reported highest ever topline of 144Cr - growth of 19% qoq and 17% yoy.
We need to check capacity utilisation and order visibility at the new plant.

Varun,
New plant might be the reason for lower tax outgo.

Thanks,
Rupesh

Disc - I hold

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My notes from AR of FY16 + Others

High Margins due to -
• Margins – fall in crude prices
• Move into high value added products

Products
• White masterbatches -> food/beverage/pharma
• Black masterbatches -> irrigation/automotive
• Color masterbatches -> FMCG/Textile/Packaging
• Additives (Miracle Workers)
o Thermal Stabilizers
o Light Stabilizers
o Optical brightness enhancers
o Rheology enhancers
o Mechanical and electrical property enhancers

Capacity utilization?

New Plant - Palsana
• Palsana unit is complete and started production from March 25, 2016
• Capex Plans – 40cr + 10cr Land for plant, internal accruals, new plant near Palsana, Surat
• 85000T – 72k utilization
• 30000T – New Plant

New Plant – Kolkata
• Acquired land

Market Share
• Market Size - 5000cr (India or worldwide??)
• 10% market share (?)
• 140 Cr exports on the sale of 520 cr

Per Unit realizations?

Clients
• Packaging, Agriculture,
• Reliance, Supreme, Time Technoplast
Top 10% clients – 35% sales

Commission
• FY15 - 22cr commission for NP of 30cr
• FY16 – Commission reduced to 20cr

Competition
• Clarient
• Poddar Pigments

Management
• CEO (Rohit Vashishtha) and CFO (Anand Mundra) – appointed during FY16

Financials (FY16E)
• Debt increased from 20cr -> 83cr
• D/E -> 0.6
• Short term loans and Advances -> 30cr (15cr – suppliers + 11 cr – govt (?))
• 12cr Service Tax Dispute – not provided for, company claiming that it will win

Disc - I hold, no transactions in FY17 so far

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Q1FY17 Results are out.

The other expenses and finance cost has brought down the net profit to 8.41 Cr vs 10.54 Cr in same quarter last year. I presume the higher finance cost is on account of the capex in Kolkata.

People who track this company are requested to share their views.
@rupeshtatiya

Disclosure: Invested.

Since Balance sheet is not provided, I’m unable to figure out where are the additional expenses are. We need to wait for management commentary or conference call to get more clarification.

It is good to see the growth in the topline. Since new capacity has come online only for last 6 days of March quarter (From March 25), I am willing to wait another quarter to see the results. Also at half year, disclosure of balance sheet is mandatory. That will also provide more clearer picture.

Thanks,
Rupesh

Disc - I hold. This is not a buy/sell recommendation. Please do your own due diligence.

Disappointing results by plastiblends -
http://corporates.bseindia.com/xml-data/corpfiling/AttachLive/9BED50FC_9DE1_4302_998E_F1529AC07B0A_171813.pdf

Finance cost & interest payments sharply increased due to new plant but sales haven’t increased as much.

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Am I right in saying that, depending on how they choose to depreciate the assets at the new plant, EPS growth might be subdued if the sales doesn’t pick up?

The sectors they supply to all have tailwinds. Hopefully, sales growth will pick up soon.

I don’t know if plastiblends shot up from around 420 to 500+ (& staying there after subdued Q2 results) because of Sanjoy Bhattacharya recommending it during Diwali.

Disclosure: Invested

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Plastiblends Q3FY17 results out

Higher taxes & interest payments have brought the bottom line down. The topline growth is average.

Disc - Invested, do your own diligence

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