Plastiblends India Ltd (PIL)

malthankar · June 2, 2014, 1:35pm

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

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).

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

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.

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

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 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.

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