Rubfila International - Evolving story of rubber threads

Does anyone track this company now ? Please shed some light on future prospects.

Thankyou

Some inputs which I have on this company -

  1. Management - Company has promoters from Patel family who are actually having an original business as that of investing i.e., someone in the likes of RJ. Though this also raises a question as to why someone like them, who generally just acts as an HNIs are promoters of this company. Also, to inform you, they have some terrific track record of getting huge returns from the investments they make in
  2. Subsidiary Business - Company had bought a company named - “Premier Tissues” in 2020 which is into paper rolls and tissue papers and has some great plans ahead. This company also has sanitizers, masks, tissue rolls, and paper napkins and is one of the famous brands in the industry.
  3. Future Prospects - Recent board meeting convened also highlights that the board is mulling into getting into the packaging and paper business which is a very good sign for this company since the rubber threads has a limited market to grow
  4. Considering that tissue rolls have high demand in USA, Europe and ROW, and since Rubfila has a great export business, this should help in acquiring more customers for this business and makes sense of the synergies to think about.
  5. Financials - Company is a zero debt company, and has the trend of increased PAT, Reserves, Dividend Yield, and Sales for the last couple of years.
  6. Company had completed the CAPEX last year only for increased production of rubber threads to meet the exports demand.

Discl.-20% Invested in this stock out of the total Portfolio allocation

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Just added the Technical View for more backing.

Disc: Invested since 100 levels with 10% allocation.

Currently researching Rubfila. My biggest pain point till now has been the preferential allotment to Patel family. There is a heavy dilution since 2018 with promoters getting 10% preferential every year.

One reason I can think off is to reduce the shareholding of Kerala board and foreign investors who are now down to 5% from 10% in 2017-18. While Patel family has increased their stake from 35% to 45%.

Another problem I think is the dividend policy. Non executive promoter founders are paid through dividends, while the raise of equity is used for capacity expansion.

Liked the business, their acquisition of Premier for almost cost value is appreciable. But might not invest due to equity structure.

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There seems to be some large shareholder who’s continuously selling, and it’s being bought into as well. General question - how does one know if it’s a promoter selling or some other non-promoter shareholder? I guess we will know at the end of the quarter, but is there any other reporting that happens when volumes are unusually large for a period of time?

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Interesting Update, patience paid off :male_detective:

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Porinjiu Veliyath’s investment in the company drew my attention towards the stock. Sharing what I have observed during my research:

The company is one of the market leaders in rubber threads. It has undertaken capex during the past 2 years increasing its capacity by 1.6x (25000 MT). The business has tail winds like increase in demand for quality inner wear and demand uptick in international market. Headwinds are: commodity inflation, spandex as an alternative to rubber and inverted duty structure (high custom duty on raw material and low custom duty on finished product).

One key question remain: Has the new plant in Tamil Nadu (commissioned in March 2022) reached maximum capacity utilisation? If yes, that would be reflected in Q1 FY 23 results where revenue was 112 crores. Extrapolating it, EPS in FY 25-26 is estimated to be Rs 12. A P/E ratio of 10 gives stock price of Rs 120 in three years (~25% annual returns).

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Regarding Spandex threat, it will be worthwhile to read about European plan to go for mono fibre garments by 2030.

Environment cost of Spandex may be its undoing.

It seems to me that Rubfila is in a sweet spot currently - latex prices are quite low (which should boost their margins) and paper/pulp prices continue to be high. I am not sure if that is true for tissue paper too (haven’t checked prices recently), but I assume it must be the case. Two things that make me nervous 1) overhang of issuing warrants to promoters at discounted prices, which I hope will not happen again now. 2) Porinju’s firm investing in it (maybe in this case, given he is from Kerala, he genuinely thinks its a great opportunity). Disclosure: Invested.

Question - does anyone know who the major customers are for their rubber threads?

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