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Nilkamal Ltd Research Report - 01st Feb 2016

Plastics | Published on Feb 01st 2016


Nilkamal (NILK) reported an in-line set of numbers for 3QFY2016. The top-line reported a modest growth of 1.8% yoy to `428cr. The raw material cost as a percentage of sales declined by 738bp yoy to 54.8% owing to declining in polymer prices. However, the employee cost and other expenses increased by 176bp yoy and 217bp yoy to 8.6% of sales and 25.8% of sales, respectively, thus partially offsetting the benefits of lower raw material costs. The EBITDA margin expanded by 345bp yoy to 10.8%. Aided by lower raw material cost and lower interest outgo, the net profit grew by 138.6% yoy to Rs20cr. Plastics division to benefit from revival in economy: After witnessing volume de-growth in FY2014, the Plastics division witnessed volume growth of 10% in FY2015 and is estimated to have posted a volume growth of ~5% for 9MFY2016. With the fourth quarter tending to be the best in terms of volume, the growth for FY2016E is likely to be ~7%. Material Handling and Moulded Furniture segments of the Plastics division are directly impacted by the macro environment and we expect them to maintain steady growth rate due to the positive economic outlook. The company has sufficient capacity in place and we do not foresee any substantial capex in the near future. Stable raw material cost to aid in maintaining margins: Polymer prices declined by ~16% in 3QFY2016 on a yoy basis, thus leading to lower raw material costs. With crude likely to be range bound, we expect polymer prices to remain at current levels and increase by ~5% from here on, which should enable NILK in maintaining its margins over FY2016E-2018E. Outlook and Valuation: We expect the company’s Plastics business to post a CAGR of 8.3%, with an upturn in the economy, over FY2015-2018, which will aid the company to post revenue CAGR of 7.5%, over the same period, to Rs2,220cr. The EBITDA margin is expected to be at 10.3% in FY2018E. The company is expected to be net debt free by FY2018E which will lead to higher profitability. Consequently, the company would more than double its PAT to Rs116cr in FY2018E from Rs42cr in FY2015, as per our estimates. At the current market price, the stock is trading at FY2018E PE of 17.3x. We have a Neutral rating on the stock.

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CMP 1,346
Target Price
Investment Period12 Months

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Shareholding Pattern (%)

Public & Others23.0
Grand Total100.0

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