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Nilkamal Ltd Research Report - 16th Dec 2015

Plastics | Published on Feb 05th 2015


Nilkamal (NILK) is a pioneer in the plastic industry and is among the leading manufacturers of moulded plastic products. It is present in three verticals, viz Plastics (83% of revenue), Retail (13%) and Mattress (4%). The Plastics division is made up of Material Handling and Moulded Furniture segments. Material handling accounts for ~58% of the total Plastics division’s business while Moulded Furniture accounts for the remaining ~42%. @home is the retail division of NILK, operating 19 large format stores across 13 cities with an average size of 16,000 sq.ft. per store. The Mattress division is its recent venture (2012) with manufacturing facilities in Hosur, Tamil Nadu and Dankuni West Bengal. Plastics division to benefit from revival in economy: NILK’s most profitable division, ie Plastics, saw volume de-growth in both, Material Handling and Moulded Furniture segments, due to a subdued macro environment in FY2014. After a period of sluggish performance, the Indian GDP is projected (by the International Monetary Fund [IMF]) to improve from 3.8% in FY2014 to 5.6% in FY2015, 6.4% in FY2016 and 6.5% in FY2017. Additionally, with no major capex plans going ahead and sufficient capacity to service the recovery in demand, we expect operating leverage to come into play, thereby adding to the bottom-line. Sliding oil prices to result in lower Net RM cost: The ongoing weakness in crude oil prices will have a positive impact on NILK’s net raw material cost as polymers are a major raw material for the plastic industry. Crude price is likely to remain at lower levels due to declining demand from China and with OPEC’s reluctance to cut down oil production. Despite the pressure on margins in the short run owing to inventory loss, in the longer run, we expect the reduced raw material cost to improve EBITDA margin from 7.5% in FY2015E to 8.1% in FY2017E Outlook and Valuation: We expect the company’s Plastics business to post a CAGR of 11.5% (with an upturn in the economy) over FY2014-2017E, which will aid the company to post a revenue CAGR of 9.4%, over the same period, to Rs2,167cr. The EBITDA margin is expected to stabilize at 7.5% in FY2015E and improve to 8.1% in FY2017E. The debt for the company is expected to reduce by `62cr over FY2014-17E, resulting in lower finance costs. Consequently, the company would post a net profit CAGR of 17.5% over FY2014-17E to Rs65cr, as per our estimates. At the current market price, the stock is trading at FY2017E PE of 10.1x. We initiate coverage on the stock with a Buy rating and a target price of Rs566, based on a target FY2017E PE of 13x.

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CMP 440
Target Price 566
Investment Period12 Months

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Shareholding Pattern (%)

Public & Others23.0
Grand Total100.0

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