Business of the Company

The company has two main product lines plastic furniture and industrial crates. The company is a large player in the area of injection-moulded products. It is probably the only company that advertises its line of plastic furniture on national television and thus enjoys a brand recall in the said area. It has also got a national presence with the strong hold being the southern region.

Growth Strategy

The establishment of a brand is a key factor that is expected to drive growth profitably. The company plans to open up outlets of its own which will exclusively sell Nilkamal Retail Products. This move will enhance visibility to the brand and also will give the company higher margins. This is because the primary competitors are players from the un-organized sector who cannot command the kind of premium that Nilkamal can command because of its brand.
As far as the crates side of the business is concerned it is expected to do well because of the opening up of the textile sector globally. The phasing out of the quotas in textiles mean that the market has been left open for Indian players internationally who are looking towards boosting capacity. This capacity addition will help Nilkamal, as textiles are a consumer for its industrial crates business.

Raw Material Prices Going Up

The raw materials form as much as 70% of the total costs. The primary raw material for the company is polypropylene and polyethylene. The prices of these two are dependent on the prices of crude. With the crude oil prices going up there will be some pressure on the margins. Even though this is a jump in raw material cost across the industry it is really not known whether the company would be able to pass on the entire cost rise to the consumer. This is because the other players are all operating from the un-organised sector and as such even though they may increase prices the consumer is ultimately paying higher to Nilkamal for the "brand" that it has created. Whether the consumer will be willing to pay that much extra or not cannot be said until it is tested in the market. To be on the safe side one can assume that they will not be able to pass on the entire cost rise to the consumer.

Conclusion

The share price however is around Rs.120 which is a multiple of 10 for FY 05 earnings and is also just around the book value. Given the fact that there is no competition from the organised sector and that this sector is bound to grow given the growing Indian economy, the stock seems to be reasonably priced and seems to have potential for upside.