The company is the world’s fifth largest producer of thin polyester film and has manufacturing facilities in India and Thailand. The company was incorporated in 1984 and established a new film line of 15000 MT in Thailand in 2003. During the current fiscal the company has initiated steps to implement a polyester film plant in Turkey, which would have a capacity of 24000 tonnes and is scheduled to be operationalised in October. This will add to the current capacity of 59000 tonnes.
Its products are used in packaging which comprise commodity films and higher end specialty films for packaging of food products, industrial applications, electrical applications like wire and cable wrap insulation, magnetic media application including audio and video tape and imaging applications which include printing films and masking films.
Industry Trend
Growth is the industry is has been averaging 4.8% and the sector in which the company operates in it has been 8.7%. The growth levels are expected to be maintained going forward as the growth rates in India and China, which are high, is expected to offset the slower growth rate in the developed world. Now that the company is coming up with its manufacturing unit in Turkey the plant in Thailand would be able to focus on the growing Asian markets and thereby taking advantage of the gradual shift in consumption of the company’s products from an aggregate of 60% in America, Europe and Japan to Asia. The plant in Turkey would also be able to cater to the European market without the burden of a countervailing duty of 19.1% which is imposed on the Indian exports.
Cheap Valuation
The company is trading at a low multiple of four times its earnings (expected) in Fiscal 2005. This in itself is quite low for a company that is the fifth largest in the world in its segment, has been around for a couple of decades and is looking for massive capacity expansion. However to add to this the market capitalization is also less than the investment value of Polyplex in its subsidiary in Thailand. Polyplex holds 70% of its Thailand subsidiary an investment, which translates into Rs.356 crores and on a per share basis to Rs. 243. At the current price of Rs.190 or so the stock is at a serious discount to what it is worth. The revenues grew by 53% in the current fiscal while the earnings grew by 38%. This lag between revenue and earnings growth is because of higher overhead and higher raw material cost. In order to save itself from the price rise in raw material the company is engaging in backward integration in its plant in Thailand for expansion in polyester chips manufacturing to take care of its entire plant requirement much the way the Indian plant works. This would add to the margins of the Thailand plant, which currently is at the 30% levels and is quite healthy.
The break up of the revenue is such that the plant gets 25% of its revenues from Europe and America. So when the new plant in Turkey is set up that will take care of the European markets and will take care of the delivery costs and also will reduce to the duty burden that the company currently faces.
Conclusion
The company is really under priced considering its investment in the Thailand subsidiary is higher than the market cap and it has a decent record of over 20 years operating in its industry with a good size (fifth in the world) and expansion plans.
