Review of buying shares of Plastiblends Plastic company
Plastiblends is India’s largest producer of masterbatches for plastics. The Rs 92-crore company is part of the Kolsite group formed in 1962, which also makes plastic extrusion machinery. The latter business is carried out through a separate company called Kabra Extrusiontechnik. Masterbatches impart colours and special properties to plastic raw materials and end products.
At the current market price of Rs 170, the company is quoting at a P/E of 9.2. Its P/E is less than that of its competitor, Poddar Pigments, which quotes at 10.9 times. The company’s valuations look attractive on various financial parameters. It is a near debt-free company and its share price is quoting at a dividend yield of 3.8%.
It has grown its topline at a CAGR of 10.4% over the past five years, in line with the long-term growth rate of the plastics business. Its PAT has grown at a CAGR of 18.2% over the past five years. The company expects to grow its earnings at historical rates, going forward. EBITDA margins have stayed above 10% in the past three years.
The masterbatch business is set to grow at 10%-plus rates and Plastiblends will benefit from this growth. But the key challenge will be ‘product obsolescence’. Over 80% of its sales are from new grades of masterbatches, while the rest are more than three years old. So, there’s a need for innovation and R&D. The company has a track record of making 450 types of active grades of masterbatches and has developed 1,125 grades till date.
Business: The company produced 15,652 tonnes of masterbatches in FY06, compared to 15,385 tonnes in the previous year. Its capacity, at 24,000 tonnes a year, had a capacity utilisation of 65.2% in FY06 compared to 70% in FY05. The company has embarked on an expansion plan.
The capacity at Daman is being increased from 24,000 tonnes to 35,000 tonnes in phases by March ’07. A new unit at Uttaranchal will be operational by April ’07. Its customers among polymer producers are Reliance, IPCL and Gail, while its customers among polymer processers are Supreme Industries, Haldia Petro, Cosmo Films, Garware Polyester and Max India.
Industry: The masterbatch segment is growing faster than the plastic industry, at a CAGR of 15%. The plastics industry has been growing at a CAGR of 10% over the past 10 years.
The industry consists of two major segments — white, black, colour and additive masterbatches and antifibrillation masterbatches. Plastiblends has a market share of 12% in the white, black, colour and additive masterbatches segment.
This is a high-value segment with a market size of 60,000 tonnes, valued at Rs 600 crore. Its user industries are packaging, plastic products, pipes and films. In the antifibrillation masterbatches segment, Plastiblends has a market share of 10%.
This is a low-value segment with a market size of 1,00,000 tonnes, valued at Rs 250 crore. Demand in this segment has risen over the past 1-2 years due to increase in polymer prices and a rise in percentage loading of filler masterbatches from an average of 5% to 15-20%.
Financials: The company posted sales of Rs 92 crore for FY06. Its topline grew by only 2.8%; PAT grew 31.1% to Rs 10.4 crore in FY06. For the half-year ended September ’06, sales rose 30.9%, while PAT grew 47.5% to Rs 8.4 crore. Exports rose by 50% to Rs 15 crore in FY06. The US and Europe present outsourcing opportunities in masterbatches.
At the current market price of Rs 170, the company is quoting at a P/E of 9.2. Its P/E is less than that of its competitor, Poddar Pigments, which quotes at 10.9 times. The company’s valuations look attractive on various financial parameters. It is a near debt-free company and its share price is quoting at a dividend yield of 3.8%.
It has grown its topline at a CAGR of 10.4% over the past five years, in line with the long-term growth rate of the plastics business. Its PAT has grown at a CAGR of 18.2% over the past five years. The company expects to grow its earnings at historical rates, going forward. EBITDA margins have stayed above 10% in the past three years.
The masterbatch business is set to grow at 10%-plus rates and Plastiblends will benefit from this growth. But the key challenge will be ‘product obsolescence’. Over 80% of its sales are from new grades of masterbatches, while the rest are more than three years old. So, there’s a need for innovation and R&D. The company has a track record of making 450 types of active grades of masterbatches and has developed 1,125 grades till date.
Business: The company produced 15,652 tonnes of masterbatches in FY06, compared to 15,385 tonnes in the previous year. Its capacity, at 24,000 tonnes a year, had a capacity utilisation of 65.2% in FY06 compared to 70% in FY05. The company has embarked on an expansion plan.
The capacity at Daman is being increased from 24,000 tonnes to 35,000 tonnes in phases by March ’07. A new unit at Uttaranchal will be operational by April ’07. Its customers among polymer producers are Reliance, IPCL and Gail, while its customers among polymer processers are Supreme Industries, Haldia Petro, Cosmo Films, Garware Polyester and Max India.
Industry: The masterbatch segment is growing faster than the plastic industry, at a CAGR of 15%. The plastics industry has been growing at a CAGR of 10% over the past 10 years.
The industry consists of two major segments — white, black, colour and additive masterbatches and antifibrillation masterbatches. Plastiblends has a market share of 12% in the white, black, colour and additive masterbatches segment.
This is a high-value segment with a market size of 60,000 tonnes, valued at Rs 600 crore. Its user industries are packaging, plastic products, pipes and films. In the antifibrillation masterbatches segment, Plastiblends has a market share of 10%.
This is a low-value segment with a market size of 1,00,000 tonnes, valued at Rs 250 crore. Demand in this segment has risen over the past 1-2 years due to increase in polymer prices and a rise in percentage loading of filler masterbatches from an average of 5% to 15-20%.
Financials: The company posted sales of Rs 92 crore for FY06. Its topline grew by only 2.8%; PAT grew 31.1% to Rs 10.4 crore in FY06. For the half-year ended September ’06, sales rose 30.9%, while PAT grew 47.5% to Rs 8.4 crore. Exports rose by 50% to Rs 15 crore in FY06. The US and Europe present outsourcing opportunities in masterbatches.
posted by eshwar @ 4:48 pm
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