Nilkamal Ltd - Research Report
Private Client Research
Rating
Buy
Sector
Plastic Products
Company
Plastic Products
August 16, 2019
Sensex: 37350.33
CNX Nifty: 11047.80
NSE: NILKAMAL
BSE: 523385
Reco Price
Rs. 986
Price Target (2 - 3 Years)
Rs. 1680
Upside
70.39%
Date
August 16, 2019
Sensex
37350.33
CNX Nifty
11047.80
Exchange
Code
NSE
NILKAMAL
BSE
523385
Stock Data
CMP (Rs)
1030.60
Face value (Rs)
10
52 Week Range (Rs)
2134.00 - 889.85
Market cap (Rs Crores)
1539.26
Price To Book Value (x)
1.61
P/E Ratio (x)
13.33
EV/EBIDTA (x)
6.35
One Year indexed Stock Performance
Nilkamal Ltd
Sensex
Return (%)
1m
3m
12m
36m
Absolute
-9.17
-6.15
-43.48
-12.29
Sensex
-4.55
-0.12
-0.83
33.09
Shareholders
(in %)
30-Jun
Promoter
63.97
Public
36.03
Others
0.00
Total
100
+91 22 6639 3000
research@stockaxis.com
Profile
Nilkamal was launched under the leadership of first-generation entrepreneurs Mr. Vamanrai Parekh and Mr. Sharad Parekh. Nilkamal is an industry leader in moulded furniture and material handling products with a diversified product portfolio. It caters to different industries and a large customer base including household/retail and industrial customers. It also has presence in the retail business of lifestyle furniture, furnishings and accessories under its brand '@home' &Nilkamal Mattresses. The company has two major business verticals viz; 1) Plastics division and 2) Lifestyle division, which includes Furniture, furnishings and accessories.Nilkamal was launched under the leadership of first-generation entrepreneurs Mr. Vamanrai Parekh and Mr. Sharad Parekh. Nilkamal is an industry leader in moulded furniture and material handling products with a diversified product portfolio. It caters to different industries and a large customer base including household/retail and industrial customers. It also has presence in the retail business of lifestyle furniture, furnishings and accessories under its brand '@home' &Nilkamal Mattresses. The company has two major business verticals viz; 1) Plastics division and 2) Lifestyle division, which includes Furniture, furnishings and accessories.
New business verticals to drive growth for the company. Demand revival and strong volume growth will also boost revenues.
Investment Rationale:
New business verticals to drive growth: Nilkamal has been able to maintain
its leadership position in Plastics. The company has now entered into new business
verticals which are in associated product categories i.e. Mattress, Ready furniture
and Bubble guard sheets. The company has launched 5-10 new products into the Furniture
segment, which can help it explore untapped opportunities. In FY19, revenues of
the mattress and bubble-guard divisions rose to 69 crores (up 17% y/y) and 12 crores
(grew in 2-fold - 4.1crores in FY18) respectively. We expect Nilkamal’s furniture
business to grow in double digit for FY20.
Maintained leadership in material handling: Nilkamal has been able to maintain its leadership position in this segment. This is the largest business segment, which constitutes 53% of revenue (60% of the plastics segment). It offers a wide range of products such as crates, pallets, material-handling equipment, shelving and racking solutions, ice boxes, fish tubs, vaccine carriers, etc. These are used across industries such as automobiles, pharmaceuticals, engineering, logistics, textiles, electronics, food & beverages, agriculture and hospitality, etc. Additional revenues are earned during the election season from supplying electronic voting machines. We expect this segment to grow steadily in the near term.
Wide geographic reach and large distribution network: Nilkamal has been present in India since more than 3 decades and has extended its reach and built visibility across the country. Currently Nilkamal has 10 manufacturing plants and a wide distribution network across India. Its material handling business is backed by 40 Regional offices and warehouses, sales personnel of more than 400 people as on 31st March 2019. Its Furniture business has product portfolio of more than 450 products and it is supplied through 1000 channel partners, 15000 dealers and sales staff of 300 people. The company also has plans to add 10-15 franchised stores for its furniture business.
Furniture business can drive growth: Nilkamal is a leader in moulded furniture. Initially the company was operating only in Plastic furniture; it has now diversified into Non-plastic furniture. Plastic furniture comprises about 70% of total furniture sales. We expect the company to penetrate more into the non-plastic furniture and gain market share with the help of strong brand name, large distribution reach, and better operational efficiency. In non-plastic furniture, it sells products such as chairs, tables, stools, racks, trolleys, corner cabinets, ready-to-assemble furniture, school benches, planters, etc., which are used in homes, schools, offices, etc. While it manufactures plastic furniture in-house, it initially outsourced non-plastic furniture manufacture. However, as a result of growth in sales of this segment, it now manufactures non-plastic furniture in house. We believe the share of non-plastic furniture would increase further as the segment is expected to grow faster for Nilkamal than plastic furniture.
Industry
Indian Plastic industry
India’s Plastics industry is one of the largest in the world. Industry volumes
are estimated at 16MMTPA (in FY17), with market size at INR1.8trillion. In volume
terms, the industry has grown at a CAGR of 10% over FY10-17 and is expected to grow
at a CAGR of 10.5% to 22MMTPA by FY20.The Indian plastics market is comprised of
around 25,000 companies and employs 3 million people. The domestic capacity for
polymer production was 5.72m tonnes in 2009. The State of Gujarat in Western India
is the leading plastics processing hub and accounts for the largest number of plastics
manufacturers, with over 5,000 plastics firms.The Indian Plastics industry is highly
fragmented. Entry barriers are low, with low capital intensity, no technological
barriers, and supportive government schemes. The share of organized players has
increased from ~45% five years ago to ~56% in FY17, led by (a) increasing brand
consciousness, (b) the organized segment’s ability to offer better quality
and greater convenience, (c) increasing disposable income leading to enhanced purchasing
power, and (d) growth of organized retail.
The growth rate of the Indian plastics industry is one of the highest in the world, with plastics consumption growing at 16% per annum (compared to 10% p.a. in China and around 2.5% p.a. in the UK). With a growing middle class (currently estimated at 50 million) and a low per capita consumption of plastics, currently 8kg per head, this trend is likely to continue.
Despite India having a population of 1.15 billion and a work force of 467 million, plastics companies have reported problems of labour shortages. This has led to increased investment in technology such as automation and conveyor belt systems.
Apart from the shortage of skilled labour, the plastics industry is also facing the problem of a nationwide power deficit. The electricity demand deficit is 12-13 per cent.This provides excellent opportunities for firms offering energy saving solutions, power saving machines and ancillary equipment.
Source: FICCI, British Plastic Federation.
Profit & Loss Statement:- (Consolidated)
(Rs Crores)
| DESCRIPTION | Mar-17 | Mar-18 | Mar-19 | Mar-20 E | Mar-21 E |
|---|---|---|---|---|---|
| Net Sales | 2024.00 | 2124.00 | 2362.00 | 2480.00 | 2679.00 |
| % Growth | 5.10% | 4.90% | 11.20% | 5.00% | 8.00% |
| Raw Material Cost | 1164.00 | 1194.00 | 1392.00 | 1414.00 | 1500.00 |
| % of Sales | 57.50% | 56.20% | 58.90% | 57.00% | 56.00% |
| Employee Cost | 155.00 | 173.00 | 187.00 | 203.00 | 224.00 |
| % Growth | 7.80% | 12.00% | 7.80% | 9.00% | 10.00% |
| General and Administration Expenses | 115.00 | 118.00 | 128.00 | 136.00 | 174.00 |
| % of Sales | 5.70% | 5.60% | 5.40% | 5.50% | 6.50% |
| Selling and Distribution Expenses | 161.00 | 185.00 | 194.00 | 218.00 | 228.00 |
| % of Sales | 8.00% | 8.70% | 8.20% | 8.80% | 8.50% |
| Other Expenses | 150.00 | 168.00 | 197.00 | 211.00 | 228.00 |
| Total Expenditure | 1790.00 | 1882.00 | 2146.00 | 2242.00 | 2412.00 |
| EBITDA (Excl OI) | 234.00 | 242.00 | 216.00 | 238.00 | 266.00 |
| Growth(%) | 0.80% | 3.30% | -10.80% | 10.30% | 11.90% |
| EBITDA Margins(%) | 11.60% | 11.40% | 9.10% | 9.60% | 9.90% |
| Depreciation | 51.00 | 50.00 | 52.00 | 54.00 | 59.00 |
| Other Income | 3.00 | 4.00 | 13.00 | 13.00 | 13.00 |
| EBIT | 187.00 | 196.00 | 177.00 | 197.00 | 221.00 |
| Interest | 14.00 | 16.00 | 18.00 | 16.00 | 14.00 |
| Exceptional Income / Expenses | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
| Profit Before Tax | 173.00 | 180.00 | 159.00 | 181.00 | 207.00 |
| Provision for Tax | 54.00 | 63.00 | 48.00 | 43.00 | 49.00 |
| Profit After Tax | 119.00 | 117.00 | 111.00 | 139.00 | 158.00 |
| PATM (%) | 5.90% | 5.50% | 4.70% | 5.60% | 5.90% |
| Earnings Per Share | 82.10 | 82.70 | 78.60 | 92.40 | 105.50 |
| Adjusted EPS | 82.10 | 82.70 | 78.60 | 92.40 | 105.50 |
Source: Stockaxis Research, Company Data
Valuation
Nilkamal Limited has a legacy of over 3 decades in the Plastics industry. The company posted double digit growth in topline despite industry slowdown in FY19, revenues grew by 11%. We expect growth momentum to continue in future and Revenues/EBITDA to grow by 8%/12% respectively in FY21. We initiate a buy on Nilkamal Limited at current market price of Rs.986 based on strong growth prospects in new business verticals, domestic demand revival and steady growth in material handling business; Our Target Price of Rs.1,680 is based on PE of 16x FY21 EPS which implies upside of 70%.