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Oct 28th, 2010

Stock Data

Sector Plastic

Face Value(Rs) 10.00

52 wk. High/Low (Rs.) 441.65/128.00

Volume (2 wk. Avg.) 8380

BSE Code 523385

Market Cap(Rs in Mn) 5692.38

Financials (Rs.in.mn) FY10 FY11E FY12E

Net Sales 10319.51 12383.41 14240.92

EBIDTA 1227.59 1376.95 1484.54

PAT 472.39 570.62 623.78

EPS 36.96 38.24 41.80

P/E 10.32 9.98 9.13

NILKAMAL LTD BUY F

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SYNOPSIS

Nilkamal was incorporated on December 5th, 1985 under the name of creamer plastic, which was converted into creamer plastic on July 18, 1990. The company is promoted by the Parekh Family of Nilkamal Group. The company's name was changed to Nilkamal Plastic on August 23, 1990.

Nilkamal is engaged in four key businesses that include (i) material handling crates, containers and bins, (ii) moulded furniture such as chairs, tables and cabinets, (iii) custom mouldings & OEM supplies for specific customers and (iv) @home, the mega home store retail chain.

The Company has entered into a Joint Venture agreement with Cambro Manufacturing Company ("Cambro"), USA. Cambro has currently manufacturing operation at USA, Germany, Turkey & China and sells its products globally through dealers and distributors network all over the world.

Net Sales and PAT of the company are

expected to grow at a CAGR of 17% and

117% over 2009 to 2012E respectively.

1 Year Comparative Graph

Nilkamal Ltd BSE SENSEX

V.S.R. Sastry

Equity Research Desk

vsrsastry@firstcallindiaequity.com

Dr. V.V.L.N. Sastry Ph.D.

Chief Research Officer

drsastry@firstcallindia.com

C.M.P: Target Price: Rs.381.45 Rs.450.00

Share Holding Pattern

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Peer Group Comparison

Name of the company CMP(Rs.)

Market Cap.(Rs.Mn.) EPS(Rs.) P/E(x) P/BV(x) Dividend (%)

Nilkamal Ltd 381.45 5692.38 36.96 10.32 1.94 50.00

Jain Irrigation 1155.95 88126.50 35.36 32.69 6.57 45.00

Finolex Inds 118.00 14635.10 8.29 14.23 2.49 30.00

Kalpena Inds 130.00 2404.30 16.01 8.12 2.06 22.00

Investment Highlights

Q1 FY11 Results Update

Nilkamal Ltd disclosed results for the quarter ended June 2010. Net sales for the

quarter moved up 29% to Rs.3185.33 million as compared to Rs.2462.46 million

during the corresponding quarter last year. During the quarter, the company Net

Profit is increased of Rs. 160.28 million from Rs.131.32 million in previous year

same quarter. The Basic EPS of the company stood at Rs. 10.74 for the quarter

ended June 2010.

Quarterly Results – Standalone(Rs in mn)

As At Jun-10 Jun-09 %Change

Net sales 3185.33 2462.46 29%

PAT 160.28 131.32 22%

Basic EPS 10.74 10.27 5%

Equity Capital 149.23 127.82

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Basic EPS of the company stood at Rs. 10.74

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Break up of Expenditure

Expenditure for the quarter stood at Rs.2820.57mn, which is around 31% higher

than the corresponding period of the previous year. Raw material cost of the

company for the quarter accounts for 38% of the sales of the company and stood

at Rs.1207.35mn from Rs.866.89mn of the corresponding period of the previous

year. Purchase of Traded Goods cost increased 76%YoY to Rs.1018.62mn from

Rs.579.48mn and accounts for 32% of the revenue of the company for the

quarter.

OPM and NPM for the quarter stood at 11% and 5% respectively from 13% and 5%

respectively of the same period of the last year.

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Joint Venture Agreement with Cambro

Nilkamal Ltd has entered into a Joint Venture agreement with Cambro

Manufacturing Company ("Cambro"), USA. Cambro has currently manufacturing

operation at USA, Germany, Turkey & China and sells its products globally through

dealers and distributors network all over the world. The Joint Venture Company

shall carry on the business of Manufacturing and Importing of extensive range of

quality products for the commercial food service & hospitality segment and

distribution of such products in India and other territories as has been mutually

agreed. Further, the investment by both the Companies in the proposed Joint

Venture will be in the ratio of 50:50.

Board recommends Dividend

Nilkamal Ltd has recommended a Dividend of Rs. 3/- (30%) per share having face

value of Rs. 10/- each for the Financial Year ended March 31, 2010 on its total

paid-up Equity Share Capital of Rs. 12,78,23,440/- subject to the approval of the

Shareholders at the ensuing Annual General Meeting.

Company Profile

Nilkamal was incorporated on December 5th,1985 under the name of creamer plastic,

which was converted into creamer plastic on July 18, 1990. The company is

promoted by the Parekh Family of Nilkamal Group. The promoters are Vamanrai V

Parekh, Sharad V Parekh and Hiten V Parekh. The company's name was changed to

Nilkamal Plastic on August 23, 1990. Nilkamal’s (FY 0809) turnover exceeds

INR.1000 crores/US$.200 million. The Company has advanced machinery in

Injection Moulding, Rotational Moulding, Vaccum Forming, Polyurethane Injection (of

insulation) and capabilities for SMC and Blow Moulding. Each of these plants has

dedicated Tool Rooms. The Company has Joint Ventures in Sri Lanka, near Colombo

and in Bangladesh, near Dhaka. Both these Companies are Leaders in respective

markets for Moulded Furniture.

The Company also has a Joint Venture with Bito Lagertechnik Bittman GmbH for the

manufacture of Material Handling and Storage Systems in Metal, with a

manufacturing plant at Samba, Jammu & Kashmir. All the manufacturing plants are

ISO 9001/2000 Certified and practice 6 Sigma manufacturing process. This extensive

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manufacturing infrastructure is ably supported by our wide and strong sales

network, operating through 45 Regional Offices and 33 Warehouses spread across

India.

Key Businesses

Material Handling Crates, Containers and Bins.

Moulded Furniture such as Chairs, Tables and Cabinets.

Custom Mouldings & OEM supplies for specific Customers.

@home, the Mega Home Store Retail Chain.

Product Manufactured / Services Offered

Injection Moulded Crates

Roto Moulded Crates

Customized Crates

Corrugated PP Crates

Insulated Icebox / Shipper

Vacuum Formed Crates

Wash Crates

Automated Industrial Storage & Retrieval Systems

Custom Moulding

Industrial Pallets

Waste Management System Bins

Material Handling Solutions

Intralogistic Warehouse Solutions

Subsidiaries

Nilkamal Padma Plastics, Bangladesh.

Nilkamal Eswaran Plastics, Srilanka.

The Company has 7 large manufacturing plants in India:

North – Samba (Jammu & Kashmir) and Greater Noida (Uttar Pradesh)

South – Pondicherry (Union Territory)

East - Barjora (West Bengal)

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West - Sinnar, Nashik (Maharashtra) and Silvassa (Union Territory of Dadra &

Nagar Haveli)

(2 plants).

Financials Results

12 Months Ended Profit & Loss Account (Standalone)

Value(Rs.in million) FY09A FY10A FY11E FY12E

12m 12m 12m 12m

Description

Net Sales 8907.36 10319.51 12383.41 14240.92

Other Income 1.27 8.69 14.77 17.73

Total Income 8908.63 10328.2 12398.19 14258.65

Expenditure -8082.39 -9100.61 -11021.24 -12774.11

Operating Profit 826.24 1227.59 1376.95 1484.54

Interest -396.28 -246.96 -256.23 -271.23

Gross Profit 429.96 980.63 1120.72 1213.31

Depreciation -311.71 -321.75 -328.19 -334.75

Profit before Tax 118.25 658.88 792.53 878.56

Tax -57.24 -186.49 -221.91 -254.78

Profit after Tax 61.01 472.39 570.62 623.78

Equity Capital 127.82 127.82 149.23 149.23

Reserves 1986.16 2383.92 2954.54 3578.32

Face Value(Rs.) 10 10 10 10

EPS 4.77 36.96 38.24 41.8

*A=Actual, *E=Estimated

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Quarterly Ended Profit & Loss Account (Standalone)

Value(Rs.in million) 31-Mar-10 30-Jun-10 30-Sep-10 30-Dec-10

3m(A) 3m(A) 3m(A) 3m(E)

Description

Net Sales 3067.4 2854 3185.33 3312.74

Other Income -14.5 0 0 0

Total Income 3052.9 2854 3185.33 3312.74

Expenditure -2800.37 -2534.3 -2820.57 -2935.09

Operating Profit 252.53 319.7 364.76 377.65

Interest -57.08 -58.73 -62.84 -65.98

Gross Profit 195.45 260.97 301.92 311.67

Depreciation -81.29 -77.17 -81 -85.05

Profit before Tax 114.16 183.8 220.92 226.62

Tax -43.49 -51.91 -60.64 -63.45

Profit after Tax 70.67 131.89 160.28 163.17

Equity Capital 127.82 127.82 149.23 149.23

Face Value 10 10 10 10

EPS 5.53 10.32 10.74 10.93

*A=Actual, *E=Estimated

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Key Ratios

Particulars FY09 FY10 FY11E FY12E

EPS (Rs.) 4.77 36.96 38.24 41.8

EBITDA Margin (%) 9.28% 11.90% 11.12% 10.42%

PAT Margin (%) 0.68% 4.58% 4.61% 4.38%

P/E Ratio (x) 30.84 10.32 9.98 9.13

ROE (%) 2.89% 18.81% 18.38% 16.73%

ROCE (%) 10.37% 17.09% 17.00% 16.33%

EV/EBITDA (x) 2.28 3.97 4.13 3.83

Debt-Equity Ratio 1.35 1.11 0.99 0.89

Book Value (Rs.) 165.39 196.51 207.99 249.79

P/BV 0.89 1.94 1.83 1.53

Charts:

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Outlook and Conclusion

At the current market price of Rs.381.45, the stock is trading at 9.98 x FY11E

and 9.13 x FY12E respectively.

Price to Book Value of the stock is expected to be at 1.83 x and 1.53 x respectively for FY11E and FY12E.

Earning per share (EPS) of the company for the earnings for FY11E and FY12E is seen at Rs.38.24 and Rs.41.80 respectively.

Net Sales and PAT of the company are expected to grow at a CAGR of 17% and 117% over 2009 to 2012E respectively.

The Company has entered into a Joint Venture agreement with Cambro Manufacturing Company ("Cambro"), USA. Cambro has currently manufacturing operation at USA, Germany, Turkey & China and sells its products globally through dealers and distributors network all over the world.

On the basis of EV/EBITDA, the stock trades at 4.13 x for FY11E and 3.83 x for FY12E.

We expect that the company will keep its growth story in the coming quarters also. We recommend ‘BUY’ in this particular scrip with a target price of Rs.450.00 for Medium to Long term investment.

Industry Overview

The Plastics Industry in India has made significant achievements ever since it made a

modest but promising beginning by commencing production of Polystyrene in 1957.

The chronology of manufacture of polymers in India is summarized as under:-

- 1957-Polystyrene

- 1959-LDPE

- 1961-PVC

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- 1968- HDPE

- 1978-Polypropylene

The potential Indian market has motivated Indian entrepreneurs to acquire technical

expertise, achieve high quality standards and build capacities in various facets of the

booming plastic industry.

The plastic processing sector comprises of over 30,000 units involved in producing a

variety of items through injection moulding, blow moulding, extrusion and

calendaring. The capacities built in most segments of this industry coupled with

inherent capabilities have made us capable of servicing the overseas markets.

The economic reforms launched in India since 1991, have added further fillip to the

Indian plastic industry. Joint ventures, foreign investments, easier access to

technology from developed countries etc have opened up new vistas to further

facilitate the growth of this industry.

India ranks 8th in the world with per capita consumption of 4.1 kgs. which is likely to

increase to 7.9 kgs in 2006. The world average is around 20 kgs. Polymer demand in

India to touch 8.3 million tons 2007-2008 and 12.4 million tons by 2010- 2011. India

is expected to be the 3rd largest consumer of plastics after US and china by 2010.

Growth rate between 12% - 15%. Consistently outperforming GDP. There is an

estimated 15,000 units engaged in the manufacturing of various plastic products in

the country. The industry has an average growth of 15% and employs 3000,000 people

directly.

Growth of plastic

� The sector has an employment potential of 6.7 million man years (excluding

services sector).

� Finished products from the industry are exported to over 140 countries,

including highly quality-conscious ones including the US, and European and

the Middle East.

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� India is a net exporter of LLDPE / HDPE / PP / PS forms of plastic materials.

For the plastic industry, the US is the largest trading partner of India. However,

India’s export of plastic is less than 1 per cent of the total imports of the US.

� In 2007, the global plastics export market stood at US$ 375 billion, of which

India had a less than 1 per cent share with exports worth US$ 3.187 billion.

� According to a Plast India Foundation report, the industry exported products

and machinery worth around US$ 4.1 billion during 2007-08, up from US$ 3.1

billion last fiscal.

� Hampering the growth of the sector are factors such as high prices of polymer,

which according to the Indian Plastic Federation, have risen by 50 per cent,

while prices of PVC – another important raw material – have risen by 30 per

cent.

� Irregular supply of polymers is another issue. Exporters of plastic goods want

the government to ease supplies through a series of fiscal measures.

� SMEs face shortage of skilled manpower, finances and advanced technology, all

of which hamper progress.

________ ____ _________________________ Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation

for the purchase or sale of any financial instrument or as an official confirmation of any

transaction. The information contained herein is from publicly available data or other

sources believed to be reliable but do not represent that it is accurate or complete and it

should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s

affiliates shall not be in any way responsible for any loss or damage that may arise to any

person from any inadvertent error in the information contained in this report. This document

is provide for assistance only and is not intended to be and must not alone be taken as the

basis for an investment decision.

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