[T.S.R:17148] Polyplex-BUY

Polyplex-BUY

The stock has been roiled offlate under the twin impact of a ban on sale of Plastic film to Gutka manufacturers and the perceived impact of rise in Crude price. Let us see if things are as dire as they seem.

 

The Gutkha pouches ban is indeed a blow for the PET industry. In India the consumption of gutkha and gutkha related industries (of PET) is about 20% of the entire consumption (Industry Estimates). However, PET is a global "cash and carry commodity" and is not traded on any Major bourse . Thus the sheer rise in realizations globally cannot be attributable to speculative bidding of prices, moreover gutkha related demand is pegged at 3-4% i.e 70k tones ( global demand is pegged at 2 mn  tones). So it would certainly not lead to shop shutting situation.

Now the other bit about banning "recyclable plastic" for food stuff actually works in favor of virgin PET players such as POLYPLEX, Jindal Poly and UFLEX. The price of products (BOPET and BOPP) are usually set on a monthly basis. The historical value addition for these companies has been around INR 40 KG.In the month of FEB, the value addition for polyplex in india was INR 102 ( Realisation: 182 and cost 80) .

 

Now certain other facts about POLYPLEX, the company's indian sales would be less than 8% in Q4 (
they are selling 1k ton in india per month and they manufacture on consolidated basis about 12-13 k ton). The value addition for the month of Jan 2010 in Europe was better than December by 10 cents.

As on 30th September 2010, the ook value of the company stood at about 550 per share. The cash per
share stood at close to INR 200. And net debt was close to INR 65 per hare. Besides the value of the investment in their subsidiary stands at about close to 500 per share.

The demand dynamics of PET is still in favor of the producers globally and is likely to be the case for the next 3 quarters. However, New supply hitting the markets are sure to bring the realizations down as
operating margins in a commodity is not possible. Besides their input prices ( PET and MEG) are crude derivatives which doesn't augur well for them at this point of time.

 

But even after taking these into account the company (and industry) are enjoying realization which is
twice the normal spreads as on now. This is so because the global leaders ( Dupont  etc)  are vacating commodity space and eyeing more lucrative LED and Photovoltaic space.

The company's recent initiative is something I find promising and would result in more asset sweat in next 8 to 12 quarters. For the record they are entering into thick film space besides undertaking a green field project in brazil.  Brazil is a closed market with high import duty and good captive consumption.

The company is trading at less than 1 time and if exclude exceptional items they are trading at about 1.5x its FY11E earnings. Indian Company in this space have taken lot of initiative in this space and they rank among the best in the flexible packaging space.

 

BUY

 

Safe Harbor Statement:

Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.

 

Nothing in this article is, or should be construed as, investment advice.

 

 

 

 

 

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