Stock Pick from Plastic Products Sector

Manoj Singh Gautam / 18 Sep 2014

Low Priced Scrip is hidden gem, today's underdog, a stock with future potential that is expected to fetch returns within one year. This is a stock picked carefully based on a fundamental analysis of the company. The company recommended as the Low Priced Scrip for this issue is an emerging player in Plastic Products sector.

HERE IS WHY

  • Attractive valuation.
  • Strong profi tability in its overseas business.
  • Paying dividend consistently over the last five years.
After the huge run-up that we saw in small-cap companies, most of them are now trading at fair to high valuations. Therefore, it is tough to discover stocks trading at bargain prices. Nonetheless, Prima Plastics is not only currently trading at around half the book value but is also available at 0.30 times of m-cap to sales. Even if we analyse its PE ratio, it is trading at a comfort level of 4x. With strong balance-sheet and a consistently dividend paying company over the last five years makes it a strong buy.

Prima Plastics designs, manufactures, and sells plastic moulded articles and aluminum composite panels (ACPs). The company offers chairs, tables, baby chairs, dining tables, stools, trolleys, teapoys, HDPE woven sack bags, and miscellaneous products. The company’s plant lockted at Daman, (U.T.) and Kerala. The company has increased its marketing depots from six in FY10 to 11 in FY14.

The company derives 83 per cent of the revenue from the moulded plastics division while 17 per cent comes from the ACP division. Further, 79 per cent of its total revenue is derived from local sales while 21 per cent revenue comes from exports. The company exports products to USA, Africa and the Middle East. Prima Plastics has set up a JV (50:50) in Cameroon (Africa) called Prima Dee-Lite Plastics Pvt. Ltd. in the year 2005 to manufacture moulded furniture and later on has diversified to manufacture woven sacks bags in the year 2012. The JV posted a 44.62 per cent growth in topline of Rs.  47.25 crore in CY13 as compared to Rs.  32.67 crore in CY12. The net profit increased by 77.63 per cent to Rs.  8.74 crore as compared to Rs.  4.92 crore in CY12.

At a consolidated level, the revenue crossed the Rs.  100 crore mark for the first time. Prima Plastic’s revenue of Rs. 103.10 crore in FY14 grew at a CAGR of 15.5 per cent from Rs.  66.95 crore in FY11. At the same time, its EBITDA margin increased by 366 bps to 13.4 per cent in FY14 from 9.8 per cent in FY11. Even its bottomline grew at 38.5 per cent CAGR from 2.86 crore in FY14 to 7.6 crore in FY11 with posted net profit margin of 7.3 per cent in FY14.

The company has a marginal debt of Rs.  10.90 crore as compared to net worth of Rs.  53.03 crore in FY14. The company is generating EPS of Rs.  6.91 on the face value of Rs.  10 per share. It has consistently been spending Rs. 2-3 crore on capital expenditure to cater to the rising demand. Now, the company may look forward to expand its manufacturing base in India or abroad in the near future. As compared to its peers, the shares of Prima Plastics are quite attractively valued. It deserved at least 10x PE, supported by an increase in its scale of operations, strong profitability in its overseas business, improving profitability in its domestic business, and its established brand. Hence, we recommend our readers to take an exposure in the stock with an investment horizon of one year.

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