Moulding A Sucess Story

What if you come across a company that has been growing at a three-year CAGR of 64 per cent in profits, has continued to post brisk growth in the first nine months of FY10, been a consistent dividend payer since 1998 and generates a dividend yield of over 2 per cent, has no debt in its books and is still available at a PE of just 6x? There are no prizes for guessing it right but here is your chance to grab Wim Plast (WPL) for long-term prospects which we have chosen to recommend in this issue with its CMP of Rs 170. A fairly low profile company, its identity tag lies in the fact that it is a part of the Cello Group which has diversified interests in manufacturing plastic household and thermoware, writing instruments (Cello pens), toothbrushes as also plastic furniture.
Wim Plast, the only listed entity of the Cello Group, reports its business under one segment i.e. plastic moulded and extruded articles. It has products such as plastic moulded furniture and bubbleguard sheets with a strong presence in the western and northern regions where its market share is around 11-12 per cent. Other peers include Nilkamal and Supreme Industries with 20 per cent and 11 per cent market shares respectively. The balance belongs to players in the unorganised market. The moulded furniture segment is a major growth driver for WPL while the contribution of the bubbleguard sheet segment is fairly low at this point of time. Bubbleguard sheets are a combination of three polypropylene sheets which find applications in making false ceilings, tiles protection, construction, modular offices etc.
Though on a ten-year horizon WPL hasn’t shown growth as one would have expected, things have begun to look brighter over the past three years during which time it has restored consistency and improved its progress rate. Its three-year CAGR of 64 per cent in bottomline and 14 per cent in topline is noteworthy. Besides, there is a sharp improvement in the margins, increasing by 584 basis points on account of aggressive marketing initiatives, increased distribution network, new products and better cost management.
WPL is now tapping fresh markets in the eastern and southern regions. This augurs well as it will help it to push its revenues further. In terms of its financial performance, WPL has repaid all its debts and is now a zero debt company. With no interest outgo the margins going forward would remain healthy. Besides, WPL has been consistently paying dividends since 1998. And with its FY09 dividend of Rs 3.5 per share the yield is high at over 2 per cent. In 9MFY10 WPL posted 36 per cent revenue growth to reach Rs 96.48 crore (71.03 crore), while profits grew by 182 per cent to Rs 12.37 crore (Rs 4.39 crore). Unfortunately, a fire mishap at its Jodhpur depot caused the company an estimated loss of Rs 50 lakhs. However, WPL has assured its stakeholders that this will not affect the profitability of the company.
For FY10 WPL’s revenues could be around Rs 129 crore, while profits could be Rs 16.45 crore. At these estimates WPL provides an estimated EPS of Rs 27.42, thereby resulting in a PE of just 6x. This makes it quite attractive as compared to its competitors Nilkamal and Supreme Industries which are both available at 8x. In fact, on the EV/EBDITA basis, WPL is available at just 4x, which is low and puts WPL in a favourable position. Our recommendation is that you should buy this scrip at its CMP of Rs 170 with a one year target price of Rs 221.