Recommendation from Indian Packaging Company

This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year. 

POLYPLEX CORPORATION: MATCHING PACE WITH GROWING DEMAND

HERE IS WHY
✓Strong financial position
✓Likely to benefit from FMCG growth story
✓Wide applicability of its SKUs

As per a report by CRISIL, the FMCG sector is set to shoot up with lower double-digit growth in the year 2022. The industry has exhibited strong resilience and created more value for investors after bouncing back from the second wave of the pandemic. The factors that will lead to an improvement of the FMCG sector in India include growth in discretionary segments and urban demand along with price rises put in place to counter the impact of increasing raw material cost. Polyplex Corporation is one such company that stands to benefit from this growth in the FMCG sector. It has the fifth-largest capacity of polyester (PET) film globally

Its polyester capabilities include both thin and thick PET film in a wide range of thickness and surface properties covering a spectrum of applications. Its diversified business portfolio also includes BOPP, blown PP and PE and CPP films produced in state-of-the-art plants with economic size. Integrated downstream capabilities of metallising, holography, silicone coating, offline chemical coating, extrusion coating and transfer of metallised paper deliver further value-added products.

The company reported net sales of ₹6,624 crore in FY22, up from ₹4,918 crore in FY21. The growth was majorly contributed by thin PET which is primarily used in food items such as sugar and confectionary, frozen foods, dairy, snacks, tea, coffee, cereals, etc. Its EBIDTA excluding other income stood at ₹1,308 crore in FY22, up from ₹1,217 crore the previous year. That represents an increase of more than 7 per cent. In addition, the PAT increased 11 per cent from ₹512 crore in FY21 to ₹569 crore in FY22.

Its EBITDA excluding other income was ₹379 crore in March 2022, representing a 9 per cent rise on a QoQ basis and a nearly 44 per cent increase YoY. Looking at its net profit, it stood at ₹186 crore, a 6 per cent increase on a QoQ basis and a 49 per cent increase on a YoY basis. Global thin film growth is expected at 5-6 per cent in the next few years. Rising population, increasing urbanisation, changing demographics, a trend towards nuclear families and increase in purchasing power in developing countries are some of the major growth drivers.

Ageing population, evolving retail formats and penetration of e-commerce together with focus on safety and hygiene has led to rise in per capita packaging material consumption. There is a continued shift from rigid to flexible packaging, and from loose to packaged products. The demand is driven by higher disposable income. Technological developments are leading to accelerated demand in electrical, electronics and other industrial applications, along with new applications like lithium ion batteries for electric vehicles, which are expected to further increase demand.

In terms of return ratios, the ROE and ROCE stand at 17.9 per cent and 29.1 per cent, respectively for FY22. Since fiscal year 2015, the company has regularly reduced its debt. The stock is currently available at attractive valuation of 13 times and dividend yield of 3.53 per cent. With FMCG sector on a path of growth, the incremental demand over the next six years is likely to exceed the new capacity added for most of the key demand centres. As such, given all these factors along with reasonable valuation at which it is available, we advise our readers to BUY this stock.