Recommendation from Packaging Sector

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.

UFLEX LIMITED. : PROFITING FROM ITS MARKET PRESENCE

HERE IS WHY
✓Strong financial position
✓Attractive price-to-book value
✓Strong client base

UFlex Limited is one of the biggest flexible packaging and packaging manufacturers in India and is also a popular global player in polymer sciences. The company has a strong international presence as it caters to markets spanning across the globe. The main business of the company is manufacturing of flexible packaging films and flexible packaging that contribute 96 per cent to revenues. The balance 4 per cent is contributed by allied businesses like engineering, cylinders, holography and chemicals. The company has strong client base which consists popular names like Coca Cola, Nestle, Mondelez International, Amul, PepsiCo, Loreal, ITC, Britannia, Proctor and Gamble, etc.

The company’s financial position has been one of its core strengths. It reported net sales of ₹ 8,890.8 crore in FY21 compared to ₹ 7,404.8 crore in FY20 which saw a growth of nearly 20 per cent. Its sales and production levels were not much impacted by the pandemic as it catered mainly to the food and pharmaceutical packaging segment.

The EBIDTA witnessed a jump of over 64 percent to ₹ 1,825.7 crore in FY21 as against ₹ 1,110.5 crore in the previous year. Also, the PAT saw a high growth of 126 per cent with an increase from ₹ 372.6 crore to ₹ 842.4 crore from FY20 to FY21, respectively.

A growth of nearly 65.6 per cent can be seen in the cash flows from operating activities increasing from ₹ 849 crore in FY20 to ₹ 1,406 crore in FY21. In Q3FY22, revenue grew by 67.11 per cent YoY to ₹ 3,463.42 crore from ₹ 2,072.55 crore in Q3FY21. On a sequential basis,the top-line was up by 16.07 per cent. PBIDT exclusive of other income was reported at ₹ 607.79 crore, up by 47.98 per cent YoY and the corresponding margin was reported at 17.55 per cent, contracting by 196 basis points YoY mainly due to continued pressure on raw material prices. However, passing on the prices is not a big concern for the company as the volume growth has only been 38 per cent.

Its PAT was reported at ₹ 312.85 crore, up by 95.32 per cent from ₹ 160.17 crore in the same quarter for the previous fiscal year. The PAT margin stood at 9.03 per cent in Q3FY22, expanding from 7.61 per cent in Q3FY21. On the returns front, the ROE and ROCE stood at 16.5 per cent and 15.4 per cent, respectively. The company has adequate debt in its books as its debt-to-equity ratio stands at 0.72 times. The stock is trading at a PE of about 4.6. Notably, as far as value investors are concerned, its book value is quite higher than its market value as the price-to-book value stands at 0.79 times.

Currently, the company has state-of-theart packaging facilities at multiple locations in India and has packaging film manufacturing facilities in India, the UAE, Mexico, Egypt, Poland and USA, all of which are running at a capacity utilisation rate of over 95 per cent. The packaging sector is the fifth-largest in India and the demand for packaging products is expected to grow at a CAGR of 9.8 per cent over the next five years. UFlex has got the capacity to further exploit growth opportunities and create value for its stakeholders. Its strong market presence will also back its drive to expand. By virtue of all these factors, we recommend our reader-investors to BUY the scrip.