NEW Decade, FRESH In sync with growing trend in Indian sport Wim Plast Limited.Incorporated in 1988, Wim Plast is one of the group company of ‘Cello’ group havingits principal activity of manufacturing plastic molded and extruded articles. Thecompany manufactures packaging materials, stationery, indoor application, industrialproducts, advertising and construction products. HBJ Capital’s “Business Insight” stock for the month of May 2011 HBJ Capital, India Web: www.hbjcapital.com E-Mail: firstname.lastname@example.org Call: +91 98867 36791
Best Buying Price… 2 Phase Buying Strategies Suggested [Always buy in SIP ways] 1st Phase : Buy at the current price range Rs 195-205 [50% of investment] 2nd Phase : Add if the price falls down to Rs 175-185 [50% of investment] >>>Expect at least 6-8 times returns in next 3 years time frame!!!
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Table of Contents From the Desk of CEO, HBJ Capital – (Page –5 ) Overview : Wim Plast Ltd. – (Page –7 ) Plastic – A misunderstood commodity – (Page – 10) The Indian Plastic Industry – (Page – 16 ) Key drivers for growth of the industry – (Page – 21) Wim Plast Ltd. – (Page – 22 ) Management & Shareholding Pattern – (Page – 25 ) Peer Comparison – (Page – 28) Financial Analysis – (Page – 30 ) Technical Analysis – (Page – 34) Investment Rationale – (Page – 36) Risks & Concerns (Page – 38) Disclaimer (Page – 39 )
From the desk of CEO, HBJ Capital Dear Investors, While making investment look for companies being ignored by I am sure that the letter finds you in good spirits, ready to jump everyone else because you may into the market to catch gems at the bottom. I hope that almost end up finding a hidden gem all of you had taken our advise seriously and are now sitting on and once you find one, invest in good cash. it and relax. You have done your job and just follow the A recap from my earlier letter for our new investors – performance of the company. Wealth creation will happen automatically. “The Middle Class is undergoing a dramatic change with focus shifting from fulfilling basic needs to desires and aspirations. I believe that as the reference point of average consumer keeps moving up the income ladder, so does the demand for branded higher performance items, even though at higher values.” Continuing with our focus on India growth story and burgeoning middle class in particular, our team has picked a gem from Indian Plastic Industry. The Plastic consumption in India has been growing at a rate of 12-15% per annum and the run rate is expected to continue for at least next 10 years. The majority of the business is done is by un- organized segment with 85% market share, however the organized players are making strong in roads with 25-30% growth YOY.
Contd..In past 40 years, the plastic per capita consumption of the country has increased from 1kg to 8 kg per person.Now, plastic producers are expecting it to double in next five years. By 2015, it is expected that Indias per capitaconsumption will increase to 16 kg, as per All India Plastics Manufactures Association (AIPMA).The sector estimates that 15,000 units are engaged in the manufacturing of various plastic products in the countrywith an average growth rate of 15% and providing employment opportunity to 3 million people directlyOur selection for “Business Insight” pick of the month is Wim Plast Limited.WIM plast is in the business of plastic moulded furniture (brand – cello) and into extruded cello bubble guardsheets which have multiple applications such as false ceiling, signage etc. The company has been in this businessfor the last 20+ years and is part of the cello group.Happy Investing!Regards,Kumar Harendra, CEO, HBJ Capital, www.hbjcapital.com & www.multibaggerpennystocks.com#912, 1st "F" Main Road, Girinagar 2nd Phase, BSK 3rd Stage, Bangalore – 85Call : 098867 36791, 080 6568 1134 or Mail : Info@hbjcapital.com
Some key stats.. CMP = Rs 199 (May 27th 2011) PE ~ 6.5 On the basis of TTM earnings. The stock is available at very low PE multiples, whereas, its margins, 52 week’s high/low = Rs 242/141.85 – The stock ratios, market share, and balance sheet has grown after making a 52 week high in Sep’10 has significantly over last three years. It should therefore be corrected by 18% during the ongoing market re-rated and trade at higher PE multiples. correction. Shareholdings : No Of shares [% Share Holding] Total Non-Institution: 0.1 lakhs [0.02%] 6 Month Peak share price = Rs 242 –The stock Total Bodies Corporate Holding: 1.57 lakhs scaled a new 6 month high just a few months [2.6%] back. The stock deserves as re-rating both Total Promoters: 43.8 lakhs [72.96%] owing to the growth rate and historical Total Outstanding Shares : 60 lakhs [100 %] valuations. Debt/Equity = 0 [Mar’10] Trading volume = 1102 shares (approx) per day ROCE = 36.9% [Mar’10] – The stock usually trades with low volumes RONW = 27.7%[Mar’10] owing to very low free float. The Promoters Current Ratio = 3.67[Sept’10] hold 72% stake in the company BSE Code 526586 *calculated on weighted average no. of shares for preceding 12 months EPS ~ 30.41 (TTM) – Company has recorded an EPS of Rs 30.41 for FY 11.
Plastic – A misunderstood commodity !!Plastic is good for the environment, if used properly, and does not cause damage to human health.These days there’s a widespread misconception prevailing against use of plastics. There are some reports againstplastic, saying it is causing various forms of pollution, however, the fact is that we do not know how to useplastic.We even have some people making confusing statements like ‘say no to plastic,’ ‘plastic should be banned,however the reality is that use of plastic is unavoidable. From toothpaste to toilet seats, from keyboards tocellphones, automobiles and other electronic goods are made from plastic.Polymers (from which plastic is made) are of two types: thermoplastics and thermosets. The former can be usedrepeatedly by melting and remoulding, while some qualities of thermosets are harmful to environment becauseof the long time taken for degradation.Plastic has excellent qualities because the manufacturing process requires low energy (compared to metals), mostare non-polluting (no effluents), stable in different environment conditions and can be reprocessed.The scientists have pointed out the only problem pertaining to the plastic is of accumulation. “It is found litteredeverywhere and it is a problem of our wrong habits. Plastic consumption in India has gone up to 12.5 milliontonnes from 5 million tonnes in the last few years, however the use of plastic is better than paper because it savesdeforestation and toxic waste generated from paper manufacturing factories.
Which is more sustainable: Paper or Plastic?Since last few years Government of India and different state governments are acting against usage of plastic bagsand suggesting use of paper or recycled paper believing latter to be environment friendly. But in a country likeIndia, would it be correct to assume that paper is more sustainable than plastic? Or Is it a fallacy?Let’s first look at the definition of sustainability as given by World Sustainability Council. Sustainability isdefined as “Meeting the needs of the present without compromising the ability of future generations to meettheir own needs forever”.The sustainability of paper and plastic have been compared over their life cycle, energy footprint and waterfootprint below in the next few slides:
Lifecycle Analysis !!Life cycle Analysis of any product or material is the study of “cradle to grave” process and resources involved.Paper93% of paper is made out of trees. Steps involved are1. Logging and Transporting: Trees are cut using energy consuming machines or manpower, moved to a mill, where there is a wait period of 2-3 years for logs to dry.2. Debarking and Cooking: Logs are debarked, chipped into one inch squares and “cooked” under tremendous heat and pressure, thus using huge amount of energy.3. Digesting: These chips are digested with sulphurous acid and limestone, until the wood becomes pulp.4. Washing and bleaching: This pulp is washed; requiring thousands of liters of water then bleached using chorine or epoxy resins. Note that polluted water or Grey water (especially in India) goes mostly untreated and adds chorine/epoxy resins (3), besides sulphurous acid, heavy metals and other pollutants to the surrounding environment and ground water.PlasticPolyethylene bags are derived from oil residues and come as pellets. Steps involved areMelting, tubing and cutting: Pellets are melted at around 300-340 degrees centigrade; a hot bar is dropped atintervals melting a line. Each melted line is cut and punched or stamped for making handles. -Transportation:Plastics, especially bags, are made locally in a region and don’t add much to energy and carbon footprint oftransportation.Consider this! The world produced 390.9 Million Tons of paper in 2008, losing 18.3 Million hectares of forestcover. [CEPI, key Statistics, 2009]. For each ton of paper produced, 17 Trees were cut!!
Water FootprintWater as one of the most important resources of the world creates the biggest impact on sustainability in theworld, especially owing to its poor quality and scarcity in the developing world. For each m3 of pulp/paperproducing tree, 214 to 1081 m3 of water (Green Water footprint*) is used, according to a 2010 UNESCO-IHEreport.For a country like India, where water is increasingly becoming a scarce resource with large misuse /pilferageowing to conflicts and riots, every ton of “writing and printing paper” produced requires about 1246m3 of water.Packaging industry consumes around half of plastic and considerable volume of materials like Aluminum.Mostly plastic and aluminum are used in packaging due to qualities like strength, flexibility, weight, volume and,inertness. Paper and recycled paper are mostly used as a fad these days to replace carrier bags for shopping or forbranding the institution green. Small bags are used in bio-fertilizer and pesticide industries.So the water consumed by paper is around 935 times that of plastic. Something to ponder about the environmentfriendliness of paper!
Energy ConsumptionNow let us consider the energy consumptionEnergy Footprint:ConclusionAs one can conclude from evidence presented above paper and recycled paper is not only unsustainable in termsof energy but a major contributor to consumption and pollution of water. Plastic, the material which hascontributed to development of science and used in widest repertoire of products, from pen to rocket nozzles is agreat innovation of science.
Indian Plastic IndustryIn past 40 years, the plastic per capita consumption of the country has increased from 1kg to 8 kg per person.Now, plastic producers are expecting it to double in next five years. By 2015, it is expected that Indias per capitaconsumption will increase to 16 kg, as per All India Plastics Manufactures Association (AIPMA).The Plastic Industry in India has made some significant achievements ever since it made a modest but promisingbeginning by commencing production of Polystyrene in 1957.The per capita consumption of plastic in India has doubled from 4 kg in 2006 to 8 kg in 2010, and is expected totouch the global average of 27 kg per person by 2020. Among the factors driving this growth are increasing use ofplastics in packaging, infrastructure, agriculture, automotives, healthcare and FMCG segments.Estimated 15,000 units are engaged in the manufacturing of various plastic products in the country with anaverage growth rate of 15% and providing employment opportunity to 3 million people directly. The current sizeof the plastics industry is Rs 85,000 crore, and would grow at an average of 10 percent a year over the next fiveyears to reach Rs 1.33 lakh crore by 2015.In 2009, the global plastics export market stood at US$ 450 billion of which India had a less than 1 percent sharewith exports worth US$ 4.1 billion.One of the important products of the plastic industry is the molded plastic furniture and consumer plastic goodmarkets.The molded plastic furniture & consumer plastic goods market in India is around 2200 Crores of which 85% oftotal market size fall under unorganized sector. However, during the last few years the organized market grew at25% to 30% CAGR whereas the combined market for molded plastic furniture and consumer plastic goodsincreased at 12% to 15% per annum.
Indian Plastic IndustryThe Sector is transitioning from a fragmented industry to a more organized and competitive one
Fitness Equipment & Services Industry Growth Drivers
Key Drivers for growth of the industry What Could be the Growth Drivers? Let’s understand them Indians per capita income has more than doubled in last 10 years. And as income levels increase every year there are more and more new customers entering consumption, resulting in significant market expansion. Estimated population of 1.1 billion growing at 1.7% p.a., and adding population equivalent of Australia every year. Changing shape of income distribution, resulting in demand increase for high performance items, even at higher values. With 49% of its population below 24 years of age, India will be defined as a country with self-confident and assertive generation. Affordability growth > Income growth.
Basic Details..Wim Plast Limited was incorporated as a Private Limited Company in 1988 and was converted into a Public in1993. Wim Plast, the only listed entity of the Cello Group, reports its business under one segment, i.e. plasticmoulded and extruded articles. It has products such as plastic moulded furniture and bubbleguard sheets with astrong presence in the western and northern regions where its market share is around 11-12 per cent.In the year 1994 company setup manufacturing unit of plastic moulded furniture at Daman in which companygot grand success in the business. In the process of diversification, in 2005 company setup plants at Baddi,Himachal Pradesh for processing of bubbleguard extrusion sheets and also moulded furniture which is aninnovation in India in the field of extrusion technology.Presently the company has manufacturing units at Daman, Baddi and Chennai and Depots in Gujrat, Rajasthan,Andhra Pradesh, Haryana and Punjab.The moulded furniture segment is a major growth driver for the Company while the contribution of thebubbleguard sheet segment is fairly low at this point of time. The same is expected to contribute significantlygoing forward. Bubbleguard sheets are a combination of three polypropylene sheets, which find applications inmaking false ceilings, tiles protection, construction, modular offices, etc.
Basic Details…Company has strengthened its brand equity of ‘cello’ branded products throughout country and has beencontinuously increasing the ad spend.Last year, the company launched 10 new models of Chairs and 5 new models of stool including various designs offurniture.Another prominent brand of the company ‘Cello Bubble Guard Sheets’ has gained rich response from the usersfor applications like Tile Protector, False Ceiling, Wall Panel and Packaging materials.Company is planning to launch more such application in near future to meet the demand and in it’s pursuit forthe same, the Company has started manufacturing wood and floor protectors which can be used while renovatinga house / office without damaging walls or floor of the premises.The Company expects this segment to grow at more than 50% per annum and is looking forward to a turnover ofnearly 100 Crores from this segment alone by 2012Some Recent DevelopmentsWim Plast Ltd has acquired manufacturing unit admeasuring to 2.30 acres of land at Chennai and has receivedapproval from SIPCOT Ltd. Tamilnadu for transfer of Leasehold rights of Land with respect to the saidacquisition. The total Project Cost was approx Rs. 15 Crores and the commercial production started in Apr11.To raise the volume and to serve the distribution network, the Company has in addition to its Depot at Jodhpuropened new Depots at Punjab, Hyderabad and Vapi.
Management.. KEY Executives 1. Mr. Ghisulal Rathod Chairman 2. Mr. Pankhaj Rathod Managing Director 3. Mr. Fatehchand Shah Director 4. Mr. Harilal Boolani DirectorMr. Ghisulal D. Rathod (67), is Chairman of the Board of the company. He is the founder of ‘cello’ Group which isone of the leading group in plastic industry and have 45 years of experience in plastic industry.Mr. Fatechand M. Shah (65 yrs), is Non Executive Director of the Company. He is member of M.G. Shah Groupand possesses rich experience of manufacturing industry with 40 yrs of experience in manufacturing industry.Mr. Pankaj G. Rathod (43 yrs), is an Additional Director of the Company. He is Managing Director of ‘cello’ PenDivision and availed himself with immense knowledge of manufacturing process and more than 20 yrs ofexperience of plastic industry.
Share Holding Pattern.. As per the Shareholding Disclosures, the Promoter’s of the company have sizable stake at 72.96% and they have been increasing it gradually. The stock is still not on radar of Institutional investors, as are other competitors in the industry. The company is one of the under researched ones, and has thus not attracted much attention of smart money. The Domestic Institutional Investors presence in the stock is just 0.02%. It’s larger counterparts have good level of institutional holding.
Peers Comparison Company (TTM performance) Wim Plast Nilkamal Supreme IndustriesSales/Turnover (crore) 158.04 1318.25 2014Profit (crore) 18.24 53.40 144.83NPM% 11.54 4.05 7.19MCAP (crore) 119 432 2167PE 6.52 8.08 14.96 There are two other listed competitors for Wim Plast ltd i.e. Nilkamal & Supreme Industries. While Supreme is a much diversified company, Nilkamal is pretty much similar to Wim Plast in terms of product profile. Amongst the three Supreme Industries holds the largest market share with 25% while other two are considerably smaller players. Wim Plast is currently trading at a substantial discount to it’s peers. We expect Wim plast to command much higher premium as the company attains a larger size.
Income Statement The Company has been growing consistently since FY 05 but the pace has picked up considerably since FY08. The Interest payment of the company has been low since inception due to less dependence on outside debt. The operating profit and net profit of the company has grown far better in recession years compared to earlier years. Since the last 2 years, the company has done a lot better on the front of margins and a PATM of 11-12% seems sustainable.
Balance Sheet No equity dilution since last many years. Current cash balance is in excess of total debt of the company. Though the sales of the company have grown by 2-3x during the last 5 years, the working capital is hovering around same levels, thus reflecting good managerial skills of the management. The Balance sheet of the company is small compared to its competitor but the potential to grow is clearly visible by the way management uses the funds We do not expect any equity dilution for the envisaged growth, hence shareholders will benefit immensely over next 3-5 years.
Cash Flow Statement Company has been generating positive cash flow from operations for the last 5 years, rather cash flows have been in excess of reported earnings. Cash used in financing activities has come down considerably in last two years as the company has mostly re- paid all it’s debts. There’s been a consistent outflow towards purchase of fixed assets. During FY 10 the outflow increased, thus reflecting expansion of the manufacturing facilities with some replacement of the old machinery.
Technical trends As can be observed from the above chart, the stock witnessed a strong move after a long period of consolidation at around Rs 50. The stock recently touched a low of Rs 140 in the month of Feb’11 and has since bounced back to Rs 200. On the weekly charts, the stock has a very strong support at Rs 175 and in the wake of improving fundamentals we don’t expect the stock to break below Rs 175. One can start accumulating the stock at current levels with further averaging at around Rs 175-180.
Investment Rationale.. The sector is expected to grow 12-15% CAGR, but some of the brands are expected to outperform – we have identified Wim Plast as one of them, which is expected to grow at 25-30% CAGR over next 3-5 years. Given that the management has been conservative in the past, now they have decided to expand their existing facilities and also add new plants at new locations thus making in-roads into the new regions. All the required factors for growth are available - The company brand ‘Cello’ is one of fastest growing brand in the country; The top line and the bottom line of the company showing outstanding growth rate; Nearly debt free company with good free cash flows and management’s ability to deploy the capital at higher rate of return. The correction in market has led to equity being available at cheaper price for informed investors – please note that it is already at discount to fair value.
Risks and Concerns.. Inflation and Interest rate hike may slowdown the growth in Industry, this may delay the revenue targets. Competitors in industry may not pass down inflation affect to consumers, thereby, affecting margins of the company. Rising Crude Cost may hamper the margin of the company as its one of the major constituents of the raw material. Any unexpected environmental regulation or government policy may affect the industry as a whole.
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