1. Packaging-Polyester Film
ackaging-P
Initiating Coverage | Packaging-Polyester Film
July 7, 2010
Polyplex Corporation BUY
CMP Rs267
A Good Package Target Price Rs418
Polyplex Corporation (PCL) is one of the leading manufacturers of biaxially oriented Investment Period 12 Months
polyester (PET) films globally with manufacturing facilities in India, Thailand and
Stock Info
Turkey. PCL garners a major part of its revenues from the packaging industry,
which is expected to register around 15% CAGR over FY2010-12E. Moreover, the Sector Packaging-Polyester Film
company's foray into the BOPP segment is expected to yield good returns for it, as Market Cap (Rs cr) 426
demand for BOPP far exceeds supply. We initiate coverage on the stock with a Buy Beta 0.4
Target Price
recommendation and Target Price of Rs418, valuing the stock at 0.7x FY2012E
52 Week High / Low 271/164
P/BV
P/BV implying into an upside of 57%.
Avg. Daily Volume 6019
Capacity expansion to drive robust growth in revenues: PCL has recently forayed
into the lucrative, high-growth BOPP and CPP segments. In FY2010, global demand Face Value (Rs) 10
for BOPP far exceeded supply, with an estimated BOPP production of ~6,046kilo BSE Sensex 17,471
tonne/year v/s ~6,648kilo tonne/year of demand. To meet such growing demand, Nifty 5,241
PCL has set up new BOPP capacity of 35,000tpa in India as well as a new 10,000
Reuters Code PLYP.BO
tpa CPP plant in Thailand. In PET films, PCL increased capacity in India by 155% in
FY2010. Overall, on the back of the company's capacity expansion moves, we Bloomberg Code PPC@IN
expect it to post 20% CAGR in consolidated sales over FY2010-12E.
Shareholding Pattern (%)
Peers:
Available at a discount to Peers: PCL holds 70% stake in its listed Thailand subsidiary
Polyplex Thailand (PTL), which has a market cap of Rs950cr and is available at Promoters 46.9
1.3x P/BV. However, PCL has a market cap of Rs426cr or 0.6x FY2010E P/BV, MF / Banks / Indian FIs 19.2
which is at more than 55% discount to PTL's market cap and at a discount of nearly FII / NRIs / OCBs 11.6
36% to PCL's 70% stake in PTL, which works out to around Rs665cr. In comparison
Indian Public / Others 22.3
to its peers too, PCL is available at inexpensive valuations of 0.6x FY2010E P/BV,
with Uflex, Jindal Poly and Ester trading between 0.7x-1.1x FY2010E P/BV,
Abs. (%) 3m 1yr 3yr
respectively. Over the past five years, PCL has traded in the range of 0.3-0.7x one
Sensex (2.8) 23.3 16.8
year forward P/BV, considering the 46% CAGR in earnings over FY10-12E, we
value PCL at the upper band (0.7x) FY2012E P/BV. Polyplex 24.8 48.4 84.9
Key Financials (Consolidated)
Y/E March (Rs cr) FY2009 FY2010E FY2011E FY2012E
Net Sales 1,121 1,201 1,581 1,733
% chg 11.9 7.1 31.7 9.6
Profit
Net Profit 110 72 129 154
% chg 10.4 (34.6) 79.4 19.0
FDEPS (Rs) 69.0 45.1 81.0 96.4
EBITDA Margin (%) 20.9 18.2 18.5 19.0
P/E (x) 3.9 5.9 3.3 2.8
RoE (%) 19.4 10.8 17.1 17.4
RoCE (%) 13.6 10.6 15.0 16.4
P/BV (x) 0.7 0.6 0.5 0.4
Sharan Lillaney
EV/Sales (x) 0.9 0.7 0.5 0.3
+91 22 4040 3800 Ext: 338
EV/EBITDA (x) 4.3 4.1 2.5 1.7 Email: sharanb.lillaney@angeltrade.com
Source: Company, Angel Research
Please refer to important disclosures at the end of this report
2. Polyplex Corporation | Initiating Coverage
Initiate Coverage with Buy and Target Price of Rs478
Outlook
PCL is well placed to service future demand on account of having one the largest PET
film production capacities in the world, which is complemented by its excellent
geographical reach through its plants in Thailand, Turkey and India. Pertinently, PCL
garners a major part of its revenues from the packaging industry, which is expected to
register around 15% CAGR over FY2010-12E. Moreover, the company's foray into the
biaxially oriented polypropylene (BOPP) segment is expected to yield good returns for
it, as demand for BOPP far exceeds supply. Overall, we estimate the company to
register 20% CAGR in sales over FY2010-12E. The company's profitability is also
expected to improve with the company expanding capacity of its PET film unit in India
along with the setting up of new BOPP and Cast Polypropylene (CPP) units.
Exhibit 1: Segment-wise capacity and revenue break-up
FY2010E FY2012E
Segment Capacity Revenues Capacity Revenues
(tpa) (Rs cr) (tpa) (Rs cr)
PET film
India 22,900 242 51,000 499
Thailand 42,000 310 42,000 348
Turkey 58,000 344 58,000 382
Total 122,900 896 151,000 1,229
Metallised film
Thailand 11,000 89 11,000 100
Turkey 11,000 90 11,000 101
Total 22,000 179 22,000 202
Extrusion Coating film
Thailand 9,000 43 9,000 48
BOPP film
India - - 35,000 186
CPP film
Thailand 10,000 2 10,000 62
Others 80 5
Total revenues 1,201 1,733
Source: Company, Angel Research
July 7, 2010 2
3. Polyplex Corporation | Initiating Coverage
Valuation - Available at discount to subsidiary (PTL) and peers
PCL holds 70% stake in its listed Thailand subsidiary PTL, which has a market cap of
Rs950cr and is available at 1.3x P/BV. However, PCL has a market cap of Rs426cr or
0.6x FY2010E P/BV, which is at more than 55% discount to PTL's market cap and at a
discount of nearly 36% to PCL's 70% stake in PTL, which works out to around Rs665cr.
In comparison to its peers too, PCL is available at inexpensive valuations of 0.6x
FY2010E P/BV, with Uflex, Jindal Poly and Ester trading at 0.7x, 0.9x and 1.1x FY2010E
P/BV, respectively. Over the past five years, PCL has traded in the range of 0.3-0.7x
one year forward P/BV. Thus, on the back of high growth potential and inexpensive
valuations, we expect the PCL stock to get rerated going ahead. We initiate coverage
Target Price
on the stock with a Buy recommendation and Target Price of Rs418, valuing the stock
P/BV
at 0.7x FY2012E P/BV implying a into an upside of 57%.
Exhibit 2: Comparative valuation FY2010
Company P/BV (x)
P/BV
Polyplex 0.6
Uflex 0.7
Jindal Poly 0.9
Ester Industries 1.1
Source: Company, Angel Research
Exhibit 3: One year forward P/BV band
600
500
400
300
200
100
0
Jun-04
Jun-05
Jun-06
Jun-07
Jun-08
Jun-09
Jun-10
Dec-04
Dec-05
Dec-06
Dec-07
Dec-08
Dec-09
Price 0.2x 0.4x 0.6x 0.8x 1x
Source: Company, Angel Research
July 7, 2010 3
4. Polyplex Corporation | Initiating Coverage
Investment Arguments
Capacity expansions to drive robust growth in revenues
PCL has recently forayed into the lucrative, high-growth biaxially oriented polypropylene
(BOPP) and CPP segments. In FY2010, global demand for BOPP far exceeded supply,
with an estimated BOPP production of ~6,046kilo tonne/year v/s ~6,648kilo
tonne/yr of demand. To meet such growing demand, PCL set up new BOPP capacity
of 35,000tonne/year in India as well as enhanced capacity of its CPP plant in Thailand.
In PET films, PCL expanded capacity in India by 155% in FY2010.
On the back of the company's capacity Overall, on the back of the company's capacity expansion moves, we expect it to post
expansion moves, we expect it to post 20% CAGR in consolidated sales over FY2010-12E. In absolute terms, the company is
20% CAGR in consolidated sales over expected to increase their consolidated revenues from Rs1201cr in FY2010E to
FY2010-12E Rs1,581cr and Rs1733cr in FY2011E and FY2012E respectively. This inturn is expected
to boost their bottom line with an expected increase from Rs72cr in FY2010E to Rs154cr
in FY2012.
BOPP films - Global demand outstrips supply
In FY2010, BOPP demand was estimated Over FY2008-10 there was scarce supply of BOPP films the world over. In the last two
at 6,648,000tpa, while supply was only years particularly due to the economic meltdown, the BOPP market faced a setback
6,046,000tpa, a shortfall of nearly 10% with many manufacturers shutting down plants aggravating the situation. In FY2010,
BOPP demand was estimated at 6,648,000 tonnes per annum (tpa), while supply was
only 6,046,000tpa, a shortfall of nearly 10%. Going ahead, the demand for BOPP is
expected to be strong and grow by 8% pa globally and around 15% in developing
nations such as China, India, Indonesia, etc.
Exhibit 4: BOPP supply constrained (kilo tonnes)
7,000 6,648
6,156 6,046
6,000 5,700 5,722
5,000
5,000
4,000
3,000
2,000
1,000
0
FY2008 FY2009 FY2010E
Supply Demand
Source: Bruckner, Angel Research
BOPP - Growth drivers
Increasing per capita consumption in developing countries due to higher standard
of living in countries like China, India, South America and etc.
Substitution to other plastic films ie. PE film, LDPE film, Cellophane film, PVC film
and paper. In terms of yield and price per sq. meter, BOPP film is a better alternative.
Higher consumer demand for better sanitation and environment-friendly issues.
July 7, 2010 4
5. Polyplex Corporation | Initiating Coverage
Exhibit 5: World BOPP demand by application
4% 4%
20%
15%
11%
20%
20%
6%
Tape Pasta/Noodle Other Dried Food Confectionery
Other Foods Biscuits/Bakery Tobacco Others
Source: Bruckner, Angel Research
BOPP plant to generate revenues of PCL’s BOPP plant started production in 4QFY2010 and is expected to generate revenues
around Rs219cr at full capacity of around Rs219cr at full capacity. We expect the company to achieve 60% utilisation
in its first year operations on back of strong BOPP demand world over. We estimate
the segment to register Revenues of around Rs175cr and Rs197cr in FY2011E and
FY2012E, respectively.
PET films demand in India to remain strong
Demand for PET films in India is stood at The estimated demand for PET films in India stood at ~2,20,000tpa in FY2009, which
~2,20,000tpa in FY2009, which is is expected to grow by ~16% pa to 346,000tpa by FY2012. To cater to this growing
expected to grow by ~15% pa to demand, PCL increased capacity from 20,000tpa in FY2009 to 51,000tpa in FY2010.
346,000tpa by FY2012E Due to the growing demand for PET films especially in the developing nations, all
major players have planned strategic increase in their capacity, which is estimated to
go on-stream over FY2011-12E. In FY2009, the production capacity in India was
around 290,000tpa, which is expected to grow to ~434,000tpa in FY2012.
With the demand expected to reach around 346,000tpa by FY2012, PET film exports
will remain under pressure due to capacity constraints and is expected to reduce from
the 93,000tpa in FY2007 to 66,000tpa in FY2012E. However, if exports do not reduce
as expected, we believe that there will be an acute shortage of PET films in India,
which will in turn result in prices spurting which inturn help PCL to record better
profitability by taking advantage of the situation.
Exhibit 6: India PET utilisation on rise
Particulars (kilo tonnes) 2002 2007 2012E
Capacity 159 294 434
Production 142 261 403
Exports 71 93 66
Imports 1 2 9
Demand 72 170 346
Capacity Utilisation (%) 89 89 93
Source: PCI Films Consulting, Angel Research
July 7, 2010 5
6. Polyplex Corporation | Initiating Coverage
High capacity utilisation to hold prices
We estimate PCL's PET segment to clock Average capacity utilisation of Indian companies is expected to be around 90-93% on
revenues of around Rs471cr and Rs499cr the back of growing demand over FY2010-12E. We expect PCL's PET Films segment
in FY2011E and FY2012E, respectively to attain 85% capacity utilisation in FY2011E, which is expected to move up to 90% in
FY2012E. Thus, with utilisation levels expected to be high, we expect PET film prices to
remain firm. As a result, we estimate PCL's PET segment to clock revenues of around
Rs471cr and Rs499cr in FY2011E and FY2012E, respectively.
Thailand, Turkey subsidiaries major contributors to revenues
In FY2010, PCL generated 80% of its PCL's subsidiaries in Thailand and Turkey are major contributors to its overall revenues.
consolidated revenues from its units in Currently, PCL is the largest producer of PET films in these countries. In FY2010, PCL
Thailand and Turkey generated 80% of its consolidated revenues from these units.
Thailand
Benign demand-supply scenario for PET films
The demand-supply scenario for PET films in Thailand is unlikely to witness any major
changes in the near term, as demand is expected to grow in line with supply till
FY2012E. For the companies in Thailand engaged in this business, capacity utilisation
is expected to be around 78-80% till FY2012E. Thus, we believe that the PET film
prices are unlikely to fluctuate due to demand-supply mismatch on the back of which
we expect the companies to maintain their profitability.
Exhibit 7: Thailand - Capacity utilisation to remain stable
Particulars (kilo tonnes) 2002 2007 2012E
Capacity 16 73 108
Production 14 57 85
Exports 6 32 45
Imports 15 8 4
Demand 23 33 44
Capacity utilisation (%) 90 79 79
Source: PCI Films Consulting Ltd.; Angel Research
In case of Polyplex Thailand (PTL), currently it has capacity of 42,000tpa of PET films
and 11,000tpa of metalised films. Going ahead, we expect the company to generate
around Rs466cr and Rs492cr in FY2011E and FY2012E respectively from these lines.
PTL is also starting a 10,000tpa CPP line in Thailand, which is estimated to generate
around Rs89cr of revenues at full capacity. In CPP we estimate the company to achieve
,
capacity utilisation of 50% in FY2011E and register revenues of around Rs45cr in the
same year. In FY2012E, we expect capacity utilisation to increase to 70% and generate
around Rs62cr revenues from the CPP line.
Exports account for 80% of PTL’s PTL meets the requirements of both the domestic and overseas markets with a focus
standalone sales revenues on exports, which constitutes around 80% of its standalone sales revenues.
July 7, 2010 6
7. Polyplex Corporation | Initiating Coverage
Going ahead, we expect PTL standalone
’s Exhibit 8: PTL - Revenue break-up (Standalone)
operations to register revenues of around Particulars 2008-09
Rs511cr and Rs554cr in FY2011E and Market (%)
FY2012E, respectively
Asia 42
North America 20
Europe 10
Others 9
Total Exports 80
Domestic Sales 20
Total Sales 100
Source: Company, Angel Research
Imports on the rise
In the US, the manufacturers of PET films had filed an anti-dumping petition against
PET imports from China, Brazil, Thailand and UAE. However, the International Trade
Commission's (ITC) final ruling on the matter favoured Thailand, while the following
anti-dumping duty rates were notified against imports from China (3.5 - 76.7%),
Brazil (28.7 - 44.4%) and UAE (4.8%). Thus, going ahead, we expect PTL to increase
its share in the US market on account of being exempt from pay anti-dumping duties
v/s the other players.
Exhibit 9: USA - Imports to increase
Particulars (kilo tonnes) 2002 2007 2012E
Capacity 346 333 347
Production 304 286 290
Exports 30 22 14
Imports 53 80 105
Demand 327 344 381
Capacity utilisation (%) 88 86 84
Imports (as a % to demand) 16 23 28
Source: PCI Films Consulting; Angel Research
Going ahead, we expect the PTL’s standalone operations to register revenues of around
Rs511cr and Rs554cr in FY2011E and FY2012E, respectively.
July 7, 2010 7
8. Polyplex Corporation | Initiating Coverage
Turkey
In Turkey, Polyplex Europa being the PCL has a presence in Turkey through Polyplex Europa, a subsidiary of PTL. The company
largest producer of PET films coupled with is currently the largest producer of PET films in Turkey. The company has built a strong
its excellent geographical reach is position in Western Europe due to lack of capacity in the region along with getting
expected to enhance its capacity around the dumping issues and other duties imposed on India-produced films.
utilisation gradually from 90% in FY2010E
to 100% in FY2012E Exhibit 10: Turkey - Demand-supply scenario of PET films
Particulars (kilo tonnes) 2002 2007 2012E
Capacity - 49 78
Production - 39 63
Exports - 23 42
Imports 13 2 2
Demand 13 18 24
Capacity Utilisation (%) - 80 81
Source: PCI Films Consulting; Angel Research
The packaging sector is expected to grow In Turkey, the major growth drivers in terms of consumption are expected to come
by around 8% pa till FY2012E, while from the Packaging sector, which accounts for nearly two-thirds of the demand. The
demand for PET films is expected to Packaging sector is expected to grow by around 8% pa till FY2012E, while demand
register 7% CAGR over FY2007-12E for PET films is expected to register 7% CAGR over FY2007-12E. Thus, given the
healthy demand- supply scenario we expect the average capacity utilisation levels to
remain high at around 81% till FY2012E. Polyplex Europa being the largest producer
coupled with its excellent geographical reach is expected to enhance its capacity
utilisation gradually from 90% in FY2010E to 100% in FY2012E.
The company currently has capacity of 58,000tpa of PET films and is estimated to
generate around Rs434cr in FY2010E. We expect revenues to post 6% CAGR over
FY2010-12E. In absolute terms, the company is expected to generate around Rs460cr
and Rs483cr in FY2011E and FY2012E, respectively.
The company's exports account for 80% of its total production, with 40% accounted by
its Western Europe customers, 25% by Russia and CIS countries, 15% by the US and
the remainder is exported to the Middle East and Eastern Europe. Polyplex Europa
supplies films for signs, labels and tape release liners to five or six overseas companies.
Global demand for PET films to remain firm
Prior to the economic crisis, the PET film industry faced significant overcapacity issues
in FY2006 and FY2007 globally. Due to over capacity, companies across the globe
registered a drastic decline in profit due to stiff competition in turn denting profit
margins. The global meltdown thereafter aggravated the situation with demand falling
on further reduction in inventory.
PCL too faced tough competition along with falling demand leading to decline in
profit margins from 12.2% in FY2005 to 7.2% and 4.2% in FY2006 and FY2007,
respectively. In 2007, average capacity utilisation for the Thin PET producers globally
stood at around 80%.
July 7, 2010 8
9. Polyplex Corporation | Initiating Coverage
With the ongoing revival in the economy, demand has picked up with the developing
nations registering the highest growth (expected to record 15% growth pa). Going
ahead, the demand and supply situation is expected to move in sync resulting in
average capacity utilisation of 85% for thin films and 80% for thick films in FY2012E
globally leading to better profitability and pricing power for the PET manufacturers.
Exhibit 11: Global capacity utilisation on increasing trend (kilo tonnes)
Total World Supply
Total World Total World Demand
Total World
Region 2002 2007 2012E 2002 2007 2012E
Western Europe Thin 159.0 203.0 218.0 203.7 200.5 232.5
Thick 143.0 99.0 97.0 101.5 92.5 96.5
Total 302.0 302.0 315.0 305.2 293.0 329.0
Eastern Europe Thin 12.7 16.7 28.7 20.8 33.9 44.9
Thick 10.5 2.5 2.5 3.1 2.6 3.8
Total 23.2 19.2 31.2 23.9 36.5 48.7
North America Thin 181.0 188.0 244.0 236.9 273.6 314.6
Thick 165.0 145.0 159.0 137.6 136.4 152.8
Total 346.0 333.0 403.0 374.5 410.0 467.4
Central & South America Thin 17.0 31.0 31.0 28.3 43.1 59.1
Thick 1.0 1.0 1.0 6.1 5.5 5.4
Total 18.0 32.0 32.0 34.4 48.6 64.5
Centra & East Asia Thin 582.0 1,007.0 1,135.5 445.5 657.6 836.0
Thick 253.0 380.0 527.0 229.5 295.9 413.5
Total 835.0 1,387.0 1,662.5 675.0 953.5 1,249.5
South East Asia & Oceanic Thin 235.0 455.0 610.0 152.6 293.9 490.7
Thick 44.0 63.5 83.5 13.0 25.6 36.0
Total 279.0 518.5 693.5 165.6 319.5 526.7
Middle East & Africa Thin - 35.0 156.0 35.9 55.8 79.4
Thick - - 18.0 1.1 1.2 1.6
Total - 35.0 174.0 37.0 57.0 81.0
Total World Thin 1,186.7 1,935.7 2,423.2 1,123.7 1,558.4 2,057.2
Thick 616.5 691.0 888.0 491.9 559.7 709.6
Total 1,803.2 2,626.7 3,311.2 1,615.6 2,118.1 2,766.8
Capacity utilisation (%) Thin 94.7 80.5 84.9
Thick 79.8 81.0 79.9
Total 89.6 80.6 83.6
Source: PCI Films Consulting, Angel Research
July 7, 2010 9
10. Polyplex Corporation | Initiating Coverage
PET films demand growing on back of burgeoning Packaging sector
PCL is currently present in the Thin Films segment with around 76% of its revenues are
derived from the Packaging and Metalising segment and 15% of the revenues derived
from the Industrial segment. Going ahead, the Packaging segment is set to witness
highest demand worldwide with the developing nations leading the pack in terms of
growth. The global Packaging and Metalising segment is expected to register a CAGR
of 9% over FY2007-12E.
Excise, Corporate Tax Exemption benefits
Polyplex Thailand enjoys 100% corporate tax exemptions till FY2012. PCL's new capacity
expansion (PET and BOPP) will also avail 100% corporate tax exemptions till FY2015.
As a result of these exemptions, the company's tax rate would further reduce which will
inturn boost its bottom-line.
Concerns
Higher crude oil prices
PCL's two major raw materials include PTA and MED, which are derivatives of crude
oil. Pertinently, raw material costs account for nearly 55% of the company's total
expenditure. In the short term, prices of PTA and MEG would depend on the demand
and supply of the final products. In the long run however, they would move in line with
the crude price. Thus, an increase in crude oil prices will lead to an increase in the raw
material price. Depending on the demand- supply scenario, PCL may or may not be
able to pass on such increase in prices in turn impacting profitability.
Changes in Anti-Dumping duties
Any change in the Anti-Dumping duties will have a direct impact on PCL as most of
the company's products are exported. A negative change could impact sales and hit
profitability.
July 7, 2010 10
11. Polyplex Corporation | Initiating Coverage
Financial Analysis
Top-line to ramp up in FY2011E on capacity expansion, new lines
Overall, we expect PCL to register 20% Even amidst the economic downturn, PCL on a consolidated basis registered a moderate
CAGR in top-line over FY2010-12E 11.9% yoy growth in sales in FY2009. For 9MFY2010, net sales grew 5.4% yoy to
Rs898cr from Rs852cr in the corresponding period of the previous year. Going ahead,
for in 4QFY2010 we expect sales to come in flat with no capacity addition done
during the year. For FY2010, we expect sales to increase by a modest 7.1% to Rs1,201cr
(Rs1,121cr). However, for FY2011E we expect revenues to grow by a robust 32% yoy
on the back of expansion in the PET films capacity and the company's foray into the
BOPP and CPP films segments. For FY2012E, we expect growth to taper down to a
modest 9.6%. Thus, we expect the company to increase its revenues from Rs1,201cr in
FY2010E to Rs1,581cr and 1,733cr in FY2011E and FY2012E, respectively. After
FY2010E volume growth will be mainly driven by the new PET film capacity and BOPP
line in India as well as the CPP line in Thailand. Overall, we expect top-line to register
20% CAGR over FY2010-12E.
Exhibit 12: Strong growth in revenues in FY2011E
2,000
1,800 1,733
%
32 1,581
1,600
1,400
1,201
(Rs cr)
1,200 1,121
1,001
1,000
767
800
600 531
400
200
-
FY2006 FY2007 FY2008 FY2009 FY2010E FY2011E FY2012E
Source: Company, Angel Research
Operating margins
We expect PCL to register modest increase Operating profit margins (OPM) improved by 4.2% yoy to 21% in FY2009 largely due
in OPM to 18.5% and 19.0% in FY2011E to the decline in raw material costs. Total manufacturing expenses in FY2009 fell by
and FY2012E respectively, on the back 8% yoy to 61% of net sales v/s 69% in FY2008. For 9MFY2010, OPM fell by a marginal
of better demand and increasing 4% yoy to 18% on the back of increase in stock adjustments and other expenses. For
utilisation 4QFY2010E, we expect margins to remain flat on a qoq basis. Overall, for FY2010E
we expect PCL to register OPM of around 18.2%. Going ahead, we expect the company
to register modest increase in margins to 18.5% and 19.0% in FY2011E and FY2012E
respectively, on the back of better demand and increasing utilisation. We estimate the
company to record EBITDA of around Rs219cr (Rs235cr) in FY2010E, which is expected
to increase to Rs293cr and Rs330cr in FY2011E and FY2012E respectively, mainly
owing to increase in revenues.
July 7, 2010 11
12. Polyplex Corporation | Initiating Coverage
Exhibit 13: OPM to remain stable
350 330 25
293
300
20
250 235
219
200 15
(Rs cr)
168
(%)
150
10
86 93
100
5
50
- 0
FY2006 FY2007 FY2008 FY2009 FY2010E FY2011E FY2012E
Operating Profit Margin
Source: Company, Angel Research
Net profit to register secular growth
We estimate net profit of around Rs129cr In FY2009, increase in OPM was offset by higher depreciation, interest and tax costs
and Rs155cr in FY2011E and FY2012E, during the year. Depreciation increased by 157% yoy to Rs54cr (Rs21cr) in FY2009,
respectively while interest cost spiked by 82% yoy to Rs35cr (Rs19cr) mainly due to higher gross
block and debt resulting from capacity expansion. Hence, net profit remained flat at
at Rs110cr in FY2009, with net profit margin at a mere 10%. For 9MFY2010, net
profit fell by 56.3% yoy largely because of the increase in overall expenditure and tax
expenses, which increased by 146% to Rs25cr (Rs10cr). For FY2010E, we expect net
profit margin to be around 6.0% at Rs72cr after minority interest. For FY2011E and
FY2012E, we expect a gradual increase in net profit margin to around 8.2% and 9.0%
respectively, on the back of lower interest cost and increasing OPM. In absolute terms,
we estimate net profit of around Rs129cr and Rs154cr in FY2011E and FY2012E,
respectively.
Exhibit 14: Net profit to improve
180 12
160 154
10
140 129
120 110 8
100
(Rs cr)
100
(%)
6
80 72
60 4
38
40 32
2
20
- 0
FY2006 FY2007 FY2008 FY2009 FY2010E FY2011E FY2012E
Net Profit Margin
Source: Company, Angel Research
July 7, 2010 12
13. Polyplex Corporation | Initiating Coverage
Company Background
PCL, headquarter located in Nodia in Uttar Pardesh, is the world's fourth largest
manufacturer of thin polyester (PET) films. The company has three manufacturing
facilities one located at Khatima in Uttarakhand, another at Rayong province in Thailand
owned and operated by subsidiary PTL and the recent facility at Çorlu in Turkey, which
is owned and operated by Polyplex Europa Polyester Film San. ve Tic. A.S. (PE), a
wholly-owned subsidiary of PTL.
PCL has established itself as one of the most profitable producers of PET films globally
on account of having cost-efficient operations resulting from high productivity and
low overheads. The company's products have gained wide acceptance in the global
markets such as USA, Europe, South-East Asia, South America and Australia. The
company has a dynamic workforce of more than 347 employees in India, more than
295 employees in Thailand and more than 228 employees in Turkey. With its planned
expansion in India, Polyplex capacity has reached 147,000tpa of PET film; 187,700tpa
of PET chips; 42,500tpa of metalliser; 35,000tpa of BOPP; 10,000tpa of CPP and
310mn sqm of coating. With its planned capacity expansion of PET films in Thailand
by 2010, PCL is set to emerge the third largest PET producer in the world.
Subsidiary background
Polyplex (Asia) Pte. Ltd. (PAPL)
PAPL was established as a 100% subsidiary of PCL in July, 2004 and is now a major
shareholder of PTL. PAPL was incorporated as an investment vehicle of PCL for its
overseas investments (including PTL). The issued and paid up capital of PAPL as of
March 31, 2009 stands at USD 1.59 million.
Polyplex Thailand (PTL)
Polyplex (Thailand) Plc. (PTL) was incorporated as a private company on March 26,
2002 with an initial registered capital of Bt. 400,000 to manufacture and distribute
PET film (polyethylene terephthalate film or PET film). The Company was promoted by
Polyplex Corporation Limited (PCL). The registered capital of the Company was
subsequently increased to Bt. 400 million in April/May, 2002. In August 2004, the
Company was transformed into a Public Company and the IPO was subsequently
made in December 2004. As on date, PCL has 70%stake in the Company through
both direct and indirect shareholding and the balance 30% is with the general public.
Polyplex (Singapore) Pte. Ltd. (PSPL)
As Thailand and Turkey did not have an effective Double Taxation Avoidance Agreement
(DTAA), PTL decided to set up its wholly owned investment holding company in
Singapore to invest in the PET film manufacturing factory in Turkey so as to serve the
demand in European and other proximate markets. During the financial year 2008-
09, PTL has invested USD 3.5 million in the Preference Shares of PSPL. The issued and
paid up capital of PSPL as of March 31, 2009 stands at Euro 44.85 million.
July 7, 2010 13
14. Polyplex Corporation | Initiating Coverage
Polyplex Europa Polyester Film Sanayi Ve Ticaret Anonim Srketi (PE)
PSPL had incorporated a 100% owned subsidiary company, PE in Turkey for operation
of Greenfield polyester film plant for export to European and other proximate markets.
The commercial operations had started in December, 2005 with the start up of the
first thin PET film line. The first Metallizer plant had started production in March,
2006. The PET resin plant commenced commercial production from December, 2006.
The second thin PET film line and Metallized Film line commenced commercial
production in May2008.The issued and paid up capital of PE as of March 31, 2009
stands at Euro 4.04 million.
Polyplex (Americas) Inc.
PTL had acquired 80.24% equity stake in Spectrum Marketing Inc. (since renamed as
Polyplex (Americas) Inc) with effect from January 1, 2006 to enhance its distribution
network in the North American market. PCL, PTL's parent company also has a 9.88%
stake while the balance 9.88% is held by a foreign US-based shareholder. During the
financial year 2008-09, PTL invested USD 4 million in PA's Redeemable Preference
Shares, in order to finance PA's working capital requirement. The issued and paid up
capital of PA as of March 31, 2009 stands at USD 5.425 million.
Applications: CPP films and packaging
CPP films are used in household paper packing, stationery packaging, portfolios and
food packaging. In stationery industry, they are used for photo albums and page
protectors. They are used as a lamination layer, both as sealant and as heat resistant
layer and in the pressure sensitive industry for adhesive coating and diaper closures.
Also used as anti-leak layer for diapers, material for automatic packing of electrical
and hardware products and covering films for audio and video cassettes, CDs and
DVD cases. Ideal for textile industry for packaging of hosiery, socks, shirts; for floral
wraps as sleeves and sheets for cut flowers, pots, dried flowers; food industry for
packaging of bread, vegetables, and candies. Various packaging products made from
these films are:
Packaging rolls
Packaging pouch
Packaging bags
Food packaging laminates
Dairy packaging
Cosmetic packaging
Pharma packaging materials
July 7, 2010 14
19. Polyplex Corporation
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Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section).
Disclosure of Interest Statement Polyplex Corporation
1. Analyst ownership of the stock No
2. Angel and its Group companies ownership of the stock Yes
3. Angel and its Group companies' Directors ownership of the stock No
4. Broking relationship with company covered No
Note: We have not considered any Exposure below Rs 1 lakh for Angel, its Group companies and Directors.
Ratings (Returns) : Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)
Reduce (-5% to -15%) Sell (< -15%)
20. Polyplex Corporation
Address: Acme Plaza, ‘A’ Wing, 3rd Floor, M.V. Road, Opp. Sangam Cinema, Andheri (E), Mumbai - 400 059.
Tel : (022) 3952 4568 / 4040 3800
Research Team
Fundamental:
Sarabjit Kour Nangra VP-Research, Pharmaceutical sarabjit@angeltrade.com
Vaibhav Agrawal VP-Research, Banking vaibhav.agrawal@angeltrade.com
Vaishali Jajoo Automobile vaishali.jajoo@angeltrade.com
Shailesh Kanani Infrastructure, Real Estate shailesh.kanani@angeltrade.com
Anand Shah FMCG , Media anand.shah@angeltrade.com
Deepak Pareek Oil & Gas deepak.pareek@angeltrade.com
Sushant Dalmia Pharmaceutical sushant.dalmia@angeltrade.com
Rupesh Sankhe Cement, Power rupeshd.sankhe@angeltrade.com
Param Desai Real Estate, Logistics, Shipping paramv.desai@angeltrade.com
Sageraj Bariya Fertiliser, Mid-cap sageraj.bariya@angeltrade.com
Viraj Nadkarni Retail, Hotels, Mid-cap virajm.nadkarni@angeltrade.com
Paresh Jain Metals & Mining pareshn.jain@angeltrade.com
Amit Rane Banking amitn.rane@angeltrade.com
Jai Sharda Mid-cap jai.sharda@angeltrade.com
Sharan Lillaney Mid-cap sharanb.lillaney@angeltrade.com
Amit Vora Research Associate (Oil & Gas) amit.vora@angeltrade.com
V Srinivasan Research Associate (Cement, Power) v.srinivasan@angeltrade.com
Aniruddha Mate Research Associate (Infra, Real Estate) aniruddha.mate@angeltrade.com
Mihir Salot Research Associate (Logistics, Shipping) mihirr.salot@angeltrade.com
Chitrangda Kapur Research Associate (FMCG, Media) chitrangdar.kapur@angeltrade.com
Vibha Salvi Research Associate (IT, Telecom) vibhas.salvi@angeltrade.com
Pooja Jain Research Associate (Metals & Mining) pooja.j@angeltrade.com
Technicals:
Shardul Kulkarni Sr. Technical Analyst shardul.kulkarni@angeltrade.com
Mileen Vasudeo Technical Analyst vasudeo.kamalakant@angeltrade.com
Derivatives:
Siddarth Bhamre Head - Derivatives siddarth.bhamre@angeltrade.com
Jaya Agarwal Derivative Analyst jaya.agarwal@angeltrade.com
Sandeep Patil Jr. Derivative Analyst patil.sandeep@angeltrade.com
Institutional Sales Team:
Mayuresh Joshi VP - Institutional Sales mayuresh.joshi@angeltrade.com
Abhimanyu Sofat AVP - Institutional Sales abhimanyu.sofat@angeltrade.com
Nitesh Jalan Sr. Manager niteshk.jalan@angeltrade.com
Pranav Modi Sr. Manager pranavs.modi@angeltrade.com
Sandeep Jangir Sr. Manager sandeepp.jangir@angeltrade.com
Ganesh Iyer Sr. Manager ganeshb.Iyer@angeltrade.com
Jay Harsora Sr. Dealer jayr.harsora@angeltrade.com
Meenakshi Chavan Dealer meenakshis.chavan@angeltrade.com
Gaurang Tisani Dealer gaurangp.tisani@angeltrade.com
Production Team:
Bharathi Shetty Research Editor bharathi.shetty@angeltrade.com
Bharat Patil Production bharat.patil@angeltrade.com
Dilip Patel Production dilipm.patel@angeltrade.com
Angel Broking Ltd: BSE Sebi Regn No : INB 010996539 / CDSL Regn No: IN - DP - CDSL - 234 - 2004 / PMS Regn Code: PM/INP000001546 Angel Securities Ltd:BSE: INB010994639/INF010994639 NSE: INB230994635/INF230994635 Membership numbers: BSE 028/NSE:09946
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