Consolidated Sales (Cr) Growth EBITDA (Cr) Margin PAT Margin EPS (Rs) P/E RoE

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1 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug Recommendation CMP Target Price BUY Rs. 312 Rs. 443 Better times ahead! reported a good set of numbers in Q1FY19. Sales for the quarter increase by 17.4% YoY to Rs Cr. During the quarter, the company witnessed a strong overall sales volume growth of 14.9% YoY, with packaging Sector Plastic business volumes growing 11% and film volumes growing at 15.9% YoY. The management has maintained its guidance for double digit overall sales volumes Stock Details growth in FY19 with improved margins of 15%, given the stability in crude prices. BSE Code EBITDA margins saw a dip from 14.3% in Q1FY18 to 13% in Q1FY19 and remained NSE Code Bloomberg Code UFLEX UFLX IN flat on a QoQ basis. The negative impact on EBITDA margins was primarily because of a sharp spike in crude oil prices squeezing the packaging business margins. PAT in Q1FY19 was at Rs. 94.1Cr with PAT Margins higher by 1% QoQ. Market Cap (Rs cr) Rs Free Float (%) 56.0% 52- wk HI/Lo (Rs) 507/265 Avg. volume BSE + NSE (Qrly) Face Value Rs. 10 Dividend (FY 18) 20% Shares o/s (Cr) 7.2 Relative Performance 1Mth 3Mth 1Yr Uflex 21.6% 2.2% -26.4% Sensex 3.7% 6.4% 18.5% Shareholding Pattern Jun 18 Promoters Holding 44.0% Institutional (Incl. FII) 11.1% Corporate Bodies 11.0% Public & others 33.9% Runjhun Jain ( ) Sr. Research Analyst runjhun.jain@nirmalbang.com Dnyanada K. Vaidya ( ) Research Associate dnyanada.vaidya@nirmalbang.com Key Highlights Aseptic Packaging: The company is seeing good traction and currently serves 20 customers vs. 12 in Q4FY18. The plant is currently running at 20-25% capacity utilization, and the management is taking efforts to rope in large clients. Though the company does not see any pricing pressure, however there could be a lag of 1-2 quarters, to achieve targeted revenue of Rs. 350Cr. The company witnessed a pressure on the standalone packaging business margin due to a sharp spike in crude prices, which it could not pass on to the customers. However, it is likely to get normalized in Q2 and with the crude prices stabilizing, there would be an improvement in margins. The BOPET industry continuous to see an improvement with respect to both demand and margins. The company realized margins of Rs. 50/kg in BOPET films vs. Rs. 32/kg in Q1FY18 and believes to add another Rs. 3-4/kg to the margins going ahead. Higher demand has resulted in a healthy order book for the company. The BOPP industry is facing margin pressures and constitutes a small portion of Uflex s product portfolio. The management believes this will not significantly affect its margins going ahead. The company had taken up expansion of the holographic line in Jammu incurring a capex of ~Rs. 150 Cr, which is likely be completed by Q2FY19. The management expects the line to add ~Rs. 200 Cr to the top line with a margin of 25-30%. Valuation & Recommendation We expect Uflex s revenues to grow at 11.5% CAGR from FY18-20E and EBITDA to grow at 16.6% during the same period. PAT is expected to grow at 30.5% CAGR during the same period. ROE is expected to improve from 7.8% in FY18 to 11.0% in FY20E and ROCE shall improve from 8.7% in FY18 to 11.6% in FY20E. We have valued the company on EV/EBITDA basis, as we believe that packaging business deserves a higher multiple than the commoditized film business. We have valued Packaging business incl. Aseptic at 6x EV/EBITDA on FY19E EBITDA and the films business at 4.5x on FY19E earnings and arrived at a target of INR 443, which implies 42% upside from current levels. We maintain BUY rating on the stock. Consolidated Sales (Cr) Growth EBITDA (Cr) Margin PAT Margin EPS (Rs) P/E RoE FY17A % % % % FY18A % % % % FY19E % % % % FY20E % % % % 1

2 Quarterly Result The company continues to see a healthy volume growth during the quarter, with Film business registering a stellar growth of 15.9% YoY and the packaging business growing 11% YoY during the quarter. The company expects the growth momentum to continue for the rest of FY19 and have maintained the earlier guidance of overall volume growth of 10% (Packaging volume growth >12% and films business volume growth 6-7%) Revenues for Q1FY19 stood at Rs Cr vs. Rs Cr during Q1FY18, growing at 17.4% YoY. EBITDA Margins during Q1FY19 were subdued on the back of increase in raw material prices and a sharp increase in crude oil prices. EBITDA margins saw a dip from 14.3% in Q1FY18 to 13.0% in Q1FY19, but improved from 12.3% in Q4FY18. The packaging business faced headwinds due to macro-economic factors, such as a sharp rise in crude oil prices by 17% during the quarter. The pressure on the margins is owing to the lag of 1-2 months in passing on the prices to the customer. The management expects the prices to stabilize in the coming quarter and thus improve margins. Interest is expected to decline, as the company is likely to reduce its net debt by Rs Cr till the end of FY19. Fig 1. - Packaging Business Volume Growth (YoY) Fig 2. - Films Business Volumes Growth (YoY) 2

3 Financials (Consolidated) Profit & Loss FY17A FY18A FY19E FY20E Balance Sheet FY17A FY18A FY19E FY20E Net Sales Property and CWIP % change 2.0% 10.2% 9.3% 12.5% Total Investments EBITDA Oth Non CA EBITDA margin 14.2% 13.0% 13.4% 14.0% Inventories Depn & Amort Debtors Operating income Cash & Bank Interest Current Tax Assets Other Income Other Current Assets PBT Total Assets Tax Total Equity MI & EO Non Controlling Int PAT Total Borrowings PAT margin (%) 5.7% 4.6% 5.3% 6.4% Total Provisions Sh o/s - Diluted Other Non CL Adj EPS Trade Payables Cash EPS Current Tax Liabilitie Qtrly-Consol Sept.17 Dec.17 Mar.18 Jun.18 Other CL Revenue Total Eq. & Liabilities EBITDA Cash Flow FY17A FY18A FY19E FY20E Dep & Amorz EBITDA Op Income Change in WC Interest Tax Other Inc CF from Operation PBT Capex Tax Oth Inc & Investmen EO CF from Investing PAT Financing EPS (Rs.) Diviend Paid Performance Ratio FY17A FY18A FY19E FY20E Share Capital EBITDA margin(%) 14.2% 13.0% 13.4% 14.0% Loans EBIT margin (%) 9.0% 7.8% 8.5% 9.4% Interest PAT margin (%) 5.7% 4.6% 5.3% 6.4% Others ROE (%) 9.6% 7.8% 9.1% 11.0% CF from Financing ROCE (%) 9.7% 8.7% 9.9% 11.6% Net Chg. in Cash PAT growth (%) 11.0% -10.9% 27.4% 34.9% Cash at beginning Debt/Equity (x) Cash at end Valuation Ratio FY17A FY18A FY19E FY20E Per Share Data FY17A FY18A FY19E FY20E PE (x) Adj EPS Price/BV (x) BV per share EV / Sales Cash per share EV / EBITDA Dividend per share

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