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-18 2904 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 1904.9 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 500148 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. 2247 Free Float (%) 56.0% 52- wk HI/Lo (Rs) 507/265 Avg. volume BSE + NSE (Qrly) 176560 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% 600 400 200 Shareholding Pattern Jun 18 Promoters Holding 44.0% Institutional (Incl. FII) 11.1% Corporate Bodies 11.0% Public & others 33.9% Runjhun Jain (+91 22 6273 8177) Sr. Research Analyst runjhun.jain@nirmalbang.com Dnyanada K. Vaidya (+91 22 6273 8186) 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 6156.7 2.0% 874.3 14.2% 348.5 5.7% 48.3 6.5 9.6% FY18A 6786.5 10.2% 879.4 13.0% 310.5 4.6% 43.0 7.3 7.8% FY19E 7417.1 9.3% 993.9 13.4% 395.5 5.3% 54.8 5.7 9.1% FY20E 8341.0 12.5% 1166.9 14.0% 533.4 6.4% 73.9 4.2 11.0% 1
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.1904.9 Cr vs. Rs. 1622.6 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. 150-200 Cr till the end of FY19. Fig 1. - Packaging Business Volume Growth (YoY) Fig 2. - Films Business Volumes Growth (YoY) 2
Financials (Consolidated) Profit & Loss FY17A FY18A FY19E FY20E Balance Sheet FY17A FY18A FY19E FY20E Net Sales 6156.7 6786.5 7417.1 8341.0 Property and CWIP 3858.4 3917.8 3880.5 3960.6 % change 2.0% 10.2% 9.3% 12.5% Total Investments 34.1 43.7 43.7 43.7 EBITDA 874.3 879.4 993.9 1166.9 Oth Non CA 210.1 196.4 308.8 309.8 EBITDA margin 14.2% 13.0% 13.4% 14.0% Inventories 678.6 796.8 927.1 1042.6 Depn & Amort 317.5 351.6 362.1 385.0 Debtors 1659.0 1939.0 2183.9 2502.3 Operating income 556.8 527.8 631.7 781.9 Cash & Bank 296.3 315.5 402.5 407.1 Interest 186.8 197.1 182.9 168.9 Current Tax Assets 0.0 0.0 0.0 0.0 Other Income 20.5 20.0 22.0 22.0 Other Current Assets 368.7 435.5 431.7 433.7 PBT 390.4 350.7 470.9 635.0 Total Assets 7148.6 7688.2 8221.7 8743.2 Tax 43.8 41.7 75.3 101.6 Total Equity 3628.8 3974.7 4354.2 4862.3 MI & EO -1.8-1.5 0.0 0.0 Non Controlling Int. 15.2 4.9 4.9 4.9 PAT 348.5 310.5 395.5 533.4 Total Borrowings 2102.1 2079.4 2009.5 1856.5 PAT margin (%) 5.7% 4.6% 5.3% 6.4% Total Provisions 30.8 32.2 32.2 32.2 Sh o/s - Diluted 7.2 7.2 7.2 7.2 Other Non CL 129.8 132.6 132.6 132.6 Adj EPS 48.3 43.0 54.8 73.9 Trade Payables 957.3 1196.4 1318.6 1482.8 Cash EPS 92.2 91.7 104.9 127.2 Current Tax Liabilitie 35.4 18.5 18.5 18.5 Qtrly-Consol Sept.17 Dec.17 Mar.18 Jun.18 Other CL 244.4 243.8 345.7 347.7 Revenue 1593.3 1674.4 1811.6 1904.9 Total Eq. & Liabilities 7148.6 7688.2 8221.7 8743.2 EBITDA 229.7 194.4 223.5 247.7 Cash Flow FY17A FY18A FY19E FY20E Dep & Amorz 84.5 91.2 92.6 92.1 EBITDA 874.3 879.4 993.9 1166.9 Op Income 145.2 103.2 130.9 155.6 Change in WC 119.1-225.3-259.8-270.6 Interest 43.8 56.9 51.3 53.4 Tax -43.8-41.7-75.3-101.6 Other Inc. 5.8 5.3 5.0 6.1 CF from Operation 949.7 612.4 658.7 794.7 PBT 107.3 51.6 84.6 108.3 Capex -627.3-275.3-324.8-465.0 Tax 13.6 0.0 13.9 15.3 Oth Inc & Investmen 21.9 10.3 22.0 22.0 EO -0.6-0.4-0.5-1.1 CF from Investing -605.3-265.0-302.8-443.0 PAT 94.3 52.0 71.1 94.1 Financing EPS (Rs.) 13.1 7.2 9.9 13.0 Diviend Paid -27.8-30.4-14.4-25.3 Performance Ratio FY17A FY18A FY19E FY20E Share Capital 0.0 0.0 0.0 0.0 EBITDA margin(%) 14.2% 13.0% 13.4% 14.0% Loans -37.4-22.7-69.9-153.0 EBIT margin (%) 9.0% 7.8% 8.5% 9.4% Interest -186.8-197.1-182.9-168.9 PAT margin (%) 5.7% 4.6% 5.3% 6.4% Others -184.0-78.0-1.7 0.2 ROE (%) 9.6% 7.8% 9.1% 11.0% CF from Financing -435.9-328.2-268.9-347.0 ROCE (%) 9.7% 8.7% 9.9% 11.6% Net Chg. in Cash -91.6 19.2 86.9 4.7 PAT growth (%) 11.0% -10.9% 27.4% 34.9% Cash at beginning 387.9 296.3 315.5 402.5 Debt/Equity (x) 0.6 0.5 0.5 0.4 Cash at end 296.3 315.5 402.5 407.1 Valuation Ratio FY17A FY18A FY19E FY20E Per Share Data FY17A FY18A FY19E FY20E PE (x) 6.5 7.3 5.7 4.2 Adj EPS 48.3 43.0 54.8 73.9 Price/BV (x) 0.6 0.6 0.5 0.5 BV per share 502.5 550.4 603.0 673.3 EV / Sales 0.7 0.6 0.5 0.4 Cash per share 41.0 43.7 55.7 56.4 EV / EBITDA 4.6 4.6 3.9 3.2 Dividend per share 3.9 4.2 2.0 3.5 3
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