Management Meet Note Rating Matrix Rating : Unrated Target : NA Target Period : NA Potential Upside : NA Key Financials Crore Net Sales 2.2 139.7 157.9 182.6 EBITDA 9.8 12.6 15.3 19.7 Net Profit 3.3 3.2 4.3 6.0 EPS ( ) 2.0 1.8 2.4 3.4 Valuation Summary P/E 40.2 43.8 32.9 23.6 EV / EBITDA 19.1 15.9 13.7 11.1 P/BV 2.6 2.6 2.4 2.2 RoNW (%) 6.5 5.9 7.4 9.5 RoCE (%) 8.2 8.6 9.5 11.5 Stock Data Particular Amount Market Capitalization 142 crore Total Debt (FY15) 81 crore Cash and Investments (FY15) 3.3 crore EV 219 crore 52 week H/L 96 / 13 Equity capital 17.7 crore Face value.0 MF Holding (%) 0.0 FII Holding (%) 0.0 Price Performance 1M 3M 6M 12M Emmbi Industries 17.0 145.1 296.5 511.4 Kanpur Plastipack 62.5 63.9 194.9 194.5 Neocorp International (11.9) (15.9) 12.2 (19.7) Flexituff International (15.8) (16.3) (20.8) (.0) Price Movement,000 8,000 6,000 4,000 2,000 Jan13 May13 Research Analysts Oct13 Feb14 Price (R.H.S) Chirag J Shah shah.chirag@icicisecurities.com Jun14 Nov14 Shashank Kanodia shashank.kanodia@icicisecurities.com Mar15 Jul15 Nifty (L.H.S) Dec15 0 80 60 40 20 0 Moving up the value chain... December 23, 2015 We recently met Makrand Appalwar, Chairman & Managing Director of Emmbi Industries (Emmbi), to get an insight into the domestic flexible intermediate bulk container (FIBC) market, the company s role in the entire value chain and innovation drivers at Emmbi. Emmbi is a leading FIBC player domestically with manufacturing capability in FIBCs capable of handling load in the range of 5003500 kg, which are in generalised and specialised category. In the specialised category (advance composites), Emmbi manufactures FIBCs, which are anti corrosive, anti carcinogenic, tamper proof, etc. The company also manufactures polypropylene based water tanks, canal liners and agri products viz. crop covers, shade nets, etc. The current capacity of Emmbi is 18200 metric tonnes. The company operated at 68% utilisation levels in FY15. In FY1215, sales grew at 21.3% CAGR to 183 crore in FY15. PAT grew at 22.3% CAGR in FY1215 to 6 crore in FY15 primarily on the back of 120 bps expansion in EBITDA margin to.8% in FY15. Going forward, on the back of increasing share of valueadded products viz. advance composites and water tanks amid increasing government focus on water conservation, Emmbi is on a strong footing with robust prospects, going forward. New products: Innovating to the core Emmbi is a pioneer in the art of innovation. It has over a period of time launched innovative products suiting the market dynamics. Emmbi was the first to introduce flexible water tanks (patent registered), which was a huge success in the domestic market, particularly Maharashtra. In FY15; sales comprised speciality packaging (FIBCs; 47.8% of sales, 9.5% EBITDA margins), advance composites (FIBCs + functionality; 35.5% of sales, 11% EBITDA margins), water conservation products (tanks, liners, 14.5% of sales, 15% EBITDA margins) and agri products (nets, irrigation systems, 2.3% of sales, 16% EBITDA margins). High working capital, geared balance sheet!!! In FY15, gross sales were at 192 crore, comprising domestic sales ( 90 crore, 47% share) and exports ( 2 crore, 53% share). Thus, by virtue of having a large proportion of export sales, Emmbi has an elongated working capital with net working capital days as of FY15 at 171 days. The company also has a leveraged balance sheet with debt as of FY15 at 81 crore with consequent debt: equity at 1.3x. However, with increasing share of high margin valueadded products (advance composites and water conservation products) and the management s focus on controlling the working capital cycle, the leverage should decline, going forward. This would also lead to an improvement in EBITDA margins with consequent earnings growth over FY1518E. Exhibit 1: Financial Performance Crore FY12 FY13 FY14 FY15 H1FY16 Net Sales 2.2 139.7 157.9 182.6 98.0 EBITDA 9.8 12.6 15.3 19.7 11.8 Net Profit 3.3 3.2 4.3 6.0 4.4 EPS ( ) 2.0 1.8 2.4 3.4 2.5 P/E 40 44 33 24 NA EV / EBITDA 19.1 15.9 13.7 11.1 NA P/BV 2.6 2.6 2.4 2.2 NA RoNW (%) 6.5 5.9 7.4 9.5 NA RoCE (%) 8.2 8.6 9.5 11.5 NA Emmbi Industries (EMMPOL) 85 ICICI Securities Ltd Retail Equity Research
Key financials Revenues have grown at 21.3% CAGR in FY1215 to 182.6 crore in FY15 ( 2.2 crore in FY12). Revenues can be subdivided into domestic (gross sales in FY15 at 90 crore) and exports (gross sales in FY15 at 2 crore). The manufactured goods sales in FY15 came in at 173 crore while traded goods sales in FY15 were at 18 crore. Exhibit 2: Revenue trend; grows at CAGR of 21.3% in FY1215 200 182.6 150 139.7 157.9 0 2.2 50 Exhibit 3: Revenue bifurcation (manufactured, traded & services) 250 200 Export sales have increased at a CAGR of 26.5% in FY1215 to 2 crore in FY15. Domestic sales have grown a tad lower at a CAGR of 18.1% in FY1215 to 90 crore in FY15 150 0 50 89.7 80.2 84.6 54.5 50.4 62.4 86.7 2.0 Exports Domestic Exhibit 4: Revenue bifurcation (product type) Sales can be bifurcated depending on the product type; speciality packaging ( 87 crore, 47% share in FY15 sales), advance composites ( 65 crore, 36% share in FY15 sales), water conservation products ( 27 crore. 15% share in FY15 sales) and agri products ( 4 crore, 25 share in FY15 sales) Water Conservation Products, 26.5, 15% Agri Products, 4.1, 2% Speciality Packaging, 87.2, 47% Advance Composites, 64.8, 36% ICICI Securities Ltd Retail Equity Research Page 2
Exhibit 5: EBITDA & EBITDA margins (EBITDA grows at CAGR of 26.3% in FY1215) 25 20.8 11 11 Operational efficiencies and increasing share of valueadded products is driving the improvement in EBITDA margins. EBITDA margins have improved 120 bps in FY1215 with FY15 EBITDA margins at.8% vs. 9.6% in FY12 15 5 9.8 9.6 12.6 9.0 15.3 9.7 19.7 9 9 % 8 EBITDA (LHS) EBITDA Margin (RHS) Though subdued, the return ratios are seeing an uptick. The RoCE has improved from 8.2% in FY12 to 11.5% in FY15. RoE, on the other hand, has improved from 6.5% in FY12 to 9.5% in FY15. Exhibit 6: RoCE & RoE trend Exhibit 7: PAT grows at CAGR of 22.3% in FY1215 % 14 12 8 6 4 2 11.5 9.5 8.2 8.6 9.5 7.4 6.5 5.9 RoNW (%) RoCE (%) 8 6 4 2 3.4 2.4 2.0 1.8 3.3 3.2 4.3 6.0 Net Profit EPS ( ) 4 3 2 1 /share PAT has grown at a CAGR of 22.3% in FY1215 to 6.0 crore in FY15. EPS in FY15 was at 3.4/share. Exhibit 8: Net working capital days 175 170 167 175 171 Net working capital days are a bit stretched at ~170 days due to the higher proportion of exports in the total sales mix. Exports: domestic sales mix in FY15 was at 53:47 days 165 160 158 155 150 NWC Days ICICI Securities Ltd Retail Equity Research Page 3
Exhibit 9: Product profile Speciality Packaging Advance Composites Water Conservation Products Agri Products ICICI Securities Ltd Retail Equity Research Page 4
Financial summary Profit and loss statement Crore (Yearend March) FY12 FY13 FY14 FY15 Net Sales 2.2 139.7 157.9 182.6 Other Operating Income 0.0 0.5 1.1 1.2 Total Operating Income 2.2 140.2 159.0 183.8 Growth (%) 37.2 13.4 15.6 Raw Material Expenses 70.6 0.1 1.7 130.3 Employee Expenses 6.0 6.1 5.5 6.2 Other Operating Expense 15.9 21.4 27.5 27.6 Total Operating Expenditure 92.4 127.6 143.7 164.1 EBITDA 9.8 12.6 15.3 19.7 Growth (%) 28.8 21.7 28.4 Depreciation 1.7 2.5 2.9 3.1 Interest 3.2 5.3 6.3 8.9 Other Income 0.1 0.0 0.1 0.6 PBT 5.0 4.8 6.2 8.3 Exceptional Item 0.0 0.0 0.0 0.0 Total Tax 1.7 1.6 1.9 2.3 PAT 3.3 3.2 4.3 6.0 Growth (%) 1.5 33.0 39.5 EPS ( ) 2.0 1.8 2.4 3.4 Cash flow statement Crore (Yearend March) FY12 FY13 FY14 FY15 Profit after Tax 3.3 3.2 4.3 6.0 Add: Depreciation 1.7 2.5 2.9 3.1 (Inc)/dec in Current Assets 14.7 16.9 9.6 8.9 Inc/(dec) in CL and Provisions 2.2 3.1 0.6 1.7 Others 3.2 5.3 6.3 8.9 CF from operating activities 4.4 2.8 3.3 7.4 (Inc)/dec in Investments 0.1 0.0 0.0 0.0 (Inc)/dec in Fixed Assets 11.8 6.9 7.3 6.7 Others 0.7 0.6 0.6 0.7 CF from investing activities 11.0 6.3 6.7 6.0 Issue/(Buy back) of Equity 0.0 1.2 0.0 0.0 Inc/(dec) in loan funds 16.5 13.3.0 11.3 Dividend paid & dividend tax 0.6 0.4 0.5 0.6 Inc/(dec) in Share Cap 0.8 0.8 0.0 0.0 Others 3.2 4.6 6.3 9.0 CF from financing activities 13.5 8.7 3.2 1.7 Net Cash flow 2.0 0.4 0.2 3.1 Opening Cash 2.7 0.8 0.4 0.2 Closing Cash 0.8 0.4 0.2 3.3 Balance sheet Crore (Yearend March) FY12 FY13 FY14 FY15 Liabilities Equity Capital 16.5 17.7 17.7 17.7 Reserve and Surplus 33.1 36.7 40.5 45.7 Total Shareholders funds 50.4 54.4 58.2 63.4 Total Debt 46.0 59.3 69.3 80.6 Deferred Tax Liability 3.1 3.7 4.3 5.0 Total Liabilities 99.5 117.4 131.8 149.0 Assets Gross Block 46.1 56.5 63.9 70.0 Less: Acc Depreciation 6.6 9.0 12.0 14.6 Net Block 39.5 47.5 51.9 55.5 Capital WIP 3.6 0.0 0.0 0.0 Total Fixed Assets 43.1 47.5 51.9 55.5 Liquid Investments 0.0 0.0 0.0 0.0 Other Investments 0.3 0.3 0.3 0.3 Inventory 29.4 40.6 48.6 54.7 Debtors 20.4 25.6 31.2 33.4 Loans and Advances 12.2 12.8 8.8 9.2 Other Current Assets 0.0 0.0 0.0 0.0 Cash 0.8 0.4 0.2 3.3 Total Current Assets 62.8 79.3 88.7 0.7 Creditors 3.1 5.7 4.2 2.6 Provisions 3.5 4.0 4.9 4.8 Current Liabilities & Prov 6.6 9.7 9.1 7.4 Net Current Assets 56.2 69.6 79.6 93.3 Application of Funds 99.5 117.4 131.8 149.0 Key ratios (Yearend March) FY12 FY13 FY14 FY15 Per share data ( ) EPS 2.0 1.8 2.4 3.4 Cash EPS 3.0 3.2 4.1 5.1 BV 30.5 30.7 32.9 35.8 DPS 0.4 0.2 0.3 0.4 Cash Per Share (Incl Invst) 0.5 0.2 0.1 1.9 Operating Ratios (%) EBITDA Margin 9.6 9.0 9.6.7 PBT / Total Op. income 4.9 3.4 3.9 4.5 PAT Margin 3.2 2.3 2.7 3.3 Inventory days 5 6 112 9 Debtor days 73 67 72 67 Creditor days 11 15 5 Return Ratios (%) RoE 6.5 5.9 7.4 9.5 RoCE 8.2 8.6 9.5 11.5 RoIC 8.5 8.6 9.5 11.4 Valuation Ratios (x) P/E 40.2 43.8 32.9 23.6 EV / EBITDA 19.1 15.9 13.7 11.1 EV / Net Sales 1.8 1.4 1.3 1.2 Market Cap / Sales 1.4 1.0 0.9 0.8 Price to Book Value 2.6 2.6 2.4 2.2 Solvency Ratios Debt/EBITDA 4.7 4.7 4.5 4.1 Debt / Equity 0.9 1.1 1.2 1.3 Current Ratio 9.4 8.1 9.7 13.2 Quick Ratio 4.9 4.0 4.4 5.8 ICICI Securities Ltd Retail Equity Research Page 5
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