Prima Plastic Ltd Initial Coverage Report
INITIAL COVERAGE
PRIMA PLASTIC
PRIMA PLASTIC
Market cap-
253cr
CMP- Rs225
Dividend
Last year Rs2.20
52week
price range (Low 101.90; High 259.80)
Debt –Nil
(Rs 11cr cash)
Daily
Volume 5000 shares
Industry Overview
Prima Plastic operates in plastic molded furniture industry.
In this industry organized sector (45%) is distributed among 4players. With
hope of GST being implemented rate of transition from unorganized to organized
is to accelerated cause of level playing field provided to organized players. Industry
is estimated to be around over 2800cr and is expected to grow as India one of
the lowest per capita plastic furniture consumption country in world. Organized
Industry is captured by Nilkamal(35%), Supreme(18%), Wim Plast(12%) followed by Prima Plastic(7%).
Company Profile
Company was incorporated in Mumbai in year 1993. Prima is the 4th largest player in Indian plastic furniture industry having 7% market share. Company has 425 dealers and 5000 distributors. Prima also has its own Research and development division focusing on developing new products. 16% of its revenue comes from exports to USA, Middle East and Africa. Company also has its manufacturing unit in Cameroon producing molded plastic furniture and HDPE woven sack. During FY16 Prima on consolidated basis did annual turnover of 93cr compared to previous year of 85cr registering 10% growth in sales whereas profitability coming at 9.62cr compared to 3.45cr previous year. Company also had an ACP (aluminum composite panel) business unit which they closed down as it was a loss making division for the company; putting pressure on profitability and efficiency ratios and dragging return on capital. More importantly managements focus was on non – core business rather than on core business. By doing so their efficiency and profitability ratio are most likely to shoot north.
Management
The company is run by Dilip and Bhaskar Parekh. They have
more than 25years experience in this industry. They have a history of entering
into non-core business like they did in ACP business. But now closing the
segment it shows they are focused on core plastic molded furniture business with
entering into geography and expansion plan of existing units in India and
Venezuela. Currently they have 59% holding in the business showing their skin
in the game. We have to be careful with their any new business plan (non- core)
going forward.
SWOT Analysis
Strength
1. Regained
Management focus
2. Debt Free
3. 7%market
share
4. Capacity
Expansion
5. Market
leader in Cameroon
Weakness
1. Not hedging
the contracts
2. R&D not
effective
3. Small
product line
4. Brand
awareness low
Opportunity
1. Unorganized
market
2. More
products
3. Shifting to
premium products
4. North and
East India untapped
Threats
1. IKEA
2. Crude Oil
volatility
3. Peers
winning market share
Investment Rationale
Growing Capacity
Currently Prima Plastic has a
capacity of 10000mt in India, 4000mt in central Africa. They are going to do
heavy capex expansion plan with increasing their capacity in India to 11500Mt,
Central Africa to 7000Mt & adding to their geographical position in Central
America of 4000Mt.By this new plant the order execution time of 90days is
expected to come down. A new plant of 1500mt in Andhra Pradesh is being setup
to cater the demand from eastern India with a cost of 7crores. These entire
capex plans is done via retained earnings. It is best if company doing capex
with ploughing back their earnings and shying away from debt.
Management focused
With shutting down their ACP business management is now being
focus on their core business increasing their efficiency and profitability ratio.
But we have to be cautious if they enter into non-core business as in past they
did with ACP.
55% unorganized market
In India, almost 55% of plastic furniture business segment is
unorganized. As this shift takes place from unorganized to organized the listed
entities would more traction and eat up the market share of unorganized
players.
Ratio
RoE 21%
RoCe 22%
RoCe 22%
RoA 23%
Interest Coverage 46X
Interest Coverage 46X
Current Ratio 3.74
Debt- Equity .01
PEG .54 Days
Payable 52 days
Inventory turnover
6
Working Capital Days 91days
Points to look out for
1.
Prima
is not hedging their contracts
2.
Black
Swan event for crude oil
3.
Action
on management going away from core business
4.
More
focus on R&D
5.
New
product lines for sales improvement
6.
New
plant in Central America will reduce order execution from 90 days to lower
number of days (receiving order and transporting).
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