Buy Nilkamal Ltd.

Target Rs.380
CM Price Rs.228.00

Nilkamal Ltd. is one of the leading company manufacturing injection moulded plastic products like furniture, plastic crates-used for material handling, storage & distribution and custom mouldings. Additionally, the company has made a successful foray into the lifestyle furniture retailing business through “@home”, a home solution store.
Excellent Q3FY10 performance

• Nilkamal Ltd. has delivered excellent numbers for the quarter ended 31st Dec, 2009 (Q3FY10). It has posted net sales (on standalone basis) of Rs.2489.9 mn, registering a growth of 27% YoY. Its EBITDA grew by 132.3% YoY to Rs. 348.1 mn and EBITDA margins increased by 634 bps to 14%. Its APAT stood at Rs. 167.6 mn, registering a growth of 708.6% YoY.

• During the first 9 months of FY10, Nilkamal’s net sales (on standalone basis) increased by 11.5% YoY to Rs. 7252.1 mn. Its EBIDTA increased by 47.7% to Rs. 951.9 mn, while the EBIDTA margins increased by 322 bps to 13.1%The Profit before Tax (including Other Income) increased by 415.6% YoY to Rs. 544.7 mn on year to date basis. Its APAT stood at Rs. 401.7 mn, registering a growth of 479% YoY while its EPS for 9 months stood at Rs. 31.4. The company has declared an interim dividend of 20% (FV=Rs. 10).

• The robust growth in net sales was mainly driven by high volume growth, as the polymer prices remained low compared to the previous years’ prices. Its high APAT growth was also aided by a substantial reduction in its interest cost.

OUTLOOK & VALUATION
Nilkamal is witnessing strong growth in its line of business. With the introduction of VAT, some of structural issues (mainly the presence of large number of unorganized players) which were stunting the growth of the industry have been taken care of. Going forward, the industry is expected to grow at 12 to 15% and companies like Nilkamal, with its strong brand & national presence, are expected to grow at a much faster pace. On the margins front, the company enjoys EBIDTA margins of around 14-15%, but after absorbing the loss of @ Home, margins are a bit lower at around 13%. Moreover, with a capex of Rs.2.3bn already through in the past 2 years & no major capex planned going forward, we expect strong cash accruals, which along with a strong improvement in its working capital, will result in sharp reduction in its borrowings as well as Interest costs. After incorporating its 9 months performance, we have increased our FY2010 Earnings estimates substantially but have marginally increased our FY11 Earnings estimate, mainly due to an increase in tax estimate for FY11. We now expect its FY2010 & FY2011 revenues to grow 10% and 15% respectively & its FY2010 & FY2011 consolidated APAT to grow at 372.5% & 21.6% respectively. At the Current Market Price of Rs.247, the stock is available at an attractive valuation of 6.3x & 5.1x its FY10E & FY11E earnings of Rs.39.5 & Rs. 48 respectively. We retain ‘BUY’ rating on the stock with a target price of Rs. 380 (8x its FY11E Earnings).

Report card

Attribute	Value	Date
PE ratio	49.88	03/02/10
EPS (Rs)	4.77	Mar, 09
Sales (Rs crore)	248.99	Dec, 09
Face Value (Rs)	10
Net profit margin (%)	0.67	Mar, 09
Last dividend (%)	20	21/01/10
Return on average equity	2.88	Mar, 09