Plastics - Dolat

DOLAT CAPITAL
Analyst: Nehal Shah Tel : +9122 4096 9753 E-mail: nehals@dolatcapital.com
Associate: Mahvash Ariyanfar Tel : +9122 4096 9736 E-mail: mahvash@dolatcapital.com
October 5, 2011
India Research
DOLAT CAPITAL
October 5, 2011
Int en tio na lly Le ft B lan k
India Research
Index
Industry
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Executive Summary..................................................................................................5 Indian Plastic Consumption......................................................................................6 Global Scenario................................................................................................8 Innovation: Key to Growth & Margins.......................................................................9 Polymer Demand & Pricing.....................................................................................10 Plastic Composites.................................................................................................12 Major Companies: Key Parameters.........................................................................14
Companies
Supreme Industries
Investment Rationale.........................................................................................17 Company Background.......................................................................................25 Financials..........................................................................................................35
Sintex Industries
Investment Rationale........................................................................................37 Company Background......................................................................................59 Financials.........................................................................................................63
Time Technoplast
Investment Rationale........................................................................................65 Company Background......................................................................................81 Financials.........................................................................................................86
Astral Poly Technik

Investment Rationale........................................................................................87 Financials.........................................................................................................88
October 5, 2011
India Research
DOLAT CAPITAL
October 5, 2011
Plastic Industry: Executive Summary India Research
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We believe plastic consumption in India is expected to grow at a healthy rate on the back of growing substitution, expanding middle income group and new applications. Despite being an industry dominated by unorganised players (70% of the industry size), the organised players over the last few years have outpaced them in terms of growth through constant innovation and regular introduction of niche products and thereby gradually eating into their share Having created a niche market for themselves, they have the wherewithal to deliver consistently, leading to value proposition for investors. In this space we like Supreme Industries, Sintex Industries, Time Technoplast and Astral Poly Technik purely based on their business models and ability to generate consistent returns.
Key Investment Rationale

Plastic consumption in India to grow at 15% CAGR With Indias GDP growing at 8% annually and plastic products increasingly finding application in all sectors of the economy, replacing other competing products such as steel and aluminium, we expect demand to remain robust. The application of plastic is increasingly evident across sectors including packaging, agriculture, healthcare, aerospace, electronics and infrastructure. According to the All India Plastics Manufacturers Association (AIPMA), the domestic consumption has been growing at 10-12% CAGR over the last decade and is all set to reach the 12.5mn tonnes in 2012 from 9mn tonnes in 2010 which will make India the third largest plastic consumer after US and China. Innovation & introduction of value-added products: Key to growth & margins The key USP in any industry that is largely unorganised is to regularly innovate and come out with niche products at regular intervals. Sintex, Supreme, Astral Time have consistently followed this thumb rule and thus have been able to grow at a pace which is way above the industry average. Plastic composites: Niche high growth engine Plastic composites are new age products and are ideal replacement for conventional materials such as steel, aluminium and wood on account of their durability, corrosion and maintenance free character. The Indian composites industry has grown at healthy 16-18% CAGR over the last five years, more than twice the GDP growth rate. The burgeoning manufacturing sector and heavy investments in infrastructure is expected to provide an impetus to the Rs 63bn Indian composite industry, which is expected to grow at 16-17% CAGR. From our coverage universe, Sintex and Time Technoplast have a presence in the composites segment while Supreme Industries is currently putting up a facility to make composite cylinders. These companies will not only benefit from high growth in these segments but will also enjoy better margins as compared to their bouquet of conventional plastic products.
Coverage Universe - Valuation Matrix

Companies Rev CAGR PAT CAGR P/E ROE (%) Supreme Ind. 17.5 24.1 8.4 32.1 Sintex Ind. 21.6 16.2 4.8 19.5 Time Technoplast 23.0 21.1 8.4 17.8 Astral Poly. 39.0 38.3 6.7 28.8 Note: CAGR: FY11-13E; P/E, ROE & ROCE based on FY13 numbers ROCE (%) CMP (Rs) 26.7 188.0 16.4 112.0 18.2 64.0 29.8 190.0 TP (Rs) Upside (%) 246.0 35 174.0 60 76.0 18 226.0 19 Reco Buy Buy Accumulate Buy
October 5, 2011
Growing plastic consumption
India Research consumption in India to grow at a CAGR of 15% Plastic
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With Indias GDP growing at 8% annually and plastic products increasingly finding applications across various sectors of the economy replacing other competiting products like steel, aluminium, etc, demand is expected to remain robust. Plastic consumption in India by product / application
Source: Indo-Italian chambers of commerce & industry
According to AIPMA, Indias plastic consumption in 2010 stood at 9mn tonnes and has been growing at an annual average rate of 12%. With its true potential, consumption is all set to reach 12.5mn tonnes in 2012, which will make India the 3rd largest consumer of plastics by 2012 after US and China (expected consumption by then USA: 39mn tonnes and China: 31mn tonnes). Further, the consumption is expected to reach 18.9mn tonnes by 2015. To match this figure, we estimate India will require 42,000 new machines and USD 10bn of projected investment by 2015. Indias plastic consumption (in million tonnes)
Source: AIPMA
In the past 40 years, Indias per capita plastic consumption increased from 1kg to 8 kg in 2010. By 2015, the figure is expected to reach 16kg according to AIPMA a 15% CAGR over the next five years.
October 5, 2011
India Research
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GDP growth (%) Plastic consumption growth (%) 10.4 11.3 12.7 6.8 12.7 12.5 Times (x) 1.1 1.2 1.4 1.0 1.6 1.5
Plastic consumption linked to GDP

Year
2005-06 9.5 2006-07 9.6 2007-08 9.3 2008-09 6.8 2009-10 8.0 2010-11 8.5 Source: Industry sources, Dolat Research
Except for FY09 where the impact of economic slowdown was clearly visible, the plastic consumption in India has been consistently growing at a rate higher than that of overall GDP. Going forward, the industry experts believe that the consumption is likely to grow by nearly 2x the GDP growth. Overall turnover of the plastic processing industry which currently stands at Rs 850bn is expected to touch Rs 1 trillion (demand potential from 9mn tonnes in 2010 to 12.5mn tonnes in 2012) and further Rs to 1.3 trillion by 2015 (equivalent demand pegged at 18.9mn tonnes). The industrys growth resulted in the number of processing units growing from 25,000 in 2010 to 30,000 units in 2011. The exponential growth anticipated over the next three years will see this number go up to 40,000 units. The industry, which currently employs over 3.5mn people, directly and indirectly, is expected to employ close to 4mn in 2012 and 7mn by 2015.
Vision 2015 set by the government

Consumption @ 15% CAGR (mn tonnes) Per capita consumption (kg) Plastic industries turnover (Rs bn) Employment generation (nos in mn) Processing machines (nos) 2010 9 8 850 3.6 84,836 2015 18.9 16 1,332 7.0 125,636
Source: CIPET, Dolat Research
October 5, 2011
Plastics: Global scenario India Research
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Since 1950, globally there has been an average annual increase in production and consumption of plastic of around 9%, driven by consistent innovation. From 1.5mn tonnes in 1950, total production reached 230mn tonnes in 2009.
Global plastic production trend (mn tonnes): Geographic distribution
Source : Plastic Europe Market Research Group (PERMG) in Plastic Europe 2008
As far as global consumption is concerned, Asia has been the worlds largest consumer for several years, accounting for about 30% of global consumption. Next to Asia is North America with 26%, followed by western Europe with 23%. Worldwide plastic consumption is expected to grow at an average rate of 5% until 2015. Global per capita plastic consumption (kg) region-wise
Source: Plastic Europe Market Research Group (PERMG) in Plastic Europe 2008 *Note: Indias current per capita plastic consumption stands at 9kg and China at 25kg
October 5, 2011
Innovation: Key to Growth & Margins India Research
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Innovation & introduction of value added products: Key to growth & margins
The key USP in any largely unorganised industry is to innovate and introduce niche products. Similarly, in the plastic industry, 70% of which is unorganised, regular innovation and introduction of niche products would play a key role in creating markets for such products leading to value creation thereby resulting in sustainability of growth. We believe that Sintex, Supreme, Astral & Time have been consistent in rolling out niche products through regular innovation and thus have been able to grow at a pace that is way above the industry average. Brief overview of products from companies under our universe leading to value creation
Company Supreme Supreme Sintex Sintex Astral Time Techno
Source : Dolat Research
Product XF Films PPP Prefabs Utility buildings Monolithic CPVC Pipes Drums & IBCs
Last 3 years Rev. CAGR 27% 21% 25% 72% 40% 23%
Product Margins (%) 22-24% 18-20% 19-20% 18-20% 20-22% 19-20%
Comments Market leader and continues to expand Market share of over 30% in various products One of the leaders in this segment and being already approved by 17 states Only player with backward integration in the form of manufacturing plastic formwork Market leader with exclusive technology rights from US based Lubrisol Market leader with 75% market share and now expanding across Asia
October 5, 2011
Polymer Demand & Pricing India Research
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Polymer availability at ease, however prices remain volatile

Domestic polymer demand is expected to increase driven by healthy demand from the packaging, pipes & fittings, automobiles and other such industries. As far as demand for polypropylene (PP) is concerned, supply currently outstrips demand and the gap is likely to widen as RIL and GAIL expand their capacities. Also, with IOC expanding its polyethylene (PE) capacity, supplyside constraints will not persist. However in PVC, India continues to remain dependent on imports. Estimated polymer consumption in India and consumption mix
Estimated polymer consumption in India FY11 Polymer KT KT KT LDPE/EVA 475 LLDPE 1050 HDPE 1475 Total PE 3000 Polypropylene 2700 Total Polyolefins 5700 PVC 1925 PS/EPS 300 ABS/SAN/ASA 215 Total Commodity Polymers Other Polymers ETP (PC, PA, POM, ETP) 215 PU 225 All other (including thermosets) 300 Total Other Polymers Commodity & other polymers PET (Bottle, film, APET) Total Polymer Consumption
Source: Plastemart.com
KT Share (%)
31 59 20 3 2 85 2 2 3 8 93 7 100
8140
740 8880 700 9580
Raw materials and their applications

Major Raw materials Polystyrene (PS) Applications Audio tapes, video cassettes, kitchenware, cosmetics, appliances computer components, toys, vials, etc High-pressure pipes, telecom ducts, carrier bags, drums, pallets, injection- and blowmoulded products Heavy-duty films, lamination films, extrusion coating, and moulding General-purpose BOPP films, furniture, kitchenware, luggage, sanitary products, automotive components, etc Rigid pipes and fittings, building and construction materials, bottles, containers, toys, footwear, blood bags, IV-fluid bags, etc
High Density Polyethylene (HDPE)
Low Density Polyethylene (LDPE) Polypropylene (PP)
Polyvinyl Chloride (PVC)
Source: Dolat Research
October 5, 2011
10
India Research
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Polymer prices susceptible to movement in crude prices

The plastic processing industry is susceptible to volatility in prices of its key raw materials, which are linked to movement in crude prices as depicted in the charts below. Thus any sustainable rise in crude prices will impact medium term demand and margins. It may be noted that in FY09, when crude prices flared to around USD 150, most Indian plastic processing companies were hit. But that was only for a particular quarter as the surge was short-lived, thereby limiting the impact. We believe that since crude prices are likely to move in a range in the short to medium term, a limited fluctuation wouldnt have much effect as the surge/fall in polymer prices is likely to be passed on to consumers considering the strong demand for plastic products. Trend in polymer & crude prices over last three years
Source : Bloomberg
October 5, 2011
11
PlasticsResearch India Composites
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Plastic composites: Niche high growth engine

The production of composites involves combining polymer and glass fibre or carbon fibre in order to produce a material that is lighter yet stronger than conventional materials. Composites are new age products and are ideal replacement for conventional materials such as steel, aluminium and wood on account of its durability, resistance to corrosion and maintenance free character. The growth in composite usage has been driven by an increased awareness of its performance and increased demand for lightweight components. Of all the available materials, composites have the highest potential to replace widely used steel and aluminum, because they offer better performance under varied circumstances. Composites are 60-80% lighter than steel. In replacing aluminum parts composites can save 20-50% of the weight. Today it appears that composites are not just alternative materials, but have become the material of choice for many engineering applications. The global composite industry is currently estimated at about USD 85bn. US and Europe account for about 75% of the global demand. The Asia-Pacific region represents about 20% of the market and the rest of the world accounts for the remainder. While US and EU are expected to grow at 1.8% and 2.3% CAGR respectively by 2013, Asia will see the highest growth at 5.3% CAGR. Globally, the market is expected to grow 3.3% CAGR by 2013. The Indian composites industry has grown at healthy 16-18% CAGR over the past five years, more than twice the GDP growth rate. The burgeoning manufacturing sector and heavy investments in infrastructure are expected to provide an impetus to the Rs 63bn Indian composite industry. It is expected to grow 16-17% CAGR from USD 1.1bn (Rs 50bn) in 2008 to USD 2.7bn (Rs 120bn) by 2013. Indian composite market size (Rsmn)
Source : Industry Sources, Dolat Research
Benefitting from opportunities predominantly prevalent in transport, infrastructure, wind energy and oil & gas segments, total composites production, which was 368mn lbs (around 167,150 tonnes) in 2008 is expected to increase to 794mn lbs (close to 360,940 tonnes) by 2013 at 16.6% CAGR.
October 5, 2011
12
India Research Composite shipment (million lbs)
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Indian plastic composite market: Vertical Mix
Demand Drivers
Major industry verticals Pipe & Tank Transportation & Automotive Wind Energy Electrical & Electronics Construction Industry share of demand (%) 30 21 19 10 10 Expected 3-4 years CAGR 17% 14% 21% 12% 15%
Kemrock Industries (predominantly a plastic composite company) is the market leader in the Indian composites space and has been growing at a revenue CAGR of 58% over the past four years. Among other companies, Sintex and Time Technoplast already have a presence in the segment while Supreme Industries is in the midst of putting up a composite cylinders facility. These companies will not only benefit from high growth but will also enjoy better margins as compared to their bouquet of conventional plastic products.
October 5, 2011
13
Major Companies - Key Parameters India Research

Companies Kemrock Industries Sintex Industries
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Composite presence in our coverage universe

Composite Revenue Mix (%) Industry verticals 80% Mass transit, Construction, Pipes, Wind Energy, etc 35% Electrical, Transportation, Wind energy, Medical imaging, etc 21% IBCs, batteries & LPG Composite Cylinders Nil LPG Composite Cylinders
Time Technoplast Supreme Industries
Source : Company, Dolat Research
Major Indian plastic processing companies key operational and financial parameters
Companies Supreme Ind. Sintex Ind. Astral Poly Time Tech Finolex Ind. Nilkamal Jain Irrigation Companies Supreme Ind. Sintex Ind. Astral Poly Time Tech Finolex Ind. Nilkamal Jain Irrigation Companies FY11 14.0 16.9 14.9 5.1 6.1 37.5 7.4 FY11 23,965 44,752 4,108 12,753 19,747 13,178 41,528 Revenues (Rs mn) FY12E FY13E 28,329 33,075 54,746 66,152 5,925 7,925 15,868 19,280 21,343 22,011 15,504 18,160 50,067 59,640 EPS (Rs) FY12E 17.6 18.5 20.6 6.0 4.4 39.5 9.1 EBIDTA (Rs mn) FY11 FY12E FY13E 3,322 4,005 4,786 8,069 9,535 11,187 539 811 1,098 2,360 2,833 3,375 2,399 2,604 2,843 1,361 1,627 1,913 7,589 9,592 11,495 DPS (Rs) FY12E 5.6 0.7 1.0 0.7 4.0 0.0 1.4 EBIDTA (%) FY11 FY12E FY13E 13.9 14.1 14.5 18.0 17.4 16.9 13.1 13.7 13.9 18.5 17.9 17.5 12.1 12.2 12.9 10.3 10.5 10.5 18.3 19.2 19.3 PE (x) FY11 FY12E FY13E 13.4 10.4 8.4 6.5 5.9 4.8 12.8 9.2 6.7 12.6 10.8 8.6 10.5 14.5 13.3 7.1 6.8 5.6 19.5 15.8 12.0 PAT (Rs mn) FY11 FY12E FY13E 1,781 2,230 2,745 4,600 5,060 6,217 334 463 639 1,110 1,260 1,586 762 552 593 534 590 717 2,807 3,513 4,636 EV/EBIDTA (x) FY12E FY13E 7.1 6.0 5.0 4.5 6.0 4.7 6.9 5.7 5.5 5.0 4.2 3.6 8.5 7.1 ROE (%) FY12E FY13E 34.6 32.1 19.1 19.5 27.3 28.8 16.4 17.8 16.4 16.9 14.7 15.5 20.3 21.4
FY13E 21.6 22.8 28.4 7.5 4.8 48.0 12.0
FY11 4.3 0.7 1.1 0.6 3.0 4.0 1.0
FY13E 6.7 0.8 1.0 0.8 4.0 0.0 1.5
FY11 8.5 5.9 8.4 8.0 5.2 4.7 10.1
Market cap / Sales (x) Price / Book (x) Dividend Yield (%) FY11 FY12E FY13E FY11 FY12E FY13E FY11 FY12E FY13E Supreme Ind. 1.0 0.8 0.7 4.2 3.1 2.4 2.3 3.1 3.7 Sintex Ind. 0.7 0.5 0.4 1.2 1.0 0.9 0.6 0.6 0.7 Astral Poly 1.0 0.7 0.5 2.8 2.2 1.7 0.6 0.5 0.5 Time Tech 1.1 0.9 0.7 2.0 1.7 1.4 0.9 1.1 1.2 Finolex Ind. 0.7 0.4 0.4 1.2 1.2 1.0 4.8 6.3 6.3 Nilkamal 0.3 0.3 0.2 1.1 1.0 0.9 1.5 0.0 0.0 Jain Irrigation 1.3 1.1 0.9 3.5 3.1 2.5 0.7 1.0 1.0 Source: Dolat Research, For companies other than our universe: Bloomberg estimates
FY11 37.0 21.1 25.2 16.4 12.6 17.4 20.3
October 5, 2011
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Indian Plastic Industry Overview India Research
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The plastics industry includes raw material suppliers like petrochemical and refining firms, machinery manufacturers and plastic processors, most of which are small-scale enterprises. The plastic industry can be classified into: (A) Polymers manufacturers, called the upstream segment; and (B) Polymers-to-plastic convertors, known as the downstream segment.
The upstream polymer-makers are large players with globally competitive plants and have witnessed consolidation to remain globally competitive. The downstream plastic processing industry on the other hand is highly fragmented and consists of micro, small and medium units. Presently there are about 30,000 registered plastic processing units, of which 75% are in the small-scale sector. This sector, however, accounts for only 25% of polymer consumption. The top 100 players account for just 20% of the industry turnover. Plastic industry flow chart
October 5, 2011
15
India Research
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Indian Plastic Processing Industry
Classification of plastic products by processes used in India
Capacities process-wise
Capacity (kTA) Extrusion Injection Moulding Blow Moulding Total Upto FY02 5,744 1,984 511 8,239 FY03 379 207 31 617 FY04 600 231 41 872 FY05 452 279 34 762 FY06 834 360 40 1,234 FY07 861 430 59 1,350 FY08 1,164 527 49 1,740 FY09 1,291 430 55 1,777 FY10 Upto FY10 1,754 13,080 752 5,198 86 900 2,593 19,178
October 5, 2011
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Initiating Coverage
Supreme Industries India Research

CMP: Rs 182 Target Price: Rs 246
DOLAT CAPITAL
Buy
We rate Supreme as preferred pick in this segment considering its diversified product portfolio, strong geographic reach and most importantly having a strict working capital which is a key differentiator vis--vis other plastic processors. This has enabled the company to enjoy higher return ratios over a sustained period of time. Thus we believe that SIL will continue to command a premium over the other plastic processors. Supreme Industries Limited (SIL), one of the largest plastic processors in India, is expected to reap benefits of its ongoing capacity expansions amidst strong demand outlook across its product portfolio. Revenues and PAT are expected to exhibit a CAGR of 17.5% and 24.1% respectively from FY11-13. At CMP, SILs core business is attractively valued at 9.4x FY13E earnings and 6x EV/EBIDTA. We initiate coverage on SIL with a Buy rating and TP of Rs246 on SoTP basis, representing an upside of 35% from the current levels.
BSE Sensex NSE Nifty Scrip Details Equity Face Value Market Cap 52 week High/Low Avg. Volume (no) BSE Code NSE Symbol Bloomberg Code Reuters Code 15,192 4,751
Investment Rationale
Standing tall in an unorganised sector With over six decades of experience and through regular innovation and introduction of cost-effective solutions, Supreme Industries (SIL) has created a place and brand for itself in a business dominated by the unorganised sector. SIL is now acclaimed with having the most diversified range of products (over 7,000) resulting in market as well as customer diversification. With the bulk of revenues coming from supplies to OEMs and through distribution channels, the company has been able to get assured and large volumes, resulting in revenue CAGR of around 20% over FY07-FY11. Capacity expansion to drive growth, VAPs to drive margins Backed by strong demand, SIL has planned an aggressive capex of Rs 10bn across segments over five years. With this, SIL will see a volume CAGR of 18.4% in FY11-13 from 225bn tonnes per annum (btpa) in FY11 to 315btpa in FY13 in terms of polymers processed. Apart from capex, SIL will continue to increase its share of value-added products (VAPs) -- having margins upwards of 17% -- by enhancing its focus on cross-laminated films (100% VAPs) and other VAPs that will help maintain or even increase its margins. Clean balance sheet, strict working capital, strong dividend payouts We believe SIL will continue to maintain high RoE and RoCE due to: 1) healthy topline growth on the back of strong capex initiatives and higher fixed asset turnover, 2) increasing cash flows from core operations through strict control of working capital, and 3) stable margins. Besides, SIL has been continuously rewarding shareholders with strong dividend payout ratio ranging 30-50% over three years. SIL has not raised capital in 15 years since the current management took over, despite its asset-heavy business. It, in fact, bought back shares in FY09 at an average Rs 111 per share (pre-split).
Rs.254mn Rs.2/Rs.23bn USD 472mn Rs.234 / 136 122,171 509930 SUPREMEIND SI IN SUPI.BO
Shareholding Pattern as on June11(%) Promoter 49.6 MF/Banks/FIs 4.1 FIIs 7.2 Public / Others 39.1
SIL relative to Sensex
180 170 160 150 140 130 120 110 100 90 80 Oct-10
Apr-11
SIL
Sensex
Financials
Year Net Sales % growth FY10 19,866 20.0 FY11 23,965 20.6 FY12E 28,329 18.2 FY13E 33,075 16.8 Figure in Rs mn EBITDA OPM% PAT % growth Adj.EPS(Rs.) PER (X) EV/EBIDTA(x) ROANW(%) ROACE(%) 2,855 14.4 1,470 73.7 11.6 15.7 9.4 40.9 28.6 3,322 13.9 1,781 21.2 14.0 13.0 8.5 37.0 27.3 4,005 14.1 2,230 25.2 17.6 10.4 7.1 34.6 26.2 4,786 14.5 2,745 23.1 21.6 8.4 6.0 32.1 26.7
October 5, 2011
Aug-11
Dec-10
Feb-11
Jun-11
Supreme Industries
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Standing tall in the unorganised sector India Research
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SIL, with over six decades of experience and through regular innovation and introduction of cost effective solutions, has created a place and brand for itself in a business that operates in a largely unorganised sector. The company has over 7,000 products -- the widest range in the sector -- resulting in market as well as customer diversification. Though over 60% of the industrys turnover comes from the unorganised sector, SIL, over the years, has been able to cement its place in the industry and consistently achieve healthy growth (even during the FY08-09 recession) largely on account of the following factors:
Diversified model: With a large product portfolio spread across four divisions viz piping systems, packaging films, consumer products and industrial products, SILs product portfolio is the most comprehensive, resulting in market as well as customer diversification. Geographically diversified: With 19 plants across India and a combined asset base of over Rs 9bn, SILs wide reach ensures better market share. Regular innovation, cost-effective solutions: Consistent innovation has given SIL a significant market shares across its portfolio. It enjoys a healthy 10% share of the large plastic piping market (Rs 100-bn market, dominated by unorganised players), 18% share in crates and 13% in furniture. It also enjoys a dominant position in value-added protective packaging, including the XF films (a tri-extruded and cross-laminated film providing superior puncture and tear resistance) segment. Consistently rising VAPs share: With consistent innovation in productlines such as packaging films, furniture and plastic piping, VAPs contribute 29.3% to SILs overall revenues and this is only likely to increase. Bulk of revenues from OEMs: Apart from distribution channels, OEMs dominate SILs revenue stream, ensuring regular as well as large volumes . This has resulted in revenue CAGR of around 20% over the past five years.
October 5, 2011
Supreme Industries
18
Strategy going forward India Research
DOLAT CAPITAL
Companys four-pronged strategy
Source: Company
Capacity expansion to drive growth

With the Indian economy expected to grow over 8% in the next few years, the ensuing higher disposable incomes will result in strong demand outlay for plastic products. Thus, SIL has planned a capex of around Rs 7bn over the next four years:
Segment-wise capacity Plastic piping Packaging films Performance film Protective packaging XF films Industrial products Moulded products Material handling Consumer products Total Estimated capex (Rs mn)
Source: Company, Dolat Research
FY10 FY11 FY12E FY13E 175,000 191,507 207,500 247,500 6,500 18,000 17,500 9,500 24,600 17,500 9,500 27,500 22,500 15,500 33,000 22,500
FY14E 300,000 15,500 36,000 27,500 46,000 36,000 48,000 509,000 2,000
FY15E 360,000 21,500 40,000 27,500 50,000 42,000 54,000 595,000 1,500
27,380 34,700 37,500 40,000 21,200 23,030 28,000 33,000 26,400 29,320 40,000 45,000 291,980 330,157 372,500 436,500 2,000 1,600
This capex will increase capacity from 291,980 tonnes currently to 595,000 tonnes in FY15. This will be a combination of greenfield as well as brownfield projects. As far as greenfield expansion is concerned, SIL will be adding 12 new locations by FY15, which will take its total facilities tally to 31 plants from the existing 19.
Segments Plastic piping Packaging films Industrial products Consumer products Total No. of plants 1 5 3 3 12 Proposed locations West Bengal Halol, Hosur, West Bengal, Rajasthan Ahmedabad, Jamshedpur, Pondicherry Andhra Pradesh, East and North zones
October 5, 2011
Supreme Industries
19
India Research
DOLAT CAPITAL
Capex outlay for FY12: During FY11, SIL incurred a capex of Rs 2.6bn. In line with its strategy of incurring a capex of Rs 10bn from FY11 to FY15, SIL will be incurring an additional capex of Rs 2bn in FY12, which includes the following: New facility to manufacture XF films at a capex of around Rs 700mn, which will add around 6,000 tonnes of incremental capacity New facility to make foam products and industrial components Augmenting existing capacities across product portfolio Rs 650mn to make a niche LPG composite cylinders facility, with an initial capacity of 400,000 units
Monetisation of property to fund expansion: The over Rs7bn capex mentioned above will be funded through internal accruals and by monetising SILs commercial property in Mumbai. It may be noted that construction of the commercial complex is complete and the process of its monetisation is already underway. SIL will be retaining two blocks for its own commercial usage. So far, it has sold three blocks (one in FY10 and two in FY11) and negotiations for a few other blocks are at an advanced stage. We expect the remaining 17 to get sold only by FY13, considering the managements intent to hold on to the price or may even increase it considering the receipt of the occupation certificate in Q4 FY11.
Particulars No. of blocks (units) Area (sq ft) Rate per sq ft (Rs) Rs mn Sales Cost PBT Tax PAT Cash flows
FY10 1 13,106 15,604 204.5 72.2 132.3 42.5 89.8 162.0
FY11 2 26,409 15,052 397.5 164.8 232.7 76.8 156.0 304.8
FY12E 8 100,000 14,000 1,400.0 619.6 780.4 257.5 522.8 1,086.5
FY13E 9 110,485 14,000 1,546.8 684.6 862.2 284.5 577.7 1,200.4
Total 20 250,000 14,195 3,548.8 1,541.2 2,007.6 661.4 1,346.3 2,753.7
October 5, 2011
Supreme Industries
20
India Research
DOLAT CAPITAL
Expect volume growth at 18.4% CAGR: Led by strong demand outlay, along
with the capex initiatives, SIL is expected to witness a volume CAGR of 18.4% from 224,673 mtpa in FY11 to 315,000 mtpa in FY13 as shown hereunder:
in Tonnes
It may be noted that with volumes expected to grow at 18.4% CAGR, capacity utilisation will increase from 68.4% in FY11 to 72.2% in FY13E. Increasing share of value-added products (VAPs) VAPs are products incorporating technological innovations and have niche designs. Thus they fetch superior margins compared to standard products. These are construed as products with operating margins of over 17% (SILs OPM as a whole stand at around 14%).
VAP Plastic piping Packaging films Cross laminated films Protective packaging Consumer products Moulded furniture Total Net revenues - Plastic segment % of VAP
FY09 870 1952.4 399.9
FY10 1370.9 2290.2 486.9
FY11 2277.0 3160.0 613.5 790.8 6841.3 23335.2 29.3
FY12E 2960.1 3792.9 736.2 1107.1 8595.4 27579.0 31.2
FY13E 3848.1 4550.4 883.4 1550.0 10831.9 32275.0 33.6
346.6 541.3 3568.9 4689.3 15606.1 18580.3 22.9 25.2
Backed by higher growth in cross-laminated films in the packaging films division (100% VAPs) and further supported by the plastic piping division, we expect VAPs share in total revenue to rise from 29.3% (FY11) to 33.6% (FY13E). Diversifying product portfolio Apart from investing in its existing business segments, SIL is diversifying its portfolio by introducing new products that include LPG composite cylinders, micro-irrigation products and moulded fittings for infrastructure and gas distribution. While the company has already committed capex for a LPG composite cylinder-making facility, plans for new products are still nascent.
October 5, 2011
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India Research
LPG composite cylinders
DOLAT CAPITAL
SIL has earmarked a capex of Rs 650mn to make a niche facility for LPG composite cylinders, with an initial capacity of 0.4mn units. The project, which is coming up in western India, is expected to start operations by Q2FY12. Currently, LPG cylinders are made of steel. A proposal has been made for use of composite cylinders, on which oil companies are working. As per regulatory norms, the Chief Controller of Explosives, Nagpur, approves cylinders that can be used for LPG. Composite cylinders will be transparent or translucent and made of plastic. Though the cost of such cylinders would be higher at Rs 3,000 per unit as compared to Rs 1,200 for metal cylinders, the incremental benefits are expected to be much higher. Apart from being explosion proof, they will be much lighter (6 kg) than steel (15 kg). Also the level of LPG during delivery would be visible. India has over 150mn gas cylinders in circulation at present, and this is estimated to be growing by 12mn every year. Oil marketing companies have announced an additional 55mn gas connections in the rural sector in the next five years, which will generate a huge demand for cylinders.
Value in Supreme Petrochem (SPL)

Supreme Petrochem, in which SIL has around 30% stake, is the largest singlesite polystyrene (PS) producer with a capacity of 272,000 tonnes per annum, accounting for 2% of the global capacity and 60% of the domestic installed capacity. The facility is based on technology from the erstwhile Huntsman Chemical Corp (now NOVA Chemicals), US, with basic engineering by ABB Lummus Crest, US. SPL is also the largest exporter of PS from India, exporting to over 80 countries globally. The product-range covers the entire spectrum of polystyrenes general purpose polystyrene (GPPS), high-impact polystyrene (HIPS), speciality polymers, expanded polystyrene (EPS), extruded polystyrene (XPS) and compounded polymers. With PS demand rising, SPL is expanding capacities of EPS (normal grade and cup grade) and speciality polymers and setting up a captive power project as well: New facilities (cup grade EPS and standard grade EPS with capacities of 20,400 TPA and 24,000 TPA respectively at Nagothane), expected to be commissioned by September this year. Revamping all existing PS lines to increase production of high-value premium grades from 48,000 to 98,000 TPA, within the overall current capacity of 272,000 TPA, expected to be completed by FY12 Expansion of SPS capacity in three phases to 43,800 TPA from 25,000 TPA commissioning of the first two phases (which will take the capacity to 33,500 TPA) expected by September this year. Captive gas power plant of 4,000 KVA at Nagothane, to go on-stream any time soon. Of the above-mentioned capex initiatives at Rs 1.8bn, SPL has already spent Rs 920mn in FY11 while the balance is expected to be incurred in the current fiscal. The same is proposed to be funded through debt and internal accruals. With increasing demand for SPL products, coupled with introduction of new VAPs in the PS segment and capex initiatives, we expect volume growth at 15% CAGR from 157,450 tonnes in FY10 to 239,462 tonnes in FY13E. October 5, 2011 Supreme Industries 22
India Research
Rs.mn
DOLAT CAPITAL
Supreme Petrochem: Volume growth (FY10-13E)
Tonnes
Correspondingly, net revenues will grow at 12% CAGR from Rs 19.4bn in FY11 to Rs 24.4bn in FY13E. PAT will grow from Rs 877mn in FY11 to Rs 978mn in FY13 at 6% CAGR.
October 5, 2011
Supreme Industries
23
Re-rating Candidate India Research

Arguments for Re-rating
DOLAT CAPITAL
(1) Healthy topline growth on the back of strong capex initiatives and higher fixed asset turnover; (2) Rising free cash flows resulting from core operations through strict control of working capital, thereby keeping debt-to-equity under check; (3) stable margins - enabling SIL to maintain higher RoE at above 30%. Led by healthy demand across portfolio, SILs revenues and PAT are expected to grow 17.5% and 24.1% CAGR respectively from FY10 to FY13E. At CMP, SILs core business is attractively valued at 9.4x FY13E earnings. We believe superior profitability, improving free cash flows and healthy return ratios, along with the strong dividend payout ratio, shall drive re-rating for SIL.
Continuously rewarding shareholders: another feather in SILs cap

Year FY06 FY07 FY08 FY09 FY10 FY11 FY12E FY13E PAT (Rs mn) 469 515 538 909 1,560 1,958 2,775 3,354 Strong dividend payout ratios Divd. outgo Divd. outgo (Rs mn) (%) 158 34 240 47 259 48 357 39 534 34 635 32 832 30 996 30 Regular bonuses Year Ratio FY1978 FY1981 FY1986 FY1988 FY1992 FY2006 Stock Split FY2010 3:5 2:5 4:5 1:1 1:1 1:1 5:1
The above statistics reflect SILs strong dividend payout history over the past five years. To add to this, it has also been declaring regular bonuses apart from declaring a 5-for-1 stock split in FY10. This represents to us a strong commitment by SIL towards its shareholders, which augurs well for the stock. Further, SIL has not raised any capital since the current management took over fifteen years ago, despite being in such an asset-heavy business. In fact, the company did a buyback of 2.2mn shares in FY09 at a pre-split average price of Rs 111.
October 5, 2011
Supreme Industries
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Company Background India Research
DOLAT CAPITAL
SIL is an acknowledged leader of Indias plastic industry, processing over 200,000 tonnes of polymers annually with over six decades of existence. It has a diversified business model with a large product portfolio spread across its four business divisions. Over the years, SIL has managed to gain significant market share. It is also credited with pioneering several products in India including cross-laminated films, high molecular, high density films, multilayer films, soil, waste and rain water piping systems, polypropylene mats etc. SIL currently has 19 manufacturing plants spread across India with a combined asset base of over Rs 12bn.
October 5, 2011
Supreme Industries
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Business Segments India Research
DOLAT CAPITAL
SIL has four main business segments - Plastic piping, packaging films, industrial products and consumer products. The plastic piping segment, which provides piping solutions, currently contributes 43% to overall revenues, followed by packaging films, which contributes 24%. On the other hand, the industrial and consumer product segments contribute 21% and 11% respectively to overall revenues, with others contributing the rest (1%).
SIL has a diversified business model with a large product portfolio and also has a strong reach with 19 facilities across India. Over the years, it has managed to gain significant market share across its products portfolio by leveraging its strong brand image, Supreme. It particularly enjoys strong brand recall in PVC pipes, tarpaulin and furniture segments.
October 5, 2011
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26
Plastic Piping Segment India Research

Plastic Piping: Key features
DOLAT CAPITAL
Leading player with over 5,000 products for various application systems Meets various requirements of irrigation, bore wells, potable water supply, plumbing, drainage, sewerage, rainwater harvesting and water management through a high-quality range of piping products One of the largest players in this segment, along with Finolex Industries and Jain Irrigation Introduced various path-breaking technologies in India such as the Soil, Waste & Rain Water (SWR) drainage system, the Indo-Green PP-R hot and cold water system, etc. Product portfolio includes uPVC pipes, injection-moulded fittings, HDPE pipe systems, CPVC pipe systems, etc. Commands a market share of 10% in the Rs 100bn domestic plastic piping market EBITDA margins of 12% in FY11 from this segment Share of value-added products at 22% in FY11 Contributed 43% to overall revenues and 37% to overall EBITDA in FY11 CAGR growth of around 26% from FY07 to FY11 Expected to grow at 17.2% CAGR from FY11 to FY13 driven by robust demand
Plastic Piping revenues (Rs mn): FY07-13E
October 5, 2011
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Packaging Films Segment India Research

Packaging films: Key features
Cross-laminated films (XF films) o
DOLAT CAPITAL
Key categories include cross-laminated films, specialty films and protective packaging products Acknowledged leader in plastic tarpaulin industry, providing quality multilayered cross-laminated films under the brand SIPAULIN for various inter alia agricultural and industrial applications Exports to Europe, Africa, US and West Asia
Specialty (performance) films o o Indias largest manufacturer of co-extruded multilayer barrier films (up to seven layers) with over 10,000 mtpa capacity Supplier to leading food-processing companies in India and abroad
Protective packaging products o o o Provides tailor-made packaging solutions for diverse industries Introduced various niche products in India such as EPE foam, air bubble film & cap cell Key divisions in this segment include: Protective packaging and cushioning (PROTEC): Offers customised products like corrosion-resistant, anti-static and metal-laminated foam and bubble films for industries such as sports goods, electronics, white goods, textiles, toys, etc Packaging services and logistics (PSL): Offers complete end-toend solutions ranging from recommendation and selection of right materials, customised design and fabrication, packing and dispatch Construction accessories (DURA): Offers solutions from flooring underlay to concrete expansion joints for varied requirements of both commercial and residential buildings Insulation (INSU): Offers superior insulation products specifically for requirements of various industries with the sole purpose of improving energy efficiency Introduced various path-breaking technologies in India such as instant polyurethane foams, reticulated foam for air filtration, high temperature and fire resistant melamine foam Commands a market share of over 30% in speciality products such as EPE foam, air bubble film and cap cell EBITDA margins of 19% in FY11 largely due to higher proportion of valueadded products Share of value-added products (OPM greater than 17%) at 65% in FY11 Contributed 24% to overall revenues and 33% to overall EBITDA in FY11 CAGR growth of around 17.5% from FY07 to FY11 Expected to grow at a CAGR of 21% from FY11 to FY13
October 5, 2011
Supreme Industries
28
Industrial Products India Research Segment
DOLAT CAPITAL
Packaging Films revenues (Rs mn): FY07-13E
Industrial Products: Key features

Manufacturer of industrial components and material-handling products Provides cockpit assemblies for the automobiles segment (four-wheelers) and parts and accessories for the two-wheeler segment Largest supplier of crates to the soft drink industry First to launch industrial moulded plastic pallets Product portfolio includes plastic components for air conditioners, computers, water purifiers, etc; auto plastics, and material-handling products like crates, pallets and dustbins Commands a market share of 18% in the domestic material-handling product segment (estimated market size: Rs 5.6bn) EBITDA margin of 14% in FY11 from this segment Contributed 21% to overall revenues and around 20% to overall FY11 EBITDA CAGR growth of 22.7% from FY07 to FY11 Expected to grow at a CAGR of 17.2% from FY11 to FY13 Industrial Products revenues (Rs mn): FY07-13E
October 5, 2011
Supreme Industries
29
Consumer Products Segment India Research
DOLAT CAPITAL
Consumer Products: Key features

Second-largest player in plastic moulded furniture, with current processing capacity of 21,700 mtpa Pioneer in lacquered and upholstered moulded plastic furniture Over 1mn units of modern plastic furniture manufactured every month Commands market share of 13% in domestic plastic furniture segment (estimated market size: Rs 11bn) EBITDA margins of 12% in FY11 from this segment Contributed 11% to overall revenues and 9% to overall EBITDA in FY11 Share of value-added products at 30% in FY11 CAGR growth of 12.6% from FY07 to FY11 Expected to grow at 11.5% CAGR from FY11 to FY13 on the back of renewed focus in tier II and III cities Consumer Products revenues (Rs mn): FY07-13E
October 5, 2011
Supreme Industries
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Net Revenue Mix India Research
DOLAT CAPITAL
Net revenues (Rs mn) to grow at a CAGR of 17.5% from FY11 to FY13
Revenue Mix: Plastic piping and Packaging films to continue to dominate

FY11 FY13E
October 5, 2011
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Key Operating Highlights: FY11 India Research

Plastic piping
DOLAT CAPITAL
Spurt in PVC resin prices (by 20%) during Feb-Mar 2011 dampened Q4 FY11 growth, restricting overall volume growth to 16% and value growth to 24% Building industry segment grew 30% while infrastructure grew 10% in value Under plumbing products, Aquagold System grew nearly 40% while CPVC grew over 100% SIL sold 137mn pieces of fittings in FY11 (97.7mn in FY10 -- up 40% YoY VAPs share rose from 17% in FY10 to around 22% in FY11 Overall product portfolio increased from 5,000 in FY10 to 5,311 in FY11 Introduced 450mm dia HDPE pipe in the last year, which has been well accepted by the market To introduce Nu-Drain piping system in the field of sewage & drainage transportation and is also in the process of developing the cheaper version of manhole covers in 1 mtr and 1.2 mtr dia Packaging films Healthy volume growth of 23% and value growth of 27% Packaging films segment grew 3% from 5,709 tonnes to 5,893 tonnes, largely on account of the governments reluctance on buying 5-layer film for distribution of edible oil under PDS system The new 7-layer film line has been installed and is now running satisfactorily. SIL expects over 20% volume growth in FY12. Protective packaging segment grew 13% in volume and 26% in value. Overall capacity rose from 14,960 tonnes in FY10 to 17,600 tonnes in FY11 and is expected to increase to 21,070 tonnes by FY12. XF Films grew 30% in volume from 11554 tonnes to 15,050 tonnes and 38% in value terms. SIL expects to sell the entire installed capacity of 18,000 tonnes in the current year Exports grew 7% from 1,320 tonnes to 1,412 tonnes SIL is contemplating adding 6,000 tonnes of additional capacity by Q2 FY13, considering strong demand outlay for the product. During the last quarter, SIL entered into an deal with a technical collaborator for extension of exclusive rights to manufacture and sell XF products in India and SAARC countries till up to 2025. Further, the above rights have also been extended to include entire Southeast Asia and the whole of Africa. SIL is also exploring the possibility of putting up capacity in one of the African countries. Industrial products Healthy volume growth of 17% and value growth of 29% Industrial components segment grew 30% in value, driven by buoyant demand in automobiles and consumer durables. In FY11, SIL has bagged orders for development of cockpit assembly for Tata Motorss new version trucks. The development is at an advance stage and manufacturing is expected to take off in H2 FY12. It has also bagged orders for development of plastic parts for Piaggios two wheelers, to be launched sometime early 2012. October 5, 2011 Supreme Industries 32
India Research
DOLAT CAPITAL
Another significant order was bagged for various parts and accessories from Whirlpool for its all plastic washing machine. Material handling segment grew 27% in value and 20% in volume, driven by strong demand from tailor-made crates to meet specific requirement of applications at the customers end.
Consumer products division Volume growth of 11% and value growth of 24% Furniture segment grew 13% in volume and 25% in value. New channel partners to cater to demand of west and south zone markets. SIL launched, for the first time in India, two models of Mono Block Gas Molded Chair, which has been well received by the market. Share of VAPs in this segment has increased by 3-30% of overall segment sales and the same is expected to rise by another 3% in the current year. Mats segment recorded flat growth, driven by input costs and forex volatility. FY11 revenues stood at Rs 15 crore (around 6% of overall division revenues). SIL has therefore decided to close this business by December 2011.
October 5, 2011
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Valuation India Research
DOLAT CAPITAL
We value SIL on an SoTP basis for: (i) its core operations, and (ii) its stake in SPL.
Valuation of SILs core operations on PE basis FY13E PAT (Rs mn) EPS (Rs) FY13 PE (x) Target PE multiple (x) Valuation per share (Rs) Valuation of SILs 29.9% stake in SPL on PE basis FY13E PAT of SPL (Rs mn) SILs stake (29.9%) EPS (Rs) Target PE multiple (x) Valuation per share (Rs) SoTP Valuation of SIL Valuation per share of SILs core operations (Rs) Valuation per share of SILs stake in SPL (Rs) Target price (Rs) CMP Upside potential (%)
Source: Dolat Capital research
FY13E 2,452.4 19.3 9.4 12.0 232.0 FY13E 977.8 292.2 2.3 6.0 14.0 FY13E 232.0 14.0 246.0 182.0 35.0
SILs business is valued at Rs 232 per share based on 12x its core business FY13E earnings of Rs 19.3. Further, SILs 29.88% stake in SPL is valued at Rs 14 per share. Thus, SILs SoTP valuation comes to Rs 246. Further expansion in multiples, hence an upward revision of target price, is on the cards, considering higher profitability, free cash flows and healthy return ratios. Also to be considered is SILs strong dividend payout ratio that it has maintained over the years. We initiate coverage on SIL with a BUY rating and TP of Rs 246.
Concerns
Fluctuation in prices of key raw materials: PVC resin is the key raw material for SIL, which constitutes 45% of the total raw material cost. While SIL has the pricing power to pass on these and sustain margins, however high volatility and time lag can have an adverse near term impact on earnings. Delay in sale of commercial property: We believe SIL will complete the sale of its entire commercial property by FY13. Any delay will affect cash flows and financials.
October 5, 2011
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Financials India Research

INCOME STATEMENT Particulars June10 Net Sales 19,866 Other operating income 91 Total Income 19,957 Total Expenditure 17,103 Raw Material 11,865 Cost of goods traded 1,325 Decrease / (Increase) in stock (98) Stores and spare parts consumed 201 Employee Expenses 1,114 Power, Oil & Fuel 795 Packing, freight and transport charges 638 Selling & Administrative Expenses 1,187 Other Expenses 75 EBIDTA (Excl. Other Income) 2,855 EBIDTA (Incl. Other Income) 2,896 Other Income 42 Interest 331 PBDT 2,608 Depreciation 529 Profit Before Tax & EO Items 2,078 Extra Ordinary Exps/(Income) - Post tax (89) Profit Before Tax 2,167 Tax 706 Net Profit 1,461 Share of Associates 139 Net Profit 1,600 Adjusted Net Profit (adj. for EO items) 1,470 BALANCE SHEET Particulars Sources of Funds Equity Capital Share Premium Other Reserves Net Worth Secured Loans Unsecured Loans Loan Funds Deferred Tax Liability Total Capital Employed Applications of Funds Gross Block Less: Accumulated Depreciation Net Block Capital Work in Progress Investments Current Assets, Loans & Advances Inventories Sundry Debtors Cash and Bank Balance Loans and Advances sub total Less : Current Liabilities & Provisions Current Liabilities Provisions sub total Net Current Assets Misc Expenses Total Assets E-estimates June10 254 475 3,412 4,141 2,691 1,182 3,874 698 8,713
DOLAT CAPITAL
CASH FLOW Particulars Profit before tax Depreciation & w.o. Direct taxes paid Change in Working Capital (Non Cash) Other (A) Cash Flow from Operating Activities Capex {Inc./ (Dec.) in Fixed Assets n WIP} Free Cash Flow Inc./ (Dec.) in Investments (B) Cash Flow from Investing Activities Issue of Equity/ Preference Inc./(Dec.) in Debt Dividend Paid (Incl. Tax) (C) Cash Flow from Financing Net Change in Cash Opening Cash balances Closing Cash balances E-estimates IMPORTANT RATIOS Particulars (A) Measures of Performance (%) Contribution Margin EBIDTA Margin (excl. O.I.) EBIDTA Margin (incl. O.I.) Interest / Sales PBDT Margin Tax/PBT Net Profit Margin (B) As Percentage of Net Sales Raw Material Employee Expenses Power, Oil & Fuel Selling & Administrative Expenses Packing, freight and transport charges (C) Measures of Financial Status Debt / Equity (x) Interest Coverage (x) Average Cost Of Debt (%) Debtors Period (days) Closing stock (days) Inventory Turnover Ratio (x) Fixed Assets Turnover (x) Working Capital Turnover (x) Working Capital Turnover (days) Non Cash Working Capital (Rs Mn) (D) Measures of Investment EPS (Rs.) (excl EO) EPS (Rs.) CEPS (Rs.) DPS (Rs.) Dividend Payout (%) Profit Ploughback (%) Book Value (Rs.) RoANW (%) RoACE (%) RoAIC (%) (Excl Cash & Invest.) (E) Valuation Ratios CMP (Rs.) P/E (x) Market Cap. (Rs. Mn.) MCap/ Sales (x) EV (Rs. Mn.) EV/Sales (x) EV/EBDITA (x) P/BV (x) Dividend Yield (%) E-estimates June10 June11 June12E June13E 2,265 2,761 3,599 4,400 529 619 755 841 (706) (802) (846) (1,077) (319) (518) (859) (1,238) (14) (22) (19) 0 1,755 2,038 2,630 2,925 (661) (2,463) (1,938) (2,000) 1,094 (425) 692 925 (197) (223) (225) (247) (858) (2,686) (2,163) (2,247) 0 0 0 0 (283) 1,239 398 290 (534) (635) (832) (996) (817) 603 (435) (706) 79 (45) 32 (28) 107 187 142 174 187 142 174 147
Rs.mn June11 June12E June13E 23,965 28,329 33,075 333 382 431 24,297 28,711 33,506 20,975 24,706 28,720 15,147 17,422 20,341 849 1,133 1,323 (228) 0 0 233 312 331 1,383 1,700 1,985 1,002 1,275 1,488 876 907 992 1,604 1,813 2,084 108 145 176 3,322 4,005 4,786 3,367 4,048 4,851 45 43 65 425 486 480 2,986 3,605 4,436 619 755 841 2,367 2,849 3,595 (177) (523) (578) 2,545 3,372 4,173 802 846 1,077 1,742 2,526 3,095 261 270 292 2,003 2,796 3,388 1,781 2,230 2,745
June10 June11 June12E June13E
13.9 14.4 1.7 12.9 33.2 7.4 58.7 5.6 4.0 6.0 3.2 0.9 7.2 8.5 24 53 6.8 3.5 8.9 54.1 2,047 11.6 12.3 16.4 3.6 34.2 65.8 32.5 40.9 28.6 29.1
12.5 13.9 1.8 12.3 35.1 7.4 61.3 5.8 4.2 6.7 3.7 0.9 6.5 8.3 23 53 6.9 2.0 8.6 48.0 2,648 14.0 15.4 18.9 4.3 32.4 67.6 43.0 37.0 27.3 27.8
12.8 14.1 1.7 12.6 33.2 7.9 61.5 6.0 4.5 6.4 3.2 0.7 6.8 8.8 27 55 6.6 2.0 7.7 58.0 3,527 17.6 21.7 23.5 5.6 30.2 69.8 58.1 34.6 26.2 26.6
13.2 14.5 1.5 13.2 33.2 8.3 61.5 6.0 4.5 6.3 3.0 0.6 8.4 8.2 29 55 6.6 2.1 6.7 60.0 4,765 21.6 26.2 28.2 6.7 30.0 70.0 76.4 32.1 26.7 27.0 182 8.4 23,119 0.7 28,772 0.9 6.0 2.4 3.7
June11 June12E June13E 254 475 4,748 5,477 3,532 1,580 5,112 795 11,385 254 475 6,669 7,398 3,830 1,680 5,510 795 13,704 254 475 8,996 9,725 4,150 1,650 5,800 795 16,320
9,689 4,033 5,655 131 693 2,906 1,310 187 978 5,382 3,134 14 3,148 2,234 0 8,713
12,021 4,604 7,417 262 916 3,454 1,529 142 1,511 6,636 3,845 1 3,845 2,790 0 11,385
14,021 5,359 8,661 200 1,141 4,269 2,096 174 2,228 8,766 5,045 20 5,065 3,701 0 13,704
16,021 6,201 9,820 200 1,388 4,984 2,628 147 2,869 10,627 5,691 25 5,716 4,912 0 16,320
182 182 182 15.7 13.0 10.4 23,119 23,119 23,119 1.2 1.0 0.8 26,806 28,089 28,455 1.3 1.2 1.0 9.4 8.5 7.1 5.6 4.2 3.1 2.0 2.4 3.1
October 5, 2011
Supreme Industries
35
India Research
DOLAT CAPITAL
October 5, 2011

Supreme Industries
36
Initiating Coverage
Sintex Industries India Research

DOLAT CAPITAL
Buy
Sintex Industries has corrected 54% from its peak owing to concerns on sustainability of growth and overhang of FCCB redemption. While the near term challenges remain, we do not see any earnings deceleration which warrants such correction. Apart from the momentum visible in the building products segment, the custom moulding segment continues to show reasonable growth backed by operational synergies across acquired companies and capex initiatives at its domestic facilities. We expect Sintex to report a revenue and PAT CAGR of 21.6% and 16.2% respectively from FY11-13E. Considering that Sintex has a diversified presence across sectors, we have valued these segments (building product, custom moulding and textiles) on EV/EBIDTA basis and arrived at the valuation of Rs174 per share after considering a 20% conglomerate discount. At the target price, the stock trades at an implied P/E of 7.6x FY13E EPS and 6x FY13E EV/EBIDTA.
BSE Sensex NSE Nifty Scrip Details Equity Face Value Market Cap 52 week High/Low Avg. Volume (no) BSE Code NSE Symbol Bloomberg Code Reuters Code Rs.271mn Rs.1/Rs.30bn USD 607mn Rs. 237 / 110 1,553,413 502742 SINTEX SINT IN SNTX.BO 15,792 4,751
Thrust on change but Connect within the Disconnect Since its incorporation, Sintex has forayed into niche businesses like liquid storage tanks, prefabricated structures and monolithic construction. Further, Sintex made a series of overseas acquisitions which not only marked its entry into EU and the US markets but also helped it diversify into a host of plastic composite products with applications in aerospace & defence, mass transit, medical imaging, wind energy and so on. This willingness to change prompted Sintex to foray into scalable businesses at their nascent stages. Such forays gave it a first-mover advantage, helped identify inflection points and then capture the market, leading to attractive value-creation. It may be noted that while a number of its business verticals and products may appear unconnected, there is a common thread binding them -- replacing conventional material with plastic in high-growth sectors. Monolithic segment to drive building product revenues The building product segment comprises of three revenue streams monolithic construction, pre-fabricated structures and storage tanks. The monolithic segment particularly has grown rapidly, with revenue and EBIDTA CAGR of 85% and 92% respectively from FY08-11. With a strong order book of Rs 30bn and increasing scalability in terms of number of sites per annum and average ticket size of orders resulting in economies of scale, we expect this segment to report revenue and EBIDTA CAGR of 38.5% and 29.4% respectively from FY11-FY13E. The building products segment in turn is expected to grow at 31% and 24% CAGR in revenue and EBIDTA respectively. Custom moulding segment to supplement growth Sintex has over the years developed as a leading plastic processor in the areas of electricals and automobiles, providing plastic components to dedicated OEM clientele. After acquiring companies abroad, it has ventured into composites business in various high-growth verticals such as mass transit, aerospace & defense and medical imaging. After being hit during the slowdown, these are now beginning to deliver due to outsourcing synergies and following some signs of revival. We expect this segment to deliver a revenue and PAT CAGR of 13.6% and 11.8% respectively for FY11-13E.
Shareholding Pattern as on June11(%) Promoter 35.0 MF/Banks/FIs 5.8 FIIs 37.8 Public / Others 21.4
Sintex relative to Sensex 130 120 110 100 90 80 70 Apr-11 Aug-11 Sensex Dec-10 Oct-10 Feb-11 Jun-11
Sintex
Financials
Year Net Sales % growth EBITDA OPM% Adj. PAT % growth Adj.EPS(Rs.) PER (X) EV/EBIDTA(x) ROANW(%) ROACE(%) FY10 32,816 7.1 5,009 15.3 3,294 1.3 12.1 9.0 9.3 17.8 10.7 FY11 44,752 36.4 8,069 18.0 4,600 39.7 16.9 6.5 5.9 21.1 14.0 FY12E 54,746 22.3 9,535 17.4 5,061 10.0 18.5 5.9 5.0 19.1 13.9 FY13E 66,152 20.8 11,187 16.9 6,217 22.8 22.8 4.8 4.5 19.5 16.4 Figure in Rs mn
October 5, 2011
Sintex Industries
37
India Research
DOLAT CAPITAL
Mantra: Thrust on change but Connect within the Disconnect

Sintex started off as just a textile company. It then pioneered the concept of liquid storage plastic tanks, which, in a span of five years, became a great household and industrial brand. However, with unorganised players eating into its market share with spurious products, Sintex transformed into a multiproduct plastic company, finding applications in building products, electricals and automobiles. In 2001, Sintex pioneered the concept of prefabricated structures, which did not gain sizeable proportions until 2005. By then Sintex had developed strong relations with the state governments who had approved the company as a pre-fab vendor. This was a precursor to Sintex entering into Monolithic Construction (now its mainstay) in 2005, after considering a number of requests from the state governments to find solutions for mass housing. Further, after gaining significant presence in the custom moulding segment, Sintex made a series of overseas acquisitions, which not only marked its entry into EU and USA markets but also helped diversify into a host of plastic composite products, finding applications into aerospace & defence, mass transit, medical imaging, wind energy and so on. This transformed Sintex from being a domestic company into a global player in plastic composites. Interestingly, what used to be a flagship product at one point of time (liquid storage plastic tanks) today accounts for less than 5% of its revenues, with the companys success in other niche areas. A number of industry observers believe Sintex has been growing into nonsynergic businesses that could potentially impede medium-term profitability. However, it may be noted that while a number of its business verticals and products may appear unconnected, there is a common thread binding them - the novel application of plastic to replace conventional material in highgrowth sectors with long-term potential.
October 5, 2011
Sintex Industries
38
Building Product Segment India Research
DOLAT CAPITAL
Monolithic segment to drive revenues in the building product segment

The building product segment (49% of revenues) comprises of three subsegments - Prefabricated structures, Monolithic Construction & Liquid Storage Tanks. Prefabricated Structures set to grow after a lull Sintex introduced prefabricated structures -- readymade building strutures -in India in 2001. These have been used globally for a large variety of applications, including both temporary and permanent residential, industrial and commercial structures. Sintexs prefabricated structures use concrete between plastic channels, making it lighter and easy to set up and transport without reducing its overall strength. Prefabricated structures can be utilised to create small structures at multiple locations. These products are made of plastic, concrete and related material. These structures are delivered as turnkey projects by Sintex as it offers endto-end solutions from manufacturing to execution of logistics and installation. These are 25-40% cheaper, time to erect them is just 10-15% of a concrete structure, and they can withstand earthquakes up to seismic level of five and wind speed of up to 150 km per hour. Some of the most common applications for prefabricated structures in India: BT shelters that give excellent insulation for housing telecom and electronic equipment Public healthcare centres and schools (high on government priority) and public administration buildings in remote locations (80-85% of Sintexs prefab revenues is comprised from this segment); and Portable toilets
Prefabs business - Operating Economics The prefabricated structures business is very much an execution-led business that requires not only a well-trained workforce but also manufacturing facilities at strategic locations so as to reduce the lead time and costs associated. Ideally, any contract under this segment becomes viable if the location where the construction occurs is within 1,000km of the manufacturing location. Sintexs plants are located in five places in India to maximise the addressable area as under:
Sintexs manufacturing locations Kalol, Gujarat Nagpur, Maharashtra Kolkata, West Bengal Salim, Tamil Nadu Baddi, Himachal Pradesh Dadri, Uttar Pradesh
Source: Company
Approved States falling within 1,000km radius Gujarat & Rajasthan Maharashtra, Madhya Pradesh & Chattisgarh West Bengal, Bihar & Assam Karnataka, Tamil Nadu, Kerela & Andhra Pradesh Himachal Pradesh, Punjab & Haryana Uttar Pradesh, Haryana & Delhi
Approvals from State govt a pre-requisite - the largest demand driver so far The above table indicates that Sintex has already been approved as a prefab vendor for 17 states and it expects to add other states as well over the next few years. It may be noted that allocation of funds to social infrastructure flagship schemes in education, health and sanitation have been consistently increased since FY08, thereby driving demand for prefabs required for implementation. October 5, 2011 Sintex Industries 39
India Research
Budget allocation (Rs mn) FY08 FY09 FY10
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FY11 FY12 Focus area for Sintex 178,400 Healthcare centers 16,500 Sanitation blocks 103,800 Kitchen sheds 210,000 Education centers
National Rural Health 99,470 120,500 139,300 156,720 Mission Total Sanitation Campaign 9,400 12,000 12,000 15,800 Mid-day meal Scheme 73,240 80,000 80,000 94.400 Sarva Shiksha Abhiyan 106,710 131,000 131,000 150,000
Almost 30% of allocation towards these schemes is directed toward setting up of classrooms, mid-day meal kitchens, toilet blocks and healthcare centres, thereby opening up a big opportunity for Sintex, which has been a leader in this segment. Capacity Expansion In this space, Sintex recently incurred a capex of Rs 700mn for putting up a facility at Dadri in Uttar Pradesh, which got commissioned in August 2011. This will benefit Sintex in terms of saving logistics costs while catering to projects in the UP state which it was serving through its facility in Baddi, Himachal Pradesh. Further it is also proposing to set up another facility in the North East region at a capex of Rs 700 million. This will take Sintexs total number of prefab units to seven. Order book At any given point in time, Sintex has an order book of Rs 1-1.5bn. Nearly 8085% of the book is dominated by orders from state governments for building prefabs for public healthcare centres & schools while the balance is from private sector which includes orders for building BT shelters & worker sheds. New product launches: Cold chain management solutions In addition to the government orders, Sintex is scaling up its presence in warehousing, agriculture sheds and cold chain management. It has recently commissioned a new plant imported from Korea capable of manufacturing larger structures that are typically required for building warehouses. The new plant has the capability to manufacture slabs of 40 feet in length, which allows the company to prefabricate larger structures. India is losing food items worth Rs 500bn annually on account of the poor post-harvest handling of farm produce. Logistic companies in India have drawn up an investment plan of Rs 50 billion for 2010-12 to expand warehouse operations nationwide. Sintex is prepared for this opportunity through the manufacture of customised pallets for diverse applications, racking systems, new walling solution (sandwich panel with puff insulation), complete warehousing solutions and cold-chain management solutions. BT Shelters: Momentum continues to drift downwards Sintex, though its acquisition of Zep Infratech (which had a 25% market share in BT Shelter segment) in FY07 further consolidated its position in the BT shelter segment. It offers BT Shelters for the telecommunications industry that are well insulated, lightweight, compact, watertight, dust proof and durable. These shelters have thermally insulated walls made from high-grade sandwich panels with P U F as core, the technique which is mastered by Sintex. After initial stages of strong growth momentum, this segment has been a laggard over the last couple of years with telecom industry witnessing a sharp October 5, 2011 Sintex Industries 40
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downturn in capex cycle. Though we expect this segment to continue to underperform in the short to medium term, we believe that the growth in other segments would more than make up for this underperformance. Prefab segment: cost break-up & EBIDTA (%)
Prefab segment: Revenues (Rs mn), EBIDTA (Rs mn) & EBIDTA (%): FY07-FY13E
Zap Infra: Revenues (Rs mn), EBIDTA (Rs mn) & EBIDTA (%): FY07-FY13E
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Competitive strengths put Sintex in the Numero Uno position In the prefabs space, Sintex competes largely with L&T on a national level , besides regional players. We believe Sintex will remain a dominant player in this segment on account of its following strengths: Approved by 17 state governments, a pre-requisite before obtaining orders from them Ability to make a wide-range of products besides regular introduction of new products Scale and efficiency gained over the years: Setting up 1,500 classrooms across 450 villages in 9-10 months is a huge task. Sintex has mastered the technique through better kit designing, speed of execution and logistics management. Small/regional competitors find it tough to match similar scale and efficiency. Advantages over conventional brick & mortar construction cheaper by 25-40% Time to erect is just 10-15% of a concrete structure Portable and easy to erect Strong, durable and safe Excellent thermal insulation
Prefabricates Structures
Prefab School Prefab Bunk House
Prefab BT Shelter
Prefab Toilets
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Monolithic construction to drive overall revenue growth What is monolithic construction In 2008 Sintex designed and introduced an entirely new housing solution to address Indian mass and low-cost construction needs, named monolithic construction. Monolithic concrete construction is a method by which walls and slabs are constructed together by pouring fluid cement concrete into a light weight formwork system while using nominal quantities of metallic reinforcement bars to strengthen and stabilise. This is now widely used for slum rehabilitation, one of the areas of thrust in India. Addressable market India currently faces shortage of 25mn housing units which is expected to increase to 38mn units by 2030 (source: Urban Development Ministry). To address this issue, GoI introduced the Basic Services to Urban Power (BSUP) and the Integrated Housing and Slum Development Programme (IHSDP) programs under the JNNURM scheme, which will entail an investment of Rs 395bn over 20 years. Besides, the Indira Awas Yojana (IAY) aims at helping rural people below the poverty-line and falling under the SC/ST category, freed bonded labourers and the non-SC/ST categories. It proposes to construct dwelling units and upgrade existing unserviceable kutcha houses by providing grants-inaid. The National Housing Board has estimated that there will be a rural housing shortage of 55mn units by 2012. The government has earmarked Rs 100bn for FY12 for rural housing under IAY. This opens up a huge addressable market for Sintex, which provides mass housing solutions (since FY08) to these economically weaker sections (EWS), slum dwellers, urban poor, low income groups (LIG) and rural poor by way of monolithic construction. Government spending on affordable housing (Rs in mn)
Budget allocation JNNURM (BSUP) FY06 FY07 FY08 FY09 FY10 FY11 Focus area for Sintex Affordable housing for urban poor (EWS) Slum rehabilitation
3,340 10,000 15,010 18,800 22,670 29,050
JNNURM (IHSDP) Total JNNURM Indira Awas Yojana
5,000
4,900
6,140 11,140 11,620
Housing needs of rural poor Source: Ministry of Housing & Urban Poverty Alleviation (MHUPA) & Ministry of Rural Development
3,340 15,000 19,910 24,940 33,810 40,670 28,000 26,000 40,000 54,000 89,000 100,000
Apart from the above demand drivers, the Indian Railways (IR), Indian Army and the postal department too have been fuelling demand. IR plans to build 1mn homes for its 1.4mn employees over seven years. The army needs 25,000 houses, of which monolithic would constitute 12-15%. Further, the company has now started focusing more on housing boards as compared to central schemes under JNNURM for orders, which might improve working capital as receivable days from housing boards are lower by around 30 days compared to Central Government schemes.
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Advantages over brick & mortar construction Speed: Construction time for monolithic structures takes less than half (68 months) of that for regular construction of similar size (18-24 months). Cost: Monolithic is 8-12% cheaper than regular construction in terms of large projects, with optimum use of formwork (nearly 80-100 retreats per formwork) and material, mainly due to limited skilled workforce requirement. Working capital: Far lower as it involves faster execution Stringent benchmarks: It benefits from rigorous seismic and wind speed resistance as compared to regular construction No plastering: In monolithic construction, four walls and slabs are cast in one shot through the use of plastic formwork which renders a smooth and clean concrete surface, thereby eliminating the need for plastering. Maintenance: Virtually zero maintenance cost while it remains on the higher side for regular construction.
Strong order book Sintex enjoys a strong order book of Rs 30bn (2.2x FY11 segmental revenues) in the monolithic space. Of this, 70% pertains to government orders (Rs 12bn worth from UP, Rajasthan and Gujarat state housing boards and Rs 9bn from slum rehabilitation projects), around 10% from IR and the balance from the army, police and postal departments. Current order book distribution & Order book trend (FY07-FY13E) - In Rs mn
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Order inflow (Rs mn) trend (FY07-FY13E)
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Monolithic Construction segment: Cost break up & EBIDTA (%)
The monolithic segment has grown at a rapid pace with a revenue and EBIDTA CAGR of 85% and 92% respectively in FY08-FY11. We expect this segment to report revenue and EBIDTA CAGR of 38.5% and 29.4% respectively from FY11FY13E. This will ride on a strong order book of Rs 3bn, increasing scalability in terms of number of sites under coverage per annum and average ticket size of orders resulting in economies of scale. Monolithic Construction segment: Economies of scale catching up
Monolithic Construction segment: Revenues, EBIDTA & EBIDTA (%): FY07-FY13E
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Long-run competitive pressure on margins Sintexs monolithic business is not unique from a technology perspective, however it is purely an execution-led business. Over the past couple of years, companies like B E Billimoria, Man Infra and Ahluwalia have entered the space. However, the only comparable company in this space with similar size is L&T, which is the strongest competitor for Sintex while others with relatively smaller size include IVRCL and Shapoorji Pallonji & Co. Though we expect margins to erode over long term due to adoption of similar technologies by other players, we believe Sintexs first mover advantage and Rs30bn order book would help maintain its margins over the next couple of years. Advantages over competition: Backward integration of plastic sheets used to make plastic formwork Use of Sintex home accessories such as plastic doors, windows, etc Lean and mean set with lead (faster turnaround time) advantage
Monolithic Construction images
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Past acquisitions under building product segment
Acquired Cos Zep Infratech Digvijay Comm. Durha Const Origin India India India Holding 100% 100% 30% Segment Prefab Prefab Monolithic Cost of acq. Rs180mn Rs540mn Rs420mn
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Date of acq. May06 Jun08 Dec10
FY11 Rev Rs1.2bn Incl in Zep Infra Incl in Sintex India
Acquired companies under this segment, their product profile & strategies:
Acquired Cos Zep Infratech Portfolio of services & Strategy behind acquisition Leading telecom shelter manufacturer, now diversified into designing, manufacturing and installing mobile hospitals, ambulances, cold chain solutions, radar shelters, high altitude defence shelters etc. Strategy: Consolidate its position in the high-growth BT (basic telecom) shelter space wherein Zep had 25% market share in India Provider of telecom infra services which includes network infrastructure services, installation and commission, annual maintenance and telecom tower manufacturing. Strategy: To enable Sintex to provide end-to-end solutions in the telecom space from manufacturing (tower and shelter) to installation and commissioning Mainly engaged into the business of civil construction & mechanical construction work in varied infrastructure sectors including power, petrochemicals, cement from medium to large projects in both private and public sectors. Strategy: To strengthen its execution capabilities in the monolithic construction space (Durha over the years has been associated with big contractors like L&T for providing civil & mechanical construction services)
Digvijay Comm.
Durha Const
Storage tanks segment to exhibit revenue CAGR of 10% Once a flagship product, the storage tank segment now accounts for just 4.4% of overall revenues (FY06 contribution: 13%). Sintex has been in business for over three decades and remains a dominant player in this segment. Besides water tanks, Sintex makes underground storage tanks and fibre glass reinforced plastic tanks used in chemical depots and petrol stations. Over the past five years (FY07-FY11), revenues in this segment have grown at 11% CAGR while EBIDTA margins have been hovering around 9-12%. We expect this segment to exhibit revenue CAGR of 10% over the next two years with EBIDTA margins to be maintained at around 10%. Further, we expect overall contribution of this segment to further go down to 3.6% of overall revenue by FY13E. Storage tanks segment: Revenues, EBIDTA & EBIDTA margin trend
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Building product segment revenue to grow at 31% CAGR & EBIDTA at 24% CAGR from FY11-13E: Led by 38.5% revenue CAGR & 29.4% EBIDTA CAGR in monolithic segment Building product segment: Revenues, EBIDTA & EBIDTA margin trend
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CustomResearch India Moulding Segment
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Custom Moulding segment to supplement growth

Sintexs standalone custom moulding (CM) segment, by virtue of its three facilities at Bhachau, Kalol and Nalagarh, is largely focused on supply of electrical components such as sheet moulding compound (SMC) meter boxes, SMC distribution boards, FRP cross arms, polymeric insulators etc (forming nearly 70% of the standalone CM revenues) to private sector players. The key players include Reliance Energy and Torrent Power and various state electricity boards. The remaining comes from supply of composite tractor fuel tanks to domestic tractor makers and a range of other products, including enclosures for gensets, rotors, and fuel tanks for gensets made by Cummins International. This segment has grown at 12.5% CAGR in FY07-11 while margins have been very impressive hovering at 23-26% over the past five years. The increasing T&D spend through government programs such as APDRP and RGGVY, expected to witness further traction in the 12th five year plan, will remain a strong demand driver for the electrical components business. We expect this segment to grow at a revenue CAGR of 9% over the next two years while margins are expected to hover between 24-25%. Sintex standalone CM segment: Revenues, EBIDTA & EBIDTA margin trend
Rs.mn
Having gained a strong foothold in electrical components, the only way to diversify its product portfolio was through the inorganic route. Sintex, thus, did a series of acquisitions, domestic and overseas, not only to enhance its product portfolio but also to diversify across geographies. Spree of acquisitions under the custom moulding segment
Acquired Cos Wasaukee Nero Plastics Bright Auto Nief Plastics Origin USA USA India France Holding 100% 100% 100% 100% Segment Custom Moulding Custom Moulding Custom Moulding Custom Moulding Cost of acq. $20.5mn $4.7mn Rs1.5bn 42mn Date of acq. Jun07 Dec07 Sep07 Oct07 FY11 Rev Rs2bn Incl in Wasaukee Rs2.8bn Rs9.9bn
The acquisitions in CM enabled Sintex to not only enter new geographies like USA and Europe but also to bring various processes (like injection moulding, blow moulding, rotomoulding, extrusion, pultrusion, etc) under one roof, thereby helping it to diversify from electricals and automobiles to defence & aerospace to wind energy and mass transit. October 5, 2011 Sintex Industries 49
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India Research
Acquired cos under this segment, product profile & strategies:
Acquired Cos Wasaukee Portfolio of services & strategy behind acquisition
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Makes highly engineered plastic composites in the US with presence in varied sectors like electricals, automobiles, wind energy, medical imaging systems, mass transit, etc Strategy: Access to technology, entry into the US market, ready access to strong clientele, shifting manufacturing base to India and widen plastic composites portfolio to include applications for wind energy, mass transit and medical imaging
Nero Plastics
Makes low and medium volume plastic composites finding applications in heavy equipments, mining, heavy truck, mass transit, medical and sporting goods industries Strategy: To enhance Wasaukees product mix and moulding processes and further consolidate Sintexs position in the US plastic composite market
Bright Auto
Leading manufacturer of a range of exterior and interior automotive plastics, including front and rear bumper systems, green house systems, seating systems and cockpit systems and has five facilities located at all key auto hubs across India Strategy: To enhance access to major OEMs and to use its low-cost base for Wausaukee and Nief clients
Nief Plastics
Leading manufacturer of plastic composites in France with presence in varied sectors like electricals, aerospace and defence, automobiles, medical imaging systems, appliances etc Strategy: Access to technology, entry into higher end plastic composites like aerospace and defence, entry into EU composite market and ready access to its strong customer base
Bright Autoplast: Entry into auto component segment In FY08, Sintex acquired the automotive products division of Bright Brothers (34 years in automotive components) to consolidate its position in the high-growth domestic auto components market. The company has six manufacturing plants -- Gurgaon, Pune, Pithampur, Nashik and two in Chennai. Bright makes injection moulded plastic components for the auto industry such as exterior systems (bumpers and other exterior trims), interior systems (dashboards pit, instrumental panels with sub assemblies of ventilation system, side wall, acoustic management, and seating systems) and under hood systems (air ducts, fuel tank parts and radiator fan blades). Its clientele include Maruti, Hyundai, M&M, Tata Motors, GM, Nissan, Ashok Leyland, Force Motors, TVS, Honda among others. Brights revenue and EBIDTA have grown at an impressive 90% and 75% CAGR respectively in FY08-FY11. Sintex now is strongly focused on outsourcing its international business from India as employee expenses are higher by around 30% at Nief and 35% at Wausaukee as against 10% at Bright Auto Plast. Over the past couple of years, Sintex has been successful in persuading some of Niefs clientele to source supplies from India. Notably, Schneider has already set up arrangements with the company, whereby Sintex will supply to its global subsidiaries from Brights Chennai facility (specially dedicated for Schneider). Sintex is also in talks with a number of other customers for similar arrangements. We expect Bright to grow at 32.5% and 25.4% CAGR in terms of revenues and EBIDTA respectively in FY11-13E, while maintaining margins at round 14-15%.
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India Research EBIDTA & EBIDTA margin trend Bright Autoplast CM segment: Revenues,
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Rs.mn
Wasaukee Composites (WCI): Entry into US market Sintex acquired WCI in FY08 for $20.5mn. It has excellent technical capabilities in highly engineered composites components for both auto and electrical applications. WCI has also developed strong relationship with a number of Fortune 500 OEMs. WCIs revenue comes mainly from industrial trucks and tractors (25%), agriculture (15%), medical injecting (30%) and mass transit (30%). Further, in the same year, WCI acquired Nero Plastics, USA, a custom-molder of low- and medium-volume structural plastic and composite components. Neros customer base includes Caterpillar, Motor Coach Industries and Kenworth Truck with Caterpillar contributing around 65% to its revenues WCIs major clients include Caterpillar, John Deere, Siemens, Alstom, Acciona, Phillips Medical Systems, GE Medical Systems and Rail Plan International. Sintex now plans to use its low cost base in India (facilities of Bright Autoplast) -- which is expected to be margin accretive -- to serve these clients. We expect WCI to report revenue and EBIDTA CAGR of 7.5% and 18.5% respectively in FY11-13E. Wausaukee CM segment: Revenues, EBIDTA & EBIDTA margin trend
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Nief Plastic: Entry into EU plastic composite market In FY08, Sintex entered the EU market through the acquisition of Nief Plastic, a leading plastic composites maker with 12 manufacturing facilities -- eight in France and one each in Hungary,Slovakia and Tunisia and Morocco. The company has developed strong relationship with global majors such as Peugeot, Renault, Schneider, ABB, Alstom and Valeo among others. It has a diversified business model with revenue primarily coming from the automotive (28%), electrical (35%), aerospace & defence (30%) and medical imaging (7%) sectors . Nief Plastic has grown at 41% and 60% CAGR in terms of revenue and PAT respectively in FY08-11. Given the EU slowdown, we expect it to grow at 11% and 12% CAGR in revenues and EBIDTA respectively from FY11-FY13E. Nief has now started outsourcing from Brights facilities in India to serve its international clientele.
Nief Plastic CM segment: Revenues, EBIDTA & EBIDTA margin trend
Total CM segment to exhibit revenue & EBIDTA CAGR of 14% & 12% respectively over the next two years
Total CM segment: Revenues, EBIDTA & EBIDTA margin trend
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Textile Research India Segment
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Textiles Steady cash flow business with strong margins

Since its incorporation in 1931, Sintex has been engaged in textiles, making yarn dyed structured fabrics and corduroy. The company enjoys a 70% share of the structured fabric market within India, addressing the growing needs of premium mens shirt brands. Sintex is one of Indias largest and Asias third largest corduroy makers. It makes a range of corduroy fabrics, including yarn dyed corduroy and ultima cotton yarn based corduroy. The company markets its products under the BVM brand name.
Its clientele includes premier international design houses such as Triber, Gap, DKNY, Ralph Lauren, Marks & Spencer, Diesel and Banana Republic as well as renowned domestic brands such as Arrow, Zodiac, Van Huesen, Louis Phillipe. Sintex has a technical and market development alliance with various European design houses. It has the facility to manufacture 29mn metres of structured fabrics. Nearly 70% of the revenues from this segment come from supplies to readymade garment makers while the rest comes from the collection segment, which has much higher realisations and better margins. Sintex expects the collection segment to contribute over 35% to the textile revenues by FY13E with an uptick in demand from international brands.
Textiles segment: Revenues, EBIDTA & EBIDTA margin trend
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Consolidated Revenue & EBIDTA Mix India Research
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Sintex Consolidated Revenues (Rs mn): FY07-FY13E
Sintex Consolidated Revenue Mix (%): FY07-FY13E
Sintex Consolidated EBIDTA (Rs mn): FY07-FY13E
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Sintex Consolidated EBIDTA Mix: FY07-FY13E
Sintex EBIDTA Margin segment-wise & Overall (%) : FY07-FY13E
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India Research exposure to monolithic segment to keep working capital high Higher
Prior to the companys evolution as a major force in the monolithic segment, Sintex was operating with a lean working capital cycle of 11-20% of sales (FY0709). Working capital cycle in the monolithic segment is as high as 5-6 months which has elevated the working capital cycle to 28% in FY11. FY10 working capital cycle an aberration Sintex saw its working capital cycle shoot up to 42% in FY10. However, this was largely on account of funds to the tune of Rs 3.5bn being deposited as security in the escrow account for acquisitions and also due to funds provided for obtaining bank guarantees for the monolithic orders from UP. This increased Sintexs loans and advances from Rs 3.7bn in FY09 to Rs 8.2bn in FY10. Subsequently these amounts were withdrawn in FY11, which corrected the working capital cycle to 28%. Going forward, with the contribution from the monolithic segment expected to rise from 30% in FY11 to 39% in FY13E, we believe working capital is likely to remain at elevated levels. Working Capital / Sales (%)
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FCCB redemption likely in March 2013 positive impact on ROCE

Sintex issued USD 225mn worth FCCBs in FY08 with a conversion price of Rs 290. This was further reset to Rs 246 in March 2010. This is due for conversion in March 2013. Our calculation below (assuming FY13 forex rate at Rs 46/USD) suggests that the break even price for FCCB holders (considering 5.2% interest on non-conversion of bonds and incremental forex liability on depreciation of rupee) will be Rs 352 per share.
FCCBs issued in March 2008 Interest @5.2% Total liability at fixed forex rate Incremental forex liability assuming rate at 46 Net outflow & equivalent break-even price USD mn USD Rate Rs mn Conv. Price 225 40.5 9,119 246 65 40.5 2,634 71 290 40.5 11,754 317 1,296 35 13,050 352
Since there is a wide gap between CMP and equivalent break even price (below which they would not convert into equity), we assume Sintex will have to redeem FCCBs in FY13. Thus, we have factored the same in the FY13 numbers. Sintex currently has Rs 9.8bn cash balance (including Rs 5bn of unutilised cash raised through FCCB borrowing, invested in fixed deposits), which is more likely to be utilised to redeem the same, while the balance (Rs 3.2bn) will be met through internal free cash flow generation and incremental borrowing of funds. Redemption of bonds through utilisation of available cash would reduce the capital base, thereby resulting in positive impact on ROCE by up to 100bps. October 5, 2011 Sintex Industries 56
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Return ratios to remain healthy with ROCE gaining traction on probable FCCB redemption
Concerns
Slowdown in govt orders Sintex, which derives nearly 70-80% of its construction orders (both prefabs and monolithic) from state and central governments, will be vulnerable to any slowdown in government spending, which in turn will affect order inflows and impact our estimates. Competition in monolithic to impact margins in medium to long run Sintexs monolithic business is not unique from the technology perspective but is purely an execution led business. Over the last couple of years, companies like B E Billimoria, Man Infra and Ahluwalia have entered the space. Any aggressive bidding for future contracts will result in margin deterioration. Raw material cost risks Sintex passes on the rise in input prices to end customers for contracts having larger execution period (over 4-5 months). However, for prefabs, which have a shorter execution period, the company does get affected. In case of CM products, wide fluctuations in input costs being relative to crude prices (which have remained volatile) would have an impact on margins. Overseas subsidiaries susceptible to slowdown Sintex derived around 27% of its FY11 revenues from overseas with Europe and US contributing 22% (through Nief Plastic) and 5% (Wausaukee) to the revenues respectively. The ongoing debt crisis in Europe (if its aggravates) may hit them, espceiaclly Niefs financials.
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SoTP based Valuation on EV/EBIDTA basis
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Considering that Sintex has a diversified presence across sectors, we have valued these segments (building product, custom moulding and textiles) on case to case basis and arrived at the valuation on EV/EBIDTA basis. We have valued: Building product segment at 6.5x EV/EBIDTA, at a premium over valuations of small construction companies like Ahluwalia Contractors, B L Kashyap, etc on account of better execution capabilities and much higher margins. Custom moulding segment at 7x FY13 EV/EBIDTA at a 30% discount to valuation of Kemrock Industries Textiles at a EV/EBIDTA of 7x FY13EBIDTA, at a slight premium over players like Arvind, Raymond, etc considering its presence in high value structured fabric resulting in much better margins than these players We have given it a conglomerate discount of 20% to arrive at the target price of Rs 174. At the target price, the stock trades at an implied P/E of 7.6x FY13E EPS and 6x FY13E EV/EBIDTA.
Valuation Matrix Building product segment Custom Moulding segment Textiles Total Add: Cash & liquid investments Less: Total debt Enterprise Value Less: Conglomerate discount (20%) Net Enterprise Value Equity Target Price Implied PE (x) CMP Upside (%) FY13E EBIDTA 6,656.3 3,489.4 1,156.3 11,302.0 Multiple (x) 6.5 7.0 7.0 EV 43,266 24,426 8,094 75,786 4,367 20,692 59,461 11,892 47,569 273 174 7.6 109 60
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Incorporated in 1931, Sintex Industries is one of the leading providers of plastic products and niche structured yarn dyed textile products in India. Sintex makes a range of plastic products, including industrial custom moulding products, FRP (fibre reinforced plastic) products and water storage tanks. Besides, it has a proven track record of pioneering innovative concepts like prefabricated structures and monolithic construction in the construction space, which now accounts for nearly 50% of the companys revenues. After having established its presence in India, Sintex diversified its presence abroad with a series of acquisitions in the custom moulding segments in FY08. With these acquisitions, Sintex now has developed a strong foothold across eight countries and four continents. Over the years Sintex has developed the capability to make plastics using 12 different processes (some developed inhouse and others through global acquisitions), which enables Sintex to produce the entire range of its plastic products at one location. Sintex also has a textile division primarily located at Kalol, Gujarat, which specialises in mens structured shirting for the premium fashion industry. In addition to its eight manufacturing facilities across India, Sintexs subsidiaries have 26 manufacturing locations spread across USA and Europe, which take its total plant tally to 34 locations, thereby enabling a diversified global reach. The journey so far... Pioneering innovative concepts and building strong capabilities for scaling up such niche segments
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Business Model India Research

Organisational structure post acquisitions
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Diversified business model

Sintex has a diversified business model spread with products finding applications across diverse industries. While its building product segment, which currently constitutes 49% of its overall revenues, focuses on the building /construction space, its custom moulding segment (41% of revenues) finds applications across industries, including automobiles, mass transit, defence and aerospace, medical, electricals and electronics, etc. The remaining 10% of the revenue is contributed by its textile segment (Sintex came into existence with this business and was earlier known as Bharat Vijay Mills), which is into the niche segment of making fabrics for international brands/designers.
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Business Segments India Research

EBIDTA Mix & Geographical Revenue Mix
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Business segments
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Key company segments, related industry drivers, addressable market and Sintexs strategy
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INCOME STATEMENT Particulars Net Sales Total Income Total Expenditure Raw Material Decrease / (Increase) in stock Stores and spare parts consumed Employee Expenses Power, Oil & Fuel Selling & Administrative Expenses Other Expenses EBIDTA (Excl. Other Income) EBIDTA (Incl. Other Income) Other Income Interest PBDT Depreciation Profit Before Tax & EO Items Extra Ordinary Exps/(Income) - Post tax Profit Before Tax Tax Net Profit Minority Interest Share in Profit / (Loss) of Associates Net Profit Adjusted Net Profit (adj. for EO items) BALANCE SHEET Particulars Sources of Funds Equity Capital Preference Capital Share Premium Other Reserves Net Worth Secured Loans Unsecured Loans Loan Funds Minority Interest Deferred Tax Liability Total Capital Employed Applications of Funds Gross Block Less: Accumulated Depreciation Net Block Capital Work in Progress Investments Current Assets, Loans & Advances Inventories Sundry Debtors Cash and Bank Balance Loans and Advances Other Current Assets sub total Less : Current Liabilities & Provisions Current Liabilities Provisions sub total Net Current Assets Misc Expenses Total Assets E-estimates Mar10 32,816 32,816 27,807 17,710 275 1,517 4,389 979 2,937 1 5,009 6,263 1,254 731 6,786 1,445 5,341 0 5,341 772 4,569 21 0 4,548 3,294 Mar11 44,752 44,752 36,683 26,269 37 1,574 4,613 1,125 3,064 1 8,069 8,672 603 1,089 8,186 1,491 6,695 0 6,695 1,508 5,187 3 19 5,203 4,600 Mar12E 54,746 54,746 45,211 32,081 0 2,180 5,748 1,369 3,832 0 9,535 9,619 83 1,238 8,464 1,747 6,716 0 6,716 1,658 5,058 0 86 5,144 5,061
DOLAT CAPITAL
Rs.mn Mar13E 66,152 66,152 54,965 38,758 0 2,977 6,946 1,654 4,631 0 11,187 11,511 324 1,448 10,387 1,910 8,477 0 8,477 2,038 6,439 0 102 6,541 6,217 CASH FLOW Particulars Profit before tax Depreciation & w.o. Direct taxes paid Change in Working Capital (Non Cash) Other (A) CF from Operating Activities Capex {Inc./ (Dec.) in FA n WIP} Free Cash Flow Inc./ (Dec.) in Investments (B) Cash Flow from Investing Activities Issue of Equity/ Preference Inc./(Dec.) in Debt Dividend Paid (Incl. Tax) Other (C) Cash Flow from Financing Net Change in Cash Opening Cash balances Closing Cash balances E-estimates IMPORTANT RATIOS Particulars (A) Measures of Performance (%) Contribution Margin EBIDTA Margin (excl. O.I.) EBIDTA Margin (incl. O.I.) Interest / Sales PBDT Margin Tax/PBT Net Profit Margin (B) As Percentage of Net Sales Raw Material Employee Expenses Power, Oil & Fuel Selling & Administrative Expenses Packing, freight and transport charges (C) Measures of Financial Status Debt / Equity (x) Interest Coverage (x) Average Cost Of Debt (%) Debtors Period (days) Closing stock (days) Inventory Turnover Ratio (x) Fixed Assets Turnover (x) Working Capital Turnover (x) Working Capital Turnover (days) Non Cash Working Capital (Rs Mn) (D) Measures of Investment EPS (Rs.) (excl EO) EPS (Rs.) CEPS (Rs.) DPS (Rs.) Dividend Payout (%) Profit Ploughback (%) Book Value (Rs.) RoANW (%) RoACE (%) RoAIC (%) (Excl Cash & Invest.) (E) Valuation Ratios CMP (Rs.) P/E (x) Market Cap. (Rs. Mn.) MCap/ Sales (x) EV (Rs. Mn.) EV/Sales (x) EV/EBDITA (x) P/BV (x) Dividend Yield (%) E-estimates Mar10 4,066 1,445 (772) (7,207) (747) (3,215) (1,599) (4,813) (651) (2,250) 0 3,339 (191) (74) 3,075 (2,390) 11,685 9,295 Mar11 6,108 1,491 (1,508) 1,536 135 7,762 (6,867) 895 (1,305) (8,172) (64) 1,435 (206) (190) 976 566 9,295 9,861 Mar12E Mar13E 6,719 8,255 1,747 1,910 (1,658) (2,038) (3,385) (6,382) 0 0 3,423 1,745 (3,500) (3,432) (77) (1,687) 0 0 (3,500) (3,432) 0 0 0 (7,046) (222) (238) 0 0 (222) (7,284) (299) (8,971) 9,861 9,562 9,562 591
Mar10
Mar11 Mar12E Mar13E
Mar10 271 0 6,735 12,463 19,469 14,453 11,851 26,303 190 1,693 47,655
Mar11 271 0 6,671 17,073 24,016 16,352 11,386 27,738 0 2,057 53,811
Mar12E 271 0 6,671 21,912 28,854 16,352 11,386 27,738 0 2,057 58,650
Mar13E 271 0 6,671 27,891 34,833 19,352 1,339 20,692 0 2,057 57,582
15.3 15.3 2.2 16.9 18.9 10.0 55.6 13.4 3.0 8.9 0.0
18.0 18.0 2.4 16.9 24.8 10.3 58.9 10.3 2.5 6.8 0.0
17.4 17.4 2.3 15.3 25.0 9.2 58.6 10.5 2.5 7.0 0.0
16.9 16.9 2.2 15.2 25.0 9.4 58.6 10.5 2.5 7.0 0.0 0.6 6.6 7.0 116 30 12.2 1.6 2.9 86.0 22,269 22.8 22.8 29.8 0.8 3.8 96.2 127.6 19.5 16.4 18.1 109 4.8 29,757 0.4 49,857 0.8 4.5 0.9 0.7
28,246 7,746 20,499 1,716 2,470 3,411 10,121 9,295 8,157 0 30,983 7,455 559 8,014 22,969 0 47,655
35,466 9,156 26,310 1,363 3,775 3,770 14,229 9,861 5,147 0 33,007 10,004 640 10,644 22,362 0 53,811
38,891 10,903 27,987 1,438 3,775 4,500 17,399 9,562 6,757 0 38,217 12,048 720 12,768 25,449 0 58,650
42,391 12,813 29,577 1,370 3,775 5,437 21,024 591 7,960 0 35,012 11,362 790 12,152 22,860 0 57,582
1.3 1.2 1.0 6.6 6.6 6.4 4.5 6.2 7.0 113 116 116 38 31 30 9.6 11.9 12.2 1.5 1.3 1.4 1.4 2.0 2.2 100.4 89.6 86.0 13,673 12,501 15,887 12.1 12.1 17.4 0.6 5.8 94.2 72.0 17.8 10.7 14.1 16.9 16.9 22.3 0.6 4.5 95.5 88.0 21.1 14.0 17.4 18.5 18.5 24.9 0.7 4.4 95.6 105.7 19.1 13.9 16.9
109 109 109 9.0 6.5 5.9 29,768 29,757 29,757 0.9 0.7 0.5 46,776 47,634 47,933 1.4 1.1 0.9 9.3 5.9 5.0 1.5 1.2 1.0 0.6 0.6 0.6
October 5, 2011
Sintex Industries
63
India Research
DOLAT CAPITAL
October 5, 2011

Sintex Industries
64
Initiating Coverage
Time Technoplast India Research

DOLAT CAPITAL
Accumulate
Time Technoplast (TTL) is expected to benefit from its ongoing expansion plans and recent acquisitions in the industrial packaging space. Apart from the traction seen in its mainstay drums segment, other segments too are on a firm footing and are expected to deliver healthy growth. Volume growth, driven by expanded capacities in existing and new product categories, is likely to translate into healthy CAGR of 23% and 21% in revenue and PAT respectively over FY11-13E. We value TTL at 10x FY13E earnings of Rs 7.6 and arrive at a TP of Rs 76 (18% upside), implying 6.4x FY13E EV/EBIDTA.
BSE Sensex NSE Nifty Scrip Details Equity Face Value Market Cap 52 week High/Low Avg. Volume (no) BSE Code NSE Symbol Bloomberg Code Reuters Code Rs.209mn Rs.1/Rs.13bn USD 273mn Rs. 72 / 42 552,520 532856 TIMETECHNO TIME IN TIME.BO 15,792 4,751
Industrial packaging, key growth driver: Time Technoplast (TTL) is the largest domestic player in the polymer-based industrial packaging segment. It manufactures range of polymer drums and containers and has a strong market share of 75%. Besides being a market leader in India, through its overseas acquisitions and by replicating its Indian business model, it has gained market leadership in UAE, Thailand and Taiwan. With major user industries such as specialty chemicals, FMCG and paints expected to grow at 12-15% CAGR over the next few years, we believe the industrial packaging industry is likely to grow at around 15% CAGR over the next few years. Also, replacement of metal drums with polymer drums will act as an additional trigger. We expect this segment to grow at 24.7% CAGR over FY11-FY13E, aided by organic growth (domestic & global) and overseas acquisitions. Other business lines on strong footing: In the quest to diversify, TTL has successfully established a meaningful presence in some other segments like (A) technical products (lifestyle, auto components and healthcare) and (B) infrastructure products (industrial batteries, HDPE pipes and prefabs). Revenues of both these segments are expected to grow at of 13% and 17% CAGR respectively over the next two years. This will be led by 19.5% revenue CAGR of lifestyle segment in technical products and 37% revenue CAGR of HDPE/FRP pipes segment in infrastructure products. New product launches hold great potential: TTL is introducing two new products viz composite cylinders and material handling systems. Composite cylinders can be a potential substitute to metal gas cylinders. Further, through its JV with Schoellar Acra, it has introduced foldable crates for the first time in India, which reduces the return freight cost for end users. Capex cycle over by FY12, return ratios to improve from FY13: TTL has spent over Rs 4.5bn to increase its capacities by approximately 2.4 times over the past three years. The management has guided for a capex of Rs 1.2bn, of which Rs 550mn will be used for composite LPG cylinders and the rest to set up facilities for industrial packaging. The capex cycle is expected to end by FY12 and, going forward, we believe this shall drive operating earnings, translating into better return ratios.
Shareholding Pattern as on June11(%) Promoter MF/Banks/FIs FIIs Public / Others

TTL relative to Sensex 170 160 150 140 130 120 110 100 90 80 70 Apr-11 Aug-11 Sensex Dec-10 Oct-10 Feb-11 Jun-11
62.1 10.1 9.5 17.5
TTL
Financials
Year Net Sales % growth FY10 10,114 28.1 FY11 12,753 26.1 FY12E 15,868 24.4 FY13E 19,280 21.5 Figure in Rs mn EBITDA OPM% Adj. PAT % growth Adj.EPS(Rs.) PER (X) EV/EBIDTA(x) ROANW(%) ROACE(%) 1,950 19.3 909 31.7 4.3 14.7 8.9 16.2 16.8 2,360 18.5 1,110 18.5 5.1 12.4 7.9 16.4 16.3 2,833 17.9 1,260 17.0 6.0 10.6 6.8 16.4 16.6 3,375 17.5 1,586 25.9 7.6 8.4 5.6 17.8 18.2
October 5, 2011
Time Technoplast
65
Industrial Packaging India Research
DOLAT CAPITAL
Industrial packaging: Key driver to overall growth

TTL is the largest domestic player in the polymer-based industrial packaging segment, making a range of polymer drums and containers, intermediate bulk containers (IBCs), conipack pails and PET sheets typically for end-user industries such as chemicals, specialty chemicals, FMCG, construction chemicals, paints, pharmaceuticals and others. Over the years TTL has launched a wide array of niche products, aided by its technical tie up with Germanys Mauser, a leading industrial packaging player in the US and Europe. TTL, which has 58% of its revenue coming from this segment, now commands a 75% market share attained through organic growth over the years and by virtue of acquisition of the second largest player, TPL Plastech, from the Tainwalla Group in 2006, which further strengthened its market position. Overview of Industrial Packaging Products Plastic Drums
HM-HDPE Drums & Containers in 20 250 litre capacity Narrow Mouth drums for liquid products Open Top drums for powder and semi-solid products Half Open Top/Wide Mouth drums for viscous products
Others
Plastic Conipack Pails in 5 25 litre capacity PET Sheets 0.15 mm to 2 mm thickness and up to 1.6 mtr width
Intermediate Bulk Containers

Intermediate Bulk Containers (IBCs) of 1000 litre capacity with: Wooden Pallet Composite Steel Pallet Plastic pallet
Key Highlights
Tie up with Mauser, one of the largest producer of polymer drums worldwide Dominant market share of 75% in India 14 production facilities in India to go with 9 global facilities across Asia & Europe Building Strong Asian footprints with 6 existing facilities and 6 proposed facilities Captive machine Building Capabilities
Key Highlights
One of the worlds largest producers of polymer drums: The global industrial polymer drums industry is dominated by three key playersMauser (Germany), Schultz (Germany) and Greif (USA). While Greif is already present in India through its tie up with Balmer Lawrie, Mauser is present through a technical tie up with TTL and also through a JV with TTL to manufacture IBCs. Further, the market opportunity (Rs 15bn in India) is not that big enough to entice a global player like Schultz to set up facilities, thereby limiting competition to only a few players. Dominant market share of 75%: TTL currently enjoys a market share of 75% in the Indian polymer drums market. It largely competes with Balmer Lawrie in India, which is the second largest manufacturer with a market share of 18%. With the company continuously rolling out niche products under this segment, we expect it to retain such a healthy market share in the near future.
October 5, 2011
Time Technoplast
66
India Research
DOLAT CAPITAL
Pan India presence with strong footprints in Asia

TTL has maintained strong relations with its domestic clients by setting up production facilities closer to clients, enabling faster delivery and reduction in freight & inventory cost for its client. Thus it has created strong entry barriers and gained strong market share. Besides, through its overseas acquisitions and by replicating its Indian business model, TTL has gained market leadership in the UAE (Elan Inc FZE), Thailand (Pak Delta, YPA) and Taiwan (Yung Hsin). In FY11, TTL acquired the largest industrial packaging company, Yung Hsin, in Taiwan and commissioned its greenfield project in Tianjin, north China. Currently its set up comprises 14 manufacturing locations across India and eight worldwide (six across Asia and two in Europe). Over the next 12-18 months it is further expanding its footprint in Asia by setting up manufacturing at five more locations in Asia and one in Africa. It is also adding another facility in India at Bhuj, Gujarat, which will take the total tally to 29 locations. (It may be noted that the Czech Republic facility is for manufacturing composite cylinders and the Romania facility for lifestyle products). Going forward, TTLs strategy is to expand operations in Asian/ African countries where there is strong demand and low penetration of plastic drums. TTL - Expanding global footprints
Source : Company
October 5, 2011
Time Technoplast
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Expanding Asian Footprint India Research

Existing industrial packaging projects overseas:
Country UAE Subsidiary Elan Incorporated FZE Product Upto 220 ltrs drum 10 80 ltrs jerry cans 4/5 Ltrs polycans 10 - 20 Ltrs conical pails Thailand Pack Delta 1000 Ltrs IBCs Upto 250 Ltrs drum 20 80 Ltrs jerry cans YPA Upto 250 Ltrs drum 20 80 Ltrs jerry cans Drum accessories Taiwan Yung Hsin 1000 Ltrs IBC Upto 220 Ltrs drum 10 80 Ltrs jerry cans 4/5 Ltrs polycans North China Tianjin Elan Upto 250 Ltrs Drum 1000 Ltrs IBC Plastics pallet IBC components Drum accessories
DOLAT CAPITAL
Key Highlights Largest Industrial Packaging (plastics) company in UAE Only producer of 200 Ltrs drum in Middle East (excluding Saudi Arabia) Over 80 customers 12 year old; Largest Industrial Packaging company in Thailand Over 100 customers
20 year old; 3rd largest Industrial Packaging company in Thailand Undergoing expansion to include Turf and Auto components Largest Industrial Packaging (plastics) company in Taiwan Ready facility to produce 1,000 liter IBCs Over 200 customers Drum production already commenced IBC production to commence from June
Upcoming Greenfield Projects in FY12

City Jakarta Country Indonesia Subsidiary PT. Novo Complast Product 1000 Ltrs IBC Upto 250 Ltrs drum 20 80 Ltrs jerry cans 1000 Ltrs IBC Upto 250 Ltrs drum 20 80 Ltrs jerry cans 1000 Ltrs IBC Upto 250 Ltrs drum 20 80 Ltrs jerry cans Upto 250 Ltrs drum 20 80 Ltrs jerry cans 1000 Ltrs IBC Upto 250 Ltrs drum 20 80 Ltrs jerry cans Upto 250 Ltrs drum 20 80 Ltrs jerry cans IBCs 220 Ltr & 120 Ltr open head drums 60 Ltr drums open head JV 100% TTL % Share 100%
Guangzhou
South China
Guangzhou Elan
JV
Manama
Bahrain
Gulf Power Beat
Attaqa Busan
Egypt South Korea
Nile Egypt Plastech Tech Complast Korea Inc
Ho Chi Minh City
Vietnam Turkey
Exel Plastech Company Ltd
100% 99%
October 5, 2011
Time Technoplast
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India Research
DOLAT CAPITAL
Growth in user industries provides healthy opportunities for TTL
TTLs products are used by diverse industries in specialty chemicals, FMCG, inks, paints, pharmaceuticals, etc. Industrial packagings growth is dependent on its major end user industries like specialty chemicals, FMCG, paints and construction chemicals, which contribute 85% of the demand for drums and containers. With major user industries such as specialty chemicals, FMCG and paints expected to grow at 12-15% CAGR over the next few years, we believe the industrial packaging industry is also likely to grow at around 15% CAGR over the next few years.
Replacement demand to spur incremental demand

The Indian drum market is Rs 16bn, of which the polymer drum market size is Rs 8bn (TTLs market share is Rs 6.5bn). While India has a 50% polymer drums penetration, for the rest of Asia it is only 6-7%, which gives a huge opportunity for TTL to explore.
Packaging Products (Nos In Mn And % Penetration) Steel Drums Polymer Drums Total IBCs
Source: Company
Asia India 7.5 (50%) 7.5 (50%) 15 (100%) 0.06 (6%) Rest of Asia 90.5 (94%) 5.5 (6%) 96 (100%) 0.94 (94%) Total 98 (88%) 13 (12%) 111 (100%) 1 (100%) Asia 98 (88%) 13 (12%) 111 (100%) 1 (10%)
Global Rest of World 100 (86%) 16 (14%) 116 (100%) 8 (90%) Total 198 (87%) 29 (13%) 227 (100%) 9 (100%)
October 5, 2011
Time Technoplast
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India Research of polymers over metal drums Benefits
DOLAT CAPITAL
Polymer packaging offers various benefits over metal that include: Lower weight; Higher resale value; and Better quality, since the containers/barrels produced are seamless and, hence, better equipped for transportation and difficult material handling conditions. Further, many products (specialty chemicals) are sensitive or hazardous in nature and, hence, safety of the materials in transit is of prime importance to end-users. Case study for 200 litre drums
Parameters Weight Raw material (RM) RM cost per kg Yield / Mt Raw Material cost per drum Salvage value Source: company Polymer drums 8.5 kg HDPE Rs 75 117 drums Rs 640 Rs 550-600 Metal drums 20 kg Steel Rs 35 51 drums Rs 700 Rs 250-300
Strong list of diversified clientele TTL has close to 500 clients in the industrial packaging space and is not dependent on any single customer (the top 10 customers constitute 25% of its industrial packaging revenues). While 90% of the revenues from this segment come from repeat business (existing customers), the balance is through new clients. Some of its clients include BASF, Jubliant, Clariant Chemicals, Dow Chemicals, Pidilite, Godrej, HUL and Nestle. JV with Mauser: Key to innovations TTL has also entered into a 49-51 JV (Time Mauser Industries) with Mauser to manufacture and market IBCs in India. IBCs are large containers of around 1,000 litres used to package chemicals and specialty chemicals, and are used for long-distance transportation of hazardous chemicals. In house captive machine building unit In recent years, TTL has built up a strong captive machine building capability; thereby not only reducing dependence on vendors but also resulting in lower capex vis a vis competitors. According to the management, it has to shell out Euro 1.2mn to set up machine while its competitor has to incur around Euro 2mn for a similar one. Industrial packaging revenues to grow at a CAGR of 24.7% over FY11-FY13E aided by organic growth (domestic & global) and overseas acquisitions (FY0911 CAGR at 22.5%) Industrial packaging revenues (Rs.mn)
October 5, 2011
Time Technoplast
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Technical Products Segment India Research
DOLAT CAPITAL
Other business segments on strong footing

In the quest to diversify, TTL has also successfully established a meaningful presence in other segments like (A) Technical products (lifestyle, auto components and healthcare) and (B) infrastructure products (industrial batteries, HDPE pipes and prefabs). (A) Technical products: This segment includes lifestyle products, auto components and healthcare products and constituted 16% of TTLs overall FY11 revenue. 1. Lifestyle products The lifestyle products segment, which contributes around 9% to overall revenues, manufactures artificial entrance mattings, car mattings and turfs under the brand names Duro Turf, Duro Soft, Duro Wipe and Astroturf. It also makes moulded furniture under the brand name Regal Furniture. Through its network of 400 dealers, TTL caters to institutions, healthcare, retail outlets and the hotels & hospitality industry.
Growth prospects Through its recent acquisition of the plastic division of Solutia in Belgium (Europe), it has got ready access to proprietary technology & knowledge, apart from acquiring well-established brands. This shall facilitate its entry into making products such as entrance mattings, artificial turf for indoor and outdoor application under the brand name Astroturf, opening huge growth opportunities in Europe and Asia. Lifestyle segment to grow at 19.5% CAGR over the next two years (FY09-11 CAGR at 18.9%) Lifestyle products revenues (Rs mn)
2.
Auto components Under this segment, TTLs product portfolio consists of anti spray 3S rain flaps (spray suppression system), radiator tanks, fuel tanks and air ducts, which contribute around 6% to total revenue. TTL makes value-added plastic auto components, conforming to international standards mainly pertaining to the CV segment. Its clientele base compromises of Tata Motors, Ashok Leyland, Eicher Motors etc.
October 5, 2011
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India Research
Growth prospects
DOLAT CAPITAL
Plastic radiators and fuel tanks are preferred over metal ones as they are light weight, corrosion resistant and sturdier. The Indian CV sector is expected to grow 12-15% over the next few years, which shall drive volumes. The trend towards plastic fuel tanks has just begun in India. The potential is huge, considering that 85% of the newly-registered vehicles in Europe and 70% in the US are built with plastic fuel tanks. TTL has built up the production scale and technical knowhow and, therefore, shall be in an advantageous position to reap the benefits. It has entered the European market by acquiring Clearpass, which makes rain flaps through its acquisition of the plastics division of Solutia. Through this deal it can leverage on the strong brand and global distribution network of Clearpass. Automobile components segment to grow at 5% CAGR over next two years (FY09-11 CAGR at 3.5%) Automotive Component Revenues (Rs.mn)
3. Healthcare products This segment contributes 2% to overall revenues, offering products such as auto break disposable syringe, auto collect blood samplers and OT safe disposable masks under the brand name Genex. Key users for this segment include hospitals, nursing homes, pathology labs, etc. Growth prospects The government has issued directives to public hospitals to use auto disposable syringes and this shall now move to cover all private hospitals as well, which augurs well for TTL
October 5, 2011
Time Technoplast
72
Infrastructure Products Segment India Research
DOLAT CAPITAL
Healthcare product segment to grow at 2% CAGR over next two years (FY09-11 CAGR at 2.2%) Healthcare product revenues (Rs mn)
Technical products segment to grow at 12.7% CAGR over next two years (FY0911 CAGR at 10.8%) Technical products revenues (Rs mn)
(A) Infrastructure products: TTLs infrastructure product range (23% of total revenues) includes pipes (HDPE/FRP), energy storage devices (batteries), prefabs and shelters, catering to a mixed bag of industries. i) HDPE/FRP pipes (7% of total revenue) TTL manufactures HDPE pipes (20-1,400mm) for water supply, irrigation, sewage & drainage, electrical ducting, natural gas distribution, waste disposal, industrial application and offshore pipeline installation. Its major clients include L&T, Reliance Infrastructure, Hydroair Technotics, IVRCL Infrastructure, Nagarjuna Constructions, Karnataka Water Supply and Sewage Board. FRP pipes (250-2,100mm) are high pressure composite pipes, which find application in power plants for desalination. TTL expects to roll out this product in this financial year.
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India Research
DOLAT CAPITAL
HDPE pipes domestic consumption is growing at around 21%. They are preferred over metal pipes as they are leak proof, corrosion resistant and light weight. With the market potential for HDPE pipe at around Rs 110bn and the government of India is expected to spend Rs 4.6tn on water distribution and sanitation & irrigation in the five year plan ending 2012, TTL stands to gain. It is also envisaging capacity expansion plans in this segment by putting up greenfield projects in north and east India.
Growth prospects
HDPE / FRP pipes segment to grow at 37% CAGR over next two years (FY09-11 CAGR at 221%) HDPE/FRP pipes revenues (Rs mn)
i) Energy storage devices (15% of total revenue) With its NED Energy (Hyderabad) acquisition in 2007, TTL began producing VRLA batteries for the telecom sector under the brand name Maxlife. Further, with acquired Gulf Powerbeat WLL (Bahrain) and Powerbuild Batteries (India) to diversify into manufacturing of automotive, power plant and locomotive batteries. Key user industries here are telecom, railways, defence, power sectors and UPS systems. Growth prospects VRLA batteries are preferred over conventional flooded acid batteries due to their longer life and leak-proof and spill-proof properties. Owing to growing awareness of energy conservation, TTL makes eco-friendly batteries. Its unique positive grid-and-paste combination enhances the batterys life and that of the installed control system to check air pollution to maintain environmental standards. NEDs market share in the telecom battery sector is greater than 15% and with the slowing down of the sector, its entry into other areas such as automotive, power plant and locomotive batteries will result in offsetting the lower demand for telecom batteries.
October 5, 2011
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India Research
DOLAT CAPITAL
Energy storage devices segment to grow at 3.6% CAGR over next two years (FY09-11 CAGR at 12.8%) Energy Storage Devices Revenues (Rs.mn)
i) Prefabs & Shelters (<1% of total revenue) TTL manufactures prefabs & shelters which is a fast growing segment in rural & urban markets due to its low cost, zero maintenance and ease of installation. Its major clients include BEST, MSDRC, MGM hospital etc. The company is at a nascent stage, having one state-of-the-art factory at Silvassa and has been approved by four states. Prefabs segment to grow at 67% CAGR over next two years Prefabs revenues (Rs mn)
Infrastructure products segment to grow at 17% CAGR over next two years (FY09-11 CAGR at 35%) Infrastructure products revenues (Rs mn)
October 5, 2011
Time Technoplast
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New Products Segment India Research
DOLAT CAPITAL
New product launches hold great potential

Composite cylinders Through the acquisition of Kompozit - Praha, Czech Republic, TTL has acquired the production facility (capacity now ramped up to 600,000 cylinders per annum) for composite cylinders, which will be a first of its kind product in India. TTL shall be one among the two companies worldwide making composite cylinders the other company being Ragasco (Norway). The company has already received orders for 40,000 cylinders from a client in Latin America, which will account for 80% of its capacity from its plant at Czech Republic. The cylinders are expected to roll out starting October 2011. TTL has also started a pilot project at Daman for LPG composite cylinders with a capacity of 1mn cylinders per annum, for which it has already received TUV certification. This facility will, however, require the approval of the Chief Controller of Explosives, Nagpur, before it starts rolling out the cylinders. It may be noted that Supreme Industries too has entered this segment and is in the midst of setting up the facility. Material handling products TTL has entered into a JV with Schoeller Arca Systems, Netherlands, to launch new concepts of returnable material handling systems in India. The product range include stackable crates/containers, foldable small crate containers, stack-nest crates/container pallets and dollies (Trolleys), catering to segments like FMCG, consumer durables, retail, logistics, automotive etc. The uniqueness of the product is that it can be folded after it is emptied, thereby reducing handling and transport cost for its end users. The company has set up facilities at Silvassa and Pantnagar to make 3,000 tonnes of MHP products and is expected to set up new facilities at Chennai and Kolkata.
October 5, 2011
Time Technoplast
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Gross Revenue Mix India Research

Segmental break up: FY09-FY13E
DOLAT CAPITAL
TTLs gross revenues to grow 23% CAGR over FY11-13E (FY09-11 CAGR at 24%)
Rs.mn
TTLs gross revenues mix (%) FY09-13E
TTL domestic and overseas revenue break up (FY09-13E)
October 5, 2011
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Improving Financials India Research
DOLAT CAPITAL
Revenues & EBIDTA margins (FY07-13E)
Net Revenue growth (FY07-13E)
EBIDTA growth (FY07-13E)
October 5, 2011
Time Technoplast
78
India Research
DOLAT CAPITAL
PAT growth (FY07-13E)
Return Ratios to improve
Debt to Equity: to remain under control
October 5, 2011
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DOLAT CAPITAL
TTL to turn free cash flow positive in FY13E: Capex cycle to end in FY12
Concerns
Volatility in prices of key raw materials HDPE is a key raw material required to make drums and cylinders. Raw material costs account for 64% of revenues and a significant rise here may cause shortterm volatility in margins. However, the management is of the opinion that it shall be able to pass on the impact of increase in input costs, though with a time lag of 2-3 months. This has in fact resulted in TTL maintaining its margins over the past five years. Approval pending for composite cylinders TTL has started a pilot project at Daman for LPG composite cylinders, with a capacity at 1mn cylinders, per annum, for which it has already received TUV certification. This facility will, however, require the approval of the Chief Controller of Explosives, Nagpur, before it starts rolling out cylinders in India. Since regulatory approvals are time consuming, we have not factored in the potential revenues from this facility in our FY13 estimates.
Valuation
TTL is expected to benefit from its ongoing expansion plans and recent acquisitions in the industrial packaging space. Apart from the traction seen in its mainstay drums segment, other segments too are on a firm footing and are expected to deliver healthy growth. Volume growth, driven by expanded capacities in the existing and new product categories, is likely to translate into healthy CAGR of 23% and 21% in revenues and PAT respectively over FY11-13E. We value TTL at 10x FY13E earnings of Rs 7.6 and arrive at a TP of Rs 76 (6.4x FY13E EV/EBIDTA), implying an upside of 18% from the current levels.
Parameters FY13E PAT FY13E EPS (Rs) FY13E PE Target PE multiple (x) Valuation per share (Rs) CMP (Rs) Upside FY13E 1,665 7.6 8.4 10 76 64 18
October 5, 2011
Time Technoplast
80
DOLAT CAPITAL
TTL is a technology-based polymer product company, which started as a SSI unit. It has today diversified into five strategic business units lifestyle products, industrial packaging, healthcare products, auto components and infrastructure related products there by catering to the growing sectors of Indian economy. The growth momentum since inception can be attributed to its drive for innovation, focus on R&D, futuristic product design, superior customer service and pan-India presence, supported by its qualified and experienced team of research scientists and engineers.
Source : Company
Acquisition Highlights
Year 2006-07 2007-08 2008-09 2009-10 2010-11 Company Acquired TPL Plastech Pack Delta Ned Energy Ltd Gulf Power beat WLL YPA Kompozit Praha Grasstech Ltd Yung Hsin
Country India Thailand India Bahrain Thailand Czech Republic Romania Taiwan
% holding 75 99.7 71 100 100 99 100 90
Company Profile Industrial Packaging Industrial Packaging Batteries for telecom sector Battery for automotive Sector Industrial Packaging Composite Cylinders Lifestyle (Astroturf) and Rain flaps (Clearpass) Industrial Packaging
October 5, 2011
Time Technoplast
81
Key Milestones India Research
DOLAT CAPITAL
October 5, 2011
Time Technoplast
82
India Research
DOLAT CAPITAL
October 5, 2011
TTL business segments snapshot
Time Technoplast
83
India Research
DOLAT CAPITAL
Industrial Packaging
Lifestyle products
Automotive products
Healthcare products
October 5, 2011
Time Technoplast
84
India Research
HDPE pipes
DOLAT CAPITAL
Batteries
Prefabs & shelters
Other Infra products
Composite cylinders
Material handling
October 5, 2011
Time Technoplast
85

INCOME STATEMENT Particulars Net Sales Total Income Total Expenditure Raw Material Decrease / (Increase) in stock Stores and spare parts consumed Employee Expenses Power, Oil & Fuel Packing, freight and transport charges Selling & Administrative Expenses EBIDTA (Excl. Other Income) EBIDTA (Incl. Other Income) Other Income Interest PBDT Depreciation Profit Before Tax & EO Items Extra Ordinary Exps/(Income) - Post tax Profit Before Tax Tax Net Profit Minority Interest Net Profit Adjusted Net Profit (adj. for EO items) BALANCE SHEET Particulars Sources of Funds Equity Capital Preference Capital Share Premium Other Reserves Net Worth Secured Loans Unsecured Loans Loan Funds Minority Interest Deferred Tax Liability Total Capital Employed Applications of Funds Gross Block Less: Accumulated Depreciation Net Block Capital Work in Progress Investments Current Assets, Loans & Advances Inventories Sundry Debtors Cash and Bank Balance Loans and Advances Other Current Assets sub total Less : Current Liabilities & Provisions Current Liabilities Provisions sub total Net Current Assets Misc Expenses Total Assets E-estimates Mar10 10,114 10,114 8,164 6,707 (217) 64 375 382 355 496 1,950 1,966 16 333 1,650 355 1,295 0 1,295 296 999 74 925 909 Mar11 12,753 12,753 10,393 8,593 (348) 77 491 457 439 680 2,360 2,383 23 451 1,954 440 1,514 (33) 1,547 356 1,192 59 1,133 1,077 Mar12E 15,868 15,868 13,035 10,235 0 83 698 555 539 920 2,833 2,871 38 576 2,334 531 1,802 0 1,802 432 1,370 72 1,370 1,260
DOLAT CAPITAL
Rs.mn Mar13E 19,280 19,280 15,904 12,435 0 93 906 674 636 1,157 3,375 3,421 46 604 2,864 614 2,250 0 2,250 539 1,711 79 1,711 1,586 CASH FLOW Particulars Profit before tax Depreciation & w.o. Direct taxes paid Change in Working Capital (Non Cash) Other (A) Cash Flow from Operating Activities Capex {Inc./ (Dec.) in Fixed Assets n WIP} Free Cash Flow Inc./ (Dec.) in Investments (B) Cash Flow from Investing Activities Inc./(Dec.) in Debt Dividend Paid (Incl. Tax) Other (C) Cash Flow from Financing Net Change in Cash Opening Cash balances Closing Cash balances E-estimates IMPORTANT RATIOS Particulars (A) Measures of Performance (%) Contribution Margin EBIDTA Margin (excl. O.I.) EBIDTA Margin (incl. O.I.) Interest / Sales PBDT Margin Tax/PBT Net Profit Margin (B) As Percentage of Net Sales Raw Material Employee Expenses Power, Oil & Fuel Selling & Administrative Expenses Packing, freight and transport charges (C) Measures of Financial Status Debt / Equity (x) Interest Coverage (x) Average Cost Of Debt (%) Debtors Period (days) Closing stock (days) Inventory Turnover Ratio (x) Fixed Assets Turnover (x) Working Capital Turnover (x) Working Capital Turnover (days) Non Cash Working Capital (Rs Mn) (D) Measures of Investment EPS (Rs.) (excl EO) EPS (Rs.) CEPS (Rs.) DPS (Rs.) Dividend Payout (%) Profit Ploughback (%) Book Value (Rs.) RoANW (%) RoACE (%) RoAIC (%) (Excl Cash & Invest.) (E) Valuation Ratios CMP (Rs.) P/E (x) Market Cap. (Rs. Mn.) MCap/ Sales (x) EV (Rs. Mn.) EV/Sales (x) EV/EBDITA (x) P/BV (x) Dividend Yield (%) E-estimates Mar10 Mar11 Mar12E Mar13E 1,205 1,466 1,692 2,125 355 440 531 614 (296) (356) (432) (539) (588) (686) (1,060) (1,071) 164 124 (4) (223) 840 988 728 906 (2,073) (2,341) (1,260) (500) (1,233) (1,353) (532) 406 3 0 0 0 (2,070) (2,341) (1,260) (500) 1,202 1,493 500 (350) (124) (136) (171) (196) 88 102 106 120 1,166 1,458 435 (426) (65) 105 (97) (20) 497 432 537 440 432 537 440 420
Mar10
Mar11 Mar12E Mar13E
Mar10 209 1,469 4,044 5,722 3,977 421 4,398 312 211 10,643
Mar11E 209 0 1,470 4,998 6,677 5,491 399 5,891 414 287 13,268
Mar12E 209 0 1,470 6,087 7,765 5,991 399 6,391 520 287 14,963
Mar13E 209 0 1,470 7,254 8,932 5,641 399 6,041 640 287 15,900
19.3 19.3 3.3 16.2 23.1 9.0 62.0 3.7 3.8 4.9 3.5
18.5 18.5 3.5 15.1 23.3 8.4 61.9 3.9 3.6 5.3 3.4
17.9 17.9 3.6 14.5 24.5 7.9 64.5 4.4 3.5 5.8 3.4
17.5 17.5 3.1 14.6 24.5 8.2 64.5 4.7 3.5 6.0 3.3
8,325 2,059 6,266 609 0 2,045 2,075 432 847 0 5,399 1,623 8 1,631 3,769 30 10,643
10,083 2,645 7,438 1,191 0 2,589 2,503 537 1,335 0 6,964 2,314 11 2,325 4,639 21 13,268
12,534 3,177 9,358 0 0 3,260 3,000 440 1,962 0 8,663 3,043 15 3,057 5,605 21 14,963
13,034 3,790 9,244 0 0 3,962 3,539 420 2,695 0 10,616 3,941 19 3,960 6,656 21 15,900
0.7 4.8 8.8 75 74 4.9 1.7 2.7 99.4 3,337 4.3 4.3 6.0 0.5 13.7 86.3 27.6 16.2 16.8 17.7
0.8 4.3 8.8 72 74 4.9 1.3 2.7 90.9 4,101 5.1 5.3 7.4 0.6 12.3 87.7 32.7 16.4 16.3 16.9
0.8 4.1 9.4 69 75 4.9 1.3 2.8 86.0 5,165 6.0 6.0 8.6 0.7 13.6 86.4 38.5 16.4 16.6 17.2
0.6 4.7 9.7 67 75 4.9 1.5 2.9 80.0 6,236 7.6 7.6 10.5 0.8 12.4 87.6 45.7 17.8 18.2 18.7 64 8.4 13,395 0.7 19,016 1.0 5.6 1.4 1.3
64 64 64 14.7 12.4 10.6 13,395 13,395 13,395 1.3 1.1 0.8 17,362 18,749 19,346 1.7 1.5 1.2 8.9 7.9 6.8 2.3 2.0 1.7 0.8 0.9 1.1
October 5, 2011
Time Technoplast
86
Astral Poly Technik

DOLAT CAPITAL
Buy
Astral Poly Technik (APTL), a maker of pipes and fittings, is the pioneer of the CPVC segment in India. The company expanded its product portfolio to PVC segment to become a one-stop solution provider for plumbing needs. Considering the growing need for buildings with sanitation (residential & commercial offices, malls, hospitals) in India, sustainability is assured. Moreover, replacement of existing pipes (mostly GI/PVC) too is potentially a huge market. The ongoing capacity addition would enable APTL to play the opportunity. We reiterate Buy recommendation with a price target of Rs 226 to trade at 8x FY13E earnings.
Analyst: Priyank Chandra Tel : +9122 4096 9737 Email: priyank@dolatcapital.com BSE Sensex NSE Nifty Scrip Details Equity Face Value Market Cap 52 week High / Low Avg. Volume (no) BSE Code NSE Symbol Bloomberg Code Reuters Code Rs.112mn Rs.5/Rs.4.3bn USD 88.5mn Rs.223 / 116 34,050 532830 ASTRAL ASTRA IN ASPT.BO 16,151 4,849
Robust growth: The APTL product range is witnessing strong growth due to product characteristics, which makes the product superior. The current trend in construction and real estate will bolster demand. APTL has licences for four products from Lubrizol, which gives it a competitive advantage. Competitors have only one such licence for Flowguard Pipes. APTL has invested to create visibility for these products, which we believe will give it a competitive edge in the medium term. The license for the upcoming product Blaze Master has been given exclusively to APTL for five years extendable up to 10 years on fulfilling certain sales covenants. Network expansion & brand enhancement: APTL is aggressively expanding its dealer network (300 distributors and 5,000 dealers currently) to increase its countrywide presence. The brand enhancement program will improve product perception and ISI certification will further strengthen it. New product launches: APTL has been continuously developing a product range in both CPVC and PVC segments. The upcoming product Blaze Master (fire sprinkler) could be a game changer for APTL. It is awaiting approval from local authorities. The increased product range enables APTL to act as a one-stop solution provider for plumbing requirements. Capacity addition: The continuous capacity addition would enable APTL to cater the strong growth rate and remain ahead of competition. APTL has increased the capacity by 57% to 48,432mn tonnes at the end of FY11 from 30,867mn tones in FY10. Considering the demand potential, APTL is expected to add capacity on a continuous basis.
Shareholding Pattern as on June11 (%) Promoter MF/Banks/FIs FIIs Public / Others

APTL relative to Sensex 170 160 150 140 130 120 110 100 90 80 Aug-10 Apr-11 Aug-11 Dec-10 Oct-10 Feb-11 Jun-11
63.8 1.7 34.4
Valuation
At CMP of Rs 190, the stock trades at 9.2x FY12E and 6.7x FY13E earnings. Considering the growth potential, new product launches and capacity additions will keep APTL on a growth trajectory. We reiterate a Buy recommendation with a price target of Rs 226 to trade at 8x FY13E earnings.
APTL
Sensex
Financials
Year Net Sales % growth FY10 2,902 50.2 FY11 4,108 41.6 FY12E 5,925 44.2 FY13E 7,925 33.7 Figure in Rs mn EBITDA 419 539 811 1,098 OPM% 14.5 13.1 13.7 13.9 PAT 280 334 463 639 NPM(%) EPS(Rs.) % growth 9.5 12.5 97.5 8.0 14.9 19.1 7.8 20.6 38.6 8.0 28.4 38.1 PER(x) ROANW(%) 15.2 26.9 12.8 25.2 9.2 27.3 6.7 28.8 ROACE(%) 26.3 26.5 30.3 29.8
October 5, 2011
Astral Poly
87
DOLAT CAPITAL
INCOME STATEMENT Particulars Net Sales Other income Total Income Total Expenditure Raw Material Employee Expenses Selling & Administrative Expenses Other Expenses EBIDTA (Excl. Other Income) EBIDTA (Incl. Other Income) Interest Gross Profit Depreciation Profit Before Tax & EO Items Extra Ordinary Exps/(Income) Profit Before Tax Tax Net Profit Minority Interest Net Profit BALANCE SHEET Particulars Sources of Funds Equity Capital Preference Capital Share Premium Other Reserves Net Worth Revaluation reserve Secured Loans Unsecured Loans Loan Funds Deferred Tax Liability Total Capital Employed Applications of Funds Gross Block Less: Accumulated Depreciation Net Block Capital Work in Progress Investments Current Assets, Loans & Advances Inventories Sundry Debtors Cash and Bank Balance Loans and Advances Other Current Assets sub total Less : Current Liabilities & Provisions Current Liabilities Provisions sub total Net Current Assets Misc Expenses Total Assets E-estimates Mar10 2,902 52 2,954 2,482 1,998 88 246 151 419 472 48 423 86 337 337 57 280 280 Rs.mn Mar11 Mar12E Mar13E 4,108 5,925 7,925 42 40 40 4,150 5,965 7,965 3,577 5,114 6,827 2,943 3,981 5,448 105 126 150 313 711 872 214 296 357 539 811 1,098 573 851 1,138 46 91 122 527 761 1,016 107 144 165 420 617 852 420 86 334 334 617 154 463 463 852 213 639 639 CASH FLOW Particulars Profit before tax Depreciation & w.o. Net Interest Exp Direct taxes paid Chg. in Working Capital (Non Cash) Other (A) CF from Opt. Activities Capex {Inc./ (Dec.) in FA n WIP} Free Cash Flow Inc./ (Dec.) in Investments (B) CF from Investing Activities Issue of Equity/ Preference Inc./(Dec.) in Debt Interest exp net Dividend Paid (Incl. Tax) (C) Cash Flow from Financing Net Change in Cash Opening Cash balances Closing Cash balances E-estimates Mar10 Mar11 Mar12E Mar13E 337 420 617 852 86 107 144 165 48 46 91 122 (57) (86) (154) (213) (161) (18) (489) (686) 253 (176) 77 0 (177) 0 14 (48) (26) (61) 16 22 38 469 (333) 135 (0) (334) 0 3 (46) (30) (72) 63 38 102 208 (425) (217) 0 (425) 0 417 (91) (26) 300 83 102 185 239 (406) (166) 0 (406) 0 398 (122) (26) 249 83 185 268
Mar10 112 389 668 1,169 12 404 0 404 17 1,602 1,112 234 878 62 1 697 674 38 259 1,668 983 23 1,006 662 0 1,602
Mar11 Mar12E Mar13E 112 389 974 1,476 12 407 0 407 17 1,912 1,380 340 1,040 127 1 862 863 102 347 2,173 1,404 25 1,429 744 0 1,912 112 389 1,411 1,912 12 824 0 824 17 2,766 1,797 484 1,314 135 1 1,218 1,218 185 365 2,985 1,636 32 1,668 1,316 2,766 112 389 2,023 2,525 12 1,222 0 1,222 17 3,776 2,195 648 1,547 143 1 1,628 1,628 268 384 3,909 1,791 32 1,823 2,085 3,776
IMPORTANT RATIOS Particulars Mar10 (A) Measures of Performance (%) Contribution Margin EBIDTA Margin (excl. O.I.) 14.5 Interest / Sales 1.7 Gross Profit Margin 14.3 Tax/PBT 16.9 Net Profit Margin 9.5 (B) As Percentage of Net Sales Raw Material Employee Expenses Selling & Administrative Exp. Other Expenses (C) Measures of Financial Status Debt / Equity (x) Interest Coverage (x) Average Cost Of Debt (%) Debtors Period (days) Closing stock (days) Inventory Turnover Ratio (x) Fixed Assets Turnover (x) Working Capital Turnover (x) Non Cash Working Capital (RsMn) (D) Measures of Investment EPS (Rs.) CEPS (Rs.) DPS (Rs.) Dividend Payout (%) Profit Ploughback (%) Book Value (Rs.) RoANW (%) RoACE (%) (E) Valuation Ratios CMP (Rs.) P/E (x) Market Cap. (Rs. Mn.) MCap/ Sales (x) EV (Rs. Mn.) EV/Sales (x) EV/EBDITA (x) P/BV (x) Dividend Yield (%) E-estimates 68.9 3.0 8.5 5.2 0.3 9.7 12.2 85 88 4.2 2.6 4.4 624 12.5 16.3 1.0 8.0 92.0 52.0 26.9 26.3 190 15.2 4,248 1.5 4,614 1.6 11.0 3.6 0.5
Mar11 Mar12E Mar13E
13.1 1.1 12.7 20.5 8.0 71.6 2.6 7.6 5.2 0.3 12.5 11.3 77 77 4.8 3.0 5.5 642 14.9 19.6 1.1 7.6 92.4 65.7 25.2 26.5 190 12.8 4,248 1.0 4,554 1.1 8.4 2.9 0.6
13.7 1.5 12.8 25.0 7.8 67.2 2.1 12.0 5.0 0.4 9.4 14.7 75 75 4.9 3.3 4.5 1,132 20.6 27.0 1.0 4.9 95.1 85.1 27.3 30.3 190 9.2 4,248 0.7 4,888 0.8 6.0 2.2 0.5
13.9 1.5 12.8 25.0 8.0 68.7 1.9 11.0 4.5 0.5 9.3 11.9 75 75 4.9 3.6 3.8 1,818 28.4 35.7 1.0 3.5 96.5 112.3 28.8 29.8 190 6.7 4,248 0.5 5,202 0.7 4.7 1.7 0.5
October 5, 2011
Astral Poly
88
DOLAT CAPITAL
October 5, 2011
Astral Poly
89
DOLAT CAPITAL
BUY ACCUMULATE REDUCE SELL Upside above 20% Upside above 5% and up to 20% Upside up to 5% Negative Returns
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Tel. No.
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Senior Analysts
Amit Purohit amitp@dolatcapital.com Bhavin Shah bhavin@dolatcapital.com Priyank Chandra priyank@dolatcapital.com Rahul Jain rahul@dolatcapital.com Rakesh Kumar rakesh@dolatcapital.com Ram Modi ram@dolatcapital.com Sameer Panke sameer@dolatcapital.com FMCG & Media +9122 4096 9724 Pharma & Agro Chem +9122 4096 9731 Oil & Gas +9122 4096 9737 IT +9122 4096 9754 Financials +9122 4096 9750 Metals & Mining +9122 4096 9756 Construction & Infrastructure +9122 4096 9757
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Plastics - Dolat

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DOLAT CAPITAL

Analyst: Nehal Shah Tel : +9122 4096 9753 E-mail: nehals@dolatcapital.com

Associate: Mahvash Ariyanfar Tel : +9122 4096 9736 E-mail: mahvash@dolatcapital.com

Int en tio na lly Le ft B lan k

Astral Poly Technik

Int en tio na lly Le ft B lan k

Plastic Industry: Executive Summary India Research

Key Investment Rationale

Coverage Universe - Valuation Matrix

Growing plastic consumption

India Research consumption in India to grow at a CAGR of 15% Plastic

Source: Indo-Italian chambers of commerce & industry

Plastic consumption linked to GDP

Vision 2015 set by the government

Source: CIPET, Dolat Research

Plastics: Global scenario India Research

Global plastic production trend (mn tonnes): Geographic distribution

Innovation: Key to Growth & Margins India Research

Product Margins (%) 22-24% 18-20% 19-20% 18-20% 20-22% 19-20%

Polymer Demand & Pricing India Research

Polymer availability at ease, however prices remain volatile

740 8880 700 9580

Raw materials and their applications

High Density Polyethylene (HDPE)

Low Density Polyethylene (LDPE) Polypropylene (PP)

Polyvinyl Chloride (PVC)

Source: Dolat Research

Polymer prices susceptible to movement in crude prices

PlasticsResearch India Composites

Plastic composites: Niche high growth engine

Source : Industry Sources, Dolat Research

India Research Composite shipment (million lbs)

Source : Industry Sources, Dolat Research

Indian plastic composite market: Vertical Mix

Source : Industry Sources, Dolat Research

Major Companies - Key Parameters India Research

Composite presence in our coverage universe

Time Technoplast Supreme Industries

Source : Company, Dolat Research

FY13E 21.6 22.8 28.4 7.5 4.8 48.0 12.0

FY11 4.3 0.7 1.1 0.6 3.0 4.0 1.0

FY13E 6.7 0.8 1.0 0.8 4.0 0.0 1.5

FY11 8.5 5.9 8.4 8.0 5.2 4.7 10.1

FY11 37.0 21.1 25.2 16.4 12.6 17.4 20.3

Indian Plastic Industry Overview India Research

Source : Industry Sources, Dolat Research

Classification of plastic products by processes used in India

Source : Industry Sources, Dolat Research

Supreme Industries India Research

Standing tall in the unorganised sector India Research

Strategy going forward India Research

Companys four-pronged strategy

Capacity expansion to drive growth

FY10 1 13,106 15,604 204.5 72.2 132.3 42.5 89.8 162.0

FY11 2 26,409 15,052 397.5 164.8 232.7 76.8 156.0 304.8

FY12E 8 100,000 14,000 1,400.0 619.6 780.4 257.5 522.8 1,086.5

FY13E 9 110,485 14,000 1,546.8 684.6 862.2 284.5 577.7 1,200.4

Total 20 250,000 14,195 3,548.8 1,541.2 2,007.6 661.4 1,346.3 2,753.7

FY09 870 1952.4 399.9

FY10 1370.9 2290.2 486.9

FY11 2277.0 3160.0 613.5 790.8 6841.3 23335.2 29.3

FY12E 2960.1 3792.9 736.2 1107.1 8595.4 27579.0 31.2

FY13E 3848.1 4550.4 883.4 1550.0 10831.9 32275.0 33.6