20th October, 2011

INITIATING COVERAGE

MANJUSHREE TECHNOPACK LTD

CMP : Rs. 90.00 TARGET : Rs. 120.00 Recommendation
Company Profile: The Bangalore headquartered Manjushree Technopack Ltd (formerly Manjushree Extrusions Limited) is engaged in the manufacture of specialty plastic packaging products mainly containers and jars for multinational companies in FMCG, pharma, carbonated soft drinks, and food processing sectors. Manjushree Technopack over the years has built technology and experience in providing rigid packaging solutions in PET, Monolayer and Multilayer containers by utilizing European and Japanese technologies. The company provides total packaging solutions under one roof, right from concept to design, R&D, tooling and commercialization of the package. To expand its reach across the country it has marketing offices in the major metros including at Mumbai, Chennai and Bangalore. The major plants of the business are located in Guwahati and at Bommasandra Industrial Area, Bangalore. Management: Mr. Vimal Kedia is the Founder and Managing Director of Manjushree Technopack Ltd. He envisioned the huge potential from the packaging industry way back in 1984 and set up Manjushree's plant in Bommasandra, Bangalore after completing his Bachelors in Commerce from Guwahati University. Under his leadership and vision the company has grown by leaps and bounds over the years. He was also felicitated with the "Best Entrepreneur" award from the President of India for his outstanding contribution to the packaging sector in India. We initiate coverage on Manjushree Technopack with a 'Buy' recommendation. The company delivered strong set of performance numbers in FY11 despite the business witnessing continuously rising raw material prices for the business. We expect the company to maintain its track record of healthy growth with sales growing at a rate of 20.75% in FY12E and 38.6% in FY13E and an EPS of Rs 12.52 in FY12E and Rs 15.6 in FY13E posting a growth of 15% in FY12E and 24% in FY13E. The growth in the business is expected to flow in from rising demand from FMCG business, expansion of existing capacity in FY12E and operations of new plant in Bidadi in FY13E. Given the company's excellent client base and ability to maintain margins by its large scale operations we value Manjushree Technopack at 8(x) FY13E earnings of Rs 15.6 to arrive at a target price of Rs 120.
ANALYST Sakshi Malhotra MANJUSHREE VS SENSEX (1 YEAR GRAPH) SHARE HOLDING PATTERN Foreign Institutions Non-Promoter Corp Holding Promoters Public &Others TOTAL % 3.06 0.74 8.43 59.11 28.66 100

RESEARCH
BUY
COMPANY DETAILS BSE Code NSE Symbol Bloomberg Market Cap. (Rs. Crs) Free Float 52 Week High(Rs) 52 Week Low(Rs) Dividend Yield (%) Beta Face Value 109.80 55.50 1.1 0.70 10 532950 MANJUSHREE MTPL IN 122.63

sakshi.malhotra@eurekasecurities.com 0 98300 84057 / 91-33-3918 0386 - 87

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MANJUSHREE TECHNOPACK LTD

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Financial Highlights: Particulars (Rs crore): Revenue % Ch.(Y0Y) EBIDTA % Ch.(Y0Y) PAT % Ch.(Y0Y) ROE ROCE EPS % Ch.(Y0Y) P/E EV/EBIDTA P/B FY09 106.09 43.36 17.05 66.18 6.70 16.38 11.86 10.11 5.53 70.15 2.71 2.73 0.33 FY10 149.82 41.22 19.41 13.84 1.14 -8.30 1.78 4.27 7.80 41.05 5.57 3.52 0.84 FY11 216.78 44.69 47.91 146.83 14.80 119.82 19.72 13.14 10.92 40.00 8.06 4.72 1.46 FY12E 257.79 18.92 56.57 18.07 16.97 1.46 18.99 12.62 12.52 14.69 7.03 4.23 1.23 FY13E 356.99 38.48 78.88 39.45 21.12 2.45 18.56 12.90 15.59 24.49 5.64 3.55 0.91

Investment Rationale:
!

Strong list of diversified clientele: Manjushree Technopack has several reputed clients from FMCG and other diversified industries that have primary and secondary packaging needs for retailing their products. The Company is a regular supplier to companies like Hindustan Lever, Cadbury India, Nestle, Tata Tea, P&G, Britannia, Glaxo Smith Kline, Perfetti, Heinz, Godrej, PepsiCo, Pfizer, Lotte India, MTR, Wrigley's etc. Top FMCG companies contribute 80% to the top line of the business where Pepsi, Coco Cola, Hindustan Unilever, Tata Tea and Cadbury are the top five clients of the company contributing 80% of the FMCG business. Strong track record of timely deliveries of orders has enabled the company to maintain existing relationships and build on new ones. The company's business is expected to grow at the back of rising volumes from new and old FMCG players. Capacity expansion to drive further growth: The Company has recorded double digit sales growth since FY06 on the back of rapid capacity expansion. The company has expanded capacity from 300 MTPA in 1996 to a 36000 MTPA in FY11 at 37.6% CAGR. It is currently operating at a capacity utilization of 90% with its two manufacturing facilities in Bangalore. In order to meet the growing packaging requirements from FMCG industry, the company is further augmenting its capacity. It plans to add 12000 MTPA capacities in FY12 which will take the total capacity to 51225 MTPA at the end of FY12. In second half of FY13 the new plant of the company in Bidadi is expected to begin operations which will increase the total capacity to 63225 MTPA.
YEAR FY07 FY08 FY09 Capacity 4140 MTPA 9120 MTPA 21740 MTPA Details of Capacity 3780 TPA for PET Containers and 360 TPA for Multilayer Containers Installed capacity was at 4380 MTPA for PET Containers and 4740 MTPA for Preforms and Multilayer Containers. The major capacity additions was for the manufacture of PET Preforms to the tune of 11100 MTPA and the balance capacity was added for the containers. Installed capacity was at 5900 MTPA for PET Containers and 15840 MTPA for Preforms and Multilayer Containers. FY10 29210 MTPA The major expansion was for the manufacture of PET Preforms by 6,360 MTPA and the balance of 1,110 MTPA capacity for the manufacture of containers. Installed capacity was at 7010 MTPA for PET Containers and 22200 MTPA for Preforms and Multilayer Containers. FY11 FY12E FY13E 39225 MTPA 51225 MTPA 63225 MTPA The major capacity additions have been done for the manufacture of PET Preforms to the tune of 6000 MTPA and the balance 1440 capacity has been added for the containers. Additional capacity expected in the production of PET Preforms taking the installed capacity of Preforms to 42060 MTPA. With operations of the Bidhai plant we expect an additional 12000 MTPA of capacity in performs to be installed.

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20th October, 2011

Targeting new industries: The food industry is demanding better packaging now to keep the products fresh for a longer shelf life. This has opened new opportunities for Manjushree in newer industries like tea, alcohol and milk products packaging. Tea, alcohol and milk were mainly packed in tin or glass items. Leveraging on the changing demand of consumers for better and innovative packaging as well as rising prices of tin and glass the company has added high profile clients like Tata Tea and Radico Khaitan to its client list.

Innovative approach to business: Manjushree Technopack has maintained an innovative and advanced approach to business ever since the days of inception. It was the first company to launch 6 layer co-extrusion technologies for manufacturing multilayer bottlers for the perishable food industry in FY03. The company also pioneered in producing PP ISBM (Polypropylene Injection Stretch Blow Moulding) in collaboration with GlaxoSmithKline to produce Polypropylene Containers for its malt and chocolate powder beverages. Manjushree was also among the first few to bring to India the hot fill technology for producing bottles which can take up 85 degree Centigrade filling temperatures which today is extensively used in juice and beverages industry. The company has constantly been involved with upgrading of existing technology like in FY07 it introduced high speed machines from Husky Injection Molding Systems, Canada, to produce PET performs for carbonated soft drinks, juices and packed bottles. The company is expected to continue with its track record of being an innovator and leader within the packaging industry.

Consistent growth prospects: Manjushree Technopack acts like a packaging solution provider for its clients and is one of the only companies providing a total packaging solution starting from design to commercialization. It has maintained a top line growth of 24% CAGR from FY06 to FY11 and a bottom line growth of 22% during the same period. It is expected to grow at a steady rate at the back of strong growth of the FMCG, food and beverages sectors during FY12E and FY13E.

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20th October, 2011

Business Overview: Manjushree Technopack serves a variety of markets like tea & coffee, pharmaceuticals, confectionery, fruit juices, aerated beverages, liquor, sauces & ketchups, household cleaners, pickles, health supplements, mineral water, promotional items and spices. It services these markets through two main products:

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MANJUSHREE TECHNOPACK LTD

20th October, 2011

1. PET/PP Jars and Bottles: The main reason for increasing usage of Pet containers is that its unbreakable but being transparent it gives the look of glass. PET has good barrier properties against oxygen and carbon dioxide. Therefore, it is utilized in bottles for mineral water. Other advantages of PET bottles and jars are lightweight, can be colored and shaped into various forms. Even though PET has various benefits there was a need to develop containers for the industry with the same attributes but at a cheaper price. It was then that Manjushree Technopack started production for Polypropylene (PP) Jars and Bottles. Not only is PP less dense but it is also cheaper than PET. Manjushree Technopack provides one of the largest ranges of PET/PP containers and bottles in wide array of designs. PET containers are ideal to carry products like spices, medicines, confectionary, tea, liquor, beverages and food products. The company supplies PET bottles to Coca cola, Pepsi and Bisleri while it supplies PET Jars to Perfetti, P&G and Tata tea. PP Jars and bottles are ideal for storing food supplements, health drink powders and drinking water. Glaxo Smith Kline consumer is the major customer for its PP Jars. Manjushree has established long term relations with major FMCG companies and supplies packaging material to them on a regular basis. Besides it does conversion work for its regular long term clients Coca Cola and Pepsi where some or all of the raw materials are supplied by these companies and Manjushree is only involved with production of the bottles. The Conversion business contributor almost 10% of the topline in FY11.

2. Multilayer Barrier Containers: Multilayer barrier containers were introduced for the first time in India by Manjushree Technopack. They have oxygen barrier properties and are retortable upto 120 and are transparent. These containers are an ideal packaging solution for food items that needs to stay fresh and safe from moisture containers; besides preserving aroma and taste. These containers are formed by integration of various plastics within a multilayer structure in order to combine their distinct properties. It has replaced glass, tin and aluminum lined paper cartons. These packaging solutions are mainly used for products like ketchup, mayonnaise, other sauces, milk & dairy products, fresh fruits/fruit Juices, pickles, potato chips and dry fruits (cashew, resins, almonds etc.). The major customers for these containers are HUL, Delmonte and Heinz.

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20th October, 2011

Key Risks:
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Margins dependent on raw material prices: The two major raw materials of the company are PET chips and PP chips. These are petrochemical products whose prices are dependent on the price of crude oil. With crude prices increasing continuously in FY11 prices of PET and PP have also increased significantly. As a result margins have declined from Q1FY11 to Q4FY11. However margins have started recovering in Q1FY12 owing to slight decline in raw material prices.

No long term contracts with buyers: Orders received by the company are not on the basis of any long term contracts signed by them rather it is at the back of good business relations with the customers. Even though Manjushree has received continuous business from most of its clients there is no guarantee that there would not be and change in the buying pattern of its clients.

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MANJUSHREE TECHNOPACK LTD

20th October, 2011

Growth Opportunity for Manjushree: Carbonated Soft Drinks (CSD): Soft Drinks have become part and parcel of the lifestyle of Indians, irrespective of age and season. The Indian soft drinks market generated total revenues of $3.8 billion in 2010, representing a compound annual growth rate (CAGR) of 11% for the period spanning 2006-2010. Carbonates soft drinks proved the most lucrative for the Indian beverage market in 2010, generating total revenues of $1.9 billion, equivalent to 50.5% of the market's overall value. For many years virtually all carbonated soft drinks were packaged in glass bottles sealed with crown cork but now bottling of CSD in PET is established on a worldwide basis. PET is preferred because of its lightweight, clarity, barrier, softness, toughness, food grade and shatterproof characteristics. The average annual consumption of cola per person in India is currently 8 liters but cola majors have plans to increase this to 20 liters. In countries such as Pakistan, the average consumption is 60 liters per annum. As consumption of cola increases the demand for pet bottles will grow simultaneously and Manjushree is well positioned to benefit from this growing trend in beverages industry as the top players in the market are Pepsi and Coco-cola both of which are tied with the company. Mineral Water: Water is one among the basic necessities of human beings and the health awareness among the people and shortage of water in most parts of India has brought development in the mineral water industry in India. The major market share of the mineral water industry is occupied by the three players like Bisleri International, Coco-Cola's Kinley and PepsiCo's Aquafina even though there are about 200 bottled mineral water brands in India and nearly 80% of them are local brands. This segment is a big consumer of PET bottles in India more so as the government has placed a ban on PVC bottles for Mineral Water. The company, having good working relations with Bisleri, Coco Cola and Pepsi, it is in a comfortable situation to benefit from the new brand of health conscious Indian who treats mineral water as a necessity. Confectionery: Confectionery includes sweet food and high calorie content like mint candies, toffees, lollipops, chocolates, chewing gums and candies. India's confectionery market is set to witness robust growth in the coming years on the back of buoyancy in demand from increasing young population. Pet jars are used to stock confectionary items in grocery shops and other retail outlets to be sold to retail customers. The major players in the confectionery category are Cadbury India Ltd, Lotte India Co. Ltd, Nestle, Perfetti and ITC. With Cadbury India, HUL and Nestle as key players already in Manjushree's client list the company is well set to benefit from this opportunity. Alcohol: Even though PET and other form of plastic packaging enjoys every strong market share and acceptance in carbonated drinks, healthcare, edible oil, mineral water and other FMCG products its acceptance till now has been very low in the liquor/beer industry. Liquor/beer packaging is mainly concentrated by glass and tin. But with the rising commodity prices of both these raw materials we are slowly witnessing that the Indian liquor/beer companies have started innovating with PET and other forms of plastic packaging. These include the likes of McDowell, Mohan Meakins, United Breweries, Radico Khaitan and Shaw Wallace. PET Multilayer Containers have outstanding resistance to a very wide range of solvents including alcohol. We believe there is ample scope for leading packaging players like Manjushree Technopack to build on his growth opportunity.

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MANJUSHREE TECHNOPACK LTD

20th October, 2011

Financial Performance: Manjushree Tehnoplast has recorded a steady 6 year CAGR growth of 22% in Net Sales from Rs 65 crores in FY06 to Rs 216 crores in FY11 and a bottom line growth of 22% CAGR within the same period. The growth of business was at the back of strong performance from both the job work and manufacturing business from various FMCG clients of the company. The robust growth in sales for the business was also supported by expansion in capacity for the company which expanded at a rate of 56% CAGR from FY07 to FY11. With rapid expansion in capacity and sales the company has been in a position to expand its operating margins from 16.15% in FY09 to 22.16% in FY11. During the same period there has been considerable improvement in the capital efficiency ratios also where the ROE has improved from 11.86% in FY09 to 19.72% in FY11 and the ROCE improved from 10.11 % in FY09 to 13.14% in Fy11.

Even with difficult economic situations and rising raw material prices in the last one year Manjushree Technopack has been in a position to maintain consistent sales growth along with margin expansions. Since the export portion of the business constitutes only 4.5% of the top line we expect the performance not to be affected by slowdown in developed countries. On a conservative side we expect the top line of the business to grow at a rate of 20.75% in FY12E and 38.6% in FY13E. This growth is mainly expected to flow in from the volume growth in FMCG business of existing client as well as company's capability to target new clients. Valuation & Recommendation: We initiate coverage on Manjushree Technopack with a 'Buy' recommendation. The company delivered strong set of performance numbers in FY11 despite the business witnessing continuously rising raw material prices for the business. We expect the company to maintain its track record of healthy growth with sales growing at a rate of 20.75% in FY12E and 38.6% in FY13E and an EPS of Rs 12.52 in FY12E and Rs 15.6 in FY13E posting a growth of 15% in FY12E and 24% in FY13E. The growth in the business is expected to flow in from rising demand from FMCG business, expansion of existing capacity in FY12E and operations of new plant in Bidadi in FY13E. Given the company's excellent client base and ability to maintain margins by its large scale operations we value Manjushree Technopack at 8(x) FY13E earnings of Rs 15.6 to arrive at a target price of Rs 120.

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MANJUSHREE TECHNOPACK LTD

20th October, 2011

Financial Projections: Income Statement (Rs crore): Particulars Gross Sales Excise Duty Net Sales Other Income Total Income (Inc)/Dec in stock Raw Materials Power & Fuel Cost Employee Cost Other Manufacturing Expenses Selling and Administration Expenses Miscellaneous Expenses Total Expenditure EBITDA EBITDA Margin (%) Interest Depreciation PBT Tax PAT PAT Margin (%) EPS FY09 118.79 13.19 105.60 0.49 106.09 -0.79 56.95 6.05 6.19 13.97 5.55 0.33 89.04 17.05 16.15% 1.44 4.94 10.67 3.97 6.70 6.34 5.53 FY10 160.05 11.02 149.03 0.79 149.82 -9.43 81.73 12.07 8.35 20.99 6.63 0.64 120.98 28.84 19.35% 3.52 9.75 15.57 5.00 10.57 7.09 7.80 FY11 241.85 25.68 216.17 0.61 216.78 -14.74 119.11 16.43 11.44 26.82 9.41 0.40 168.87 47.91 22.16% 6.24 19.06 22.61 7.81 14.80 6.85 10.92 FY12E 292.03 35.04 256.99 0.80 257.79 -21.97 149.05 17.48 13.62 30.84 11.56 0.64 201.22 56.57 22.01% 9.60 21.06 25.90 8.94 16.97 6.60 12.52 FY13E 404.76 48.57 356.19 0.80 356.99 -33.91 201.25 24.93 18.88 49.87 16.03 1.07 278.11 78.88 22.15% 13.07 33.56 32.25 11.13 21.12 5.93 15.59

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Balance Sheet (Rs crore): Particulars (Rs Crores): Sources of Funds: Share Capital Reserves Total Total Shareholders' Funds Total Debt Deferred tax liability Total Liabilities Application of Funds: Gross Block Less : Accumulated Depreciation Net Block Capital Work in Progress Inventories Sundry Debtors Cash and Bank Loans and Advances Total Current Assets Current Liabilities Provisions Less: Total Current Liabilities Net Current Assets Miscellaneous Expenses not written off Total Assets 89.16 31.24 57.92 0.00 16.19 15.86 0.44 8.13 40.62 4.87 2.05 6.92 33.70 0.85 92.47 132.79 40.85 91.94 0.06 20.09 26.92 7.94 15.51 70.46 28.11 8.93 37.04 33.42 0.57 125.99 157.11 59.86 97.25 14.67 50.94 32.74 1.20 26.79 111.67 13.34 16.19 29.53 82.14 0.28 194.34 168.50 78.92 89.58 30.00 59.77 39.54 7.82 30.81 137.93 14.01 17.00 31.01 106.92 0.30 226.80 268.50 99.98 168.52 0.00 82.83 54.80 8.00 35.43 181.06 21.01 25.50 46.51 134.55 0.30 303.37 13.55 45.91 59.46 29.42 3.59 92.47 13.55 54.90 68.45 51.78 5.76 125.99 13.55 68.11 81.66 106.91 5.77 194.34 13.55 83.51 97.06 120.00 9.75 226.81 13.55 103.49 130.51 160.72 12.14 303.37 FY09 FY10 FY11 FY12E FY13E

Ratio analysis: Particulars: OPM (%) NPM (%) ROE (%) ROCE (%) Debt-Equity ratio Debtors turnover ratio EV/EBIDTA(x) P/E(x) P/BV(x) EBITDA Margin (%) FY09 16.15 6.34 11.86 10.11 0.49 6.66 2.73 2.71 0.33 16.15 FY10 13.02 0.76 1.78 4.27 0.76 5.54 3.52 5.57 0.84 13.02 FY11 22.16 6.85 19.72 13.14 1.31 6.60 4.72 8.06 1.46 22.16 FY12E 22.01 6.60 18.99 12.62 1.24 6.50 4.23 7.03 1.23 22.01 FY13E 22.15 5.93 18.56 12.90 1.23 6.50 3.55 5.64 0.91 22.15

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DISCLAIMER : The information in this report has been obtained from sources, which Eureka Research believes to be reliable, but we do not hold ourselves responsible for its completeness in accuracy. All estimates and opinions in this report constitute our judgement as of this date and are subject to change without notice. Eureka Research will not be responsible for the consequence of reliance upon our opinion or statement contained herein or for any omission. Any feedback can be mailed to the following ID. Analyst Email Ph. : : : Sakshi Malhotra sakshi.malhotra@eurekasecurities.com 0 98300 84057 / 91-33-3918 0386 - 87

Registered Office : 7 Lyons Range, 2nd Floor, Room No. 1, Kolkata - 700001 Corporate Office : B3/4, Gillander House, 8 N S Road, 3rd Floor, Kolkata - 700001 Phone : 91-33-2210 7500 / 01 / 02, Fax: 91-33-2210 5184 e: helpdesk@eurekasecurities.com Mumbai Office : 909 Raheja Chamber, 213 Nariman Point, Mumbai-400021 Phone : 91-22-2202 5941 / 5942 e: mumbai@eurekasecurities.com

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