BUY Wim Plast: AnandRathi Institutional Research

Wim Plast - Healthy margins, diversification to bring in synergies; Buy with a target price of Rs 2102

Bolstered by strong 10% volume growth, Wim Plast's Q3 revenue hit Rs. 910m (stepping up 2% yoy). The EBITDA margin grew 417bps yoy to 20.3% with PAT improving 23.8% yoy to Rs. 111m. The diversification of its product portfolio would drive the company's growth.

Rising volumes drive sales growth. For Q3, Wim Plast reported revenue of Rs. 910m (up 2% yoy), 2.8% below our estimate. This was due to a 10% yoy growth in volumes. For 9M, revenue declined 1.3% yoy to Rs. 2.59bn (due to a steep drop in prices of polypropylene, a key raw material). The air-cooler business is likely to be the company's next growth driver.

Lower raw material costs lead to healthy margin. The Q3 operating margin accelerated 417bps yoy to 20.3% assisted by 1,045bps yoy decline in raw material costs. The gross margin has improved to ~43.4% (from ~33% in the last few years). We expect that, with the expansions, the operating efficiency is likely to be maintained.

Q3 profit grows 23.8% yoy. Q3 FY16 PAT shot up a sharp 23.8% yoy to Rs. 111m (beating our estimate by 4.5%) on account of higher other income and the robust margins. We expect a 22.2% CAGR in PAT over FY15-18.

Diversification increases profitability. In order to diversify its product range, the company entered into the air-cooler business. Mounting demand for plastic furniture, along with a shift toward branded products, would help Wim Plast gain market share and raise profitability.

Valuation. Due to the strong return ratios and sufficient cash flows, we have a Buy recommendation on the stock, assigning a 18x PE to FY18e EPS to arrive at a target price of Rs. 2,102. At the ruling price, it quotes at PE of 19x FY17e and 14.9x FY18e EPS. Risks. Rise in input costs, demand fluctuation, keener competition.

Shares of WIM PLAST LTD. was last trading in BSE at Rs.1626.75 as compared to the previous close of Rs. 1683. The total number of shares traded during the day was 1168 in over 140 trades.

The stock hit an intraday high of Rs. 1652.25 and intraday low of 1612. The net turnover during the day was Rs. 1900929.

Source : Equity Bulls

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