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Research
Buy Uflex - Flexing growth muscles - Elara Capital
Posted On : 2010-08-08 03:04:33( TIMEZONE : IST )
- Uflex
- Rating : Buy
- Target Price : INR190
- Upside : 38%
- CMP : INR138 (as on 4 August 2010)
Revenues in line; margins surprise positively
Uflex posted revenues of INR6.88bn largely in line with our expectation of INR6.74bn with a YoY growth of 31.3% but flat in terms of QoQ with a 2.8% decline. The company surprised us positively on the EBITDA front, recording INR1.34bn against our estimate of INR1.21bn. The margin also improved significantly to 19.6% vs our expectation of 18% on account of higher realization in the plastic film business.
Expansion on track
The company's ambitious expansion plan remains on track as its Egyptian plant with 35,000mt capacity commences operations this month. Uflex is expected to increase its plastic film as well as flex-pack capacity by 65% and 45% respectively. We reiterate our stance that the rigorous expansion will fuel the future growth engine. We expect FY11E topline of INR28.99bn, growth of nearly 21% over FY10, while EBITDA of INR5.42bn leading to a stable state margin of 18.7%.
Rights issue to part fund capex
Uflex plans to raise about INR4.0bn by way of a rights issue. The management has revised the rights issue ratio to 1:3, from the previous 1:4, which will add nearly 21.6mn shares on a base of 65mn shares as of date, diluting the EPS by nearly 30%. The company is exiting its non-core business of solid waste processing that will fetch it INR980mn on an investment of INR430mn.
Value investment
At CMP of INR138, the stock is trading at a P/E of 5.7x and 4.4x FY11E and FY12E earnings of INR24.2 and INR31.7 respectively. Our estimated earnings for FY11E and FY12E factor the anticipated dilution from the rights issue. We have assigned Uflex a target multiple of 6x on its FY12E earnings of INR31.7, leading to a per share value of INR190. We remain bullish on the company's growth prospects and our target price of INR190 provides an upside of 38% from the current market price.
