POLYPLEX CORPORATION LTD - BEGINNING OF A NEW CYCLE ?

"The best thing that happens to us is when a great company gets into temporary trouble...We want to buy them when they're on the operating table."

I believe , the above quote by Warren Buffett is apt for Polyplex Corporation at this point of time.This company needs no  Introduction to  senior investors and it was a favorite stock of  FII's,Mutual Funds ..etc during 2008-2011 period and  its stock price traded above four figure mark during  2010.This company  lost its glory thereafter due to reasons beyond the control of promoters and now in a recovery path . Let us look into its past - present and future.

  The company  

Polyplex corporation is an India based multinational  company  manufacturing plastic films (PET, BOPP & CPP)  used for packaging, electrical and other industrial applications .Company having manufacturing facilities in   six countries  viz - Netherlands. China. USA. Turkey. Thailand. and   India . Company is the  world's 4th largest producer of thin polyester film and one of the few fully integrated companies in the entire world. Products manufactured by Polyplex selling in more than 80 countries.Major portion of  company’s products are used for manufacturing  flexible  packaging materials for  food and FMCG items. Having said , Polyplex is a global company operating through various subsidiaries . One of its subsidiary in Thailand named ‘Polyplex Thailand’ is a listed company in Stock Exchange of Thailand (SET).Company is geographically well diversified . 28 % of total sales coming from India ,26% from Europe ,18 % from North America ,17 % from South East Asia and balance from Rest of the world.Till 2012 ,company’s performance was robust backed by good demand and better realisation.Citing the good demand scenario during 2009-10 , on a global level ,many companies started to add large capacities and started commercial production by 2012-13 .This resulted in oversupply of the products and at the same time the peak of global recession adversely affected the demand scenario.Due to this reason,Polyplex reported loss on a consolidated level in last Financial year.

The Road Ahead

Good consolidation happened in this industry in past few years .As per the management of Polyplex, major major  players in this industry is only completing the already started projects ( if any ) and   not thinking about  any major expansion in near future.   On the other side demand condition is improving worldwide . In India itself ,BOPP film production reported more than 25 % growth in June 2014 over the same month in the previous year.Worldwide the trend is almost similar  . Price of company’s  products  also showing firm trend. For the past many years company was mainly concentrating in thin pet films(thickness below 50 micron) and now  started the production of thick films which is  used in many industrial segments other than packaging like photovoltaic and flat screen panel for TV’s and Computer monitors .In addition to thin and thick grade PET films ,company’s  Bottle Grade PET Resins plant at Turkey at an advanced stage of completion.Bottle grade PET finding applications in packaging of Soft Drinks, Carbonated water,Mineral water ..etc and there is lot of growth potential in these sectors.

Valuation and Recommendation

 

As mentioned at the beginning ,Polyplex is a vertically integrated global player with a turnover of more than Rs.3200 Cr  with geographical presence in all major markets.This large company is currently trading at a market capitalisation of just Rs.695 Cr  . The real irony is , Polyplex’s listed subsidiary  ( Listed in Thailand Stock Exchange)  trading at a market cap of Rs.1500 Cr (INR) .On a consolidated basis debt of Polyplex is close to Rs.1421 Cr which mainly raised for capacity expansion and the benefits of  this expansion is just starting to reflect . On the other hand , company holding a cash and Bank Balance of Rs.900 Cr and its total reserve is close to Rs.2000 Cr .Debt equity ratio is 0.86 . Company’s book value is more than Rs.600 where it is currently trading close to 1/3 of its book value.Company is managed by a group of highly professional ,ethical and investor friendly management .Before the issues set in, its dividend pay out was 70-80 % annually and rewarded share holders with bonus. Promoters holding close to 47 % stake without any pledge and other large investors and mutual funds holding another 31 % .This business is a cyclical one and I believe ,some early signs of a revival in this business is visible now. As a fully integrated global major ,Polyplex will be one of the biggest beneficiary of emerging trend . Now company reported its latest June quarter result where its top-line increased from Rs.694 Cr to Rs.855 Cr . On net level company reported a  profit of Rs.27 Cr against a loss of Rs.9 Cr . As Warren Buffett mentioned ,it is a good company passed through some tough times in recent past .I believe , for long term investors it is the right time to enter in it @ CMP of Rs.216.Stock listed in both exchanges.

Link to Company Website HERE

Link to Polyplex Thailand  HERE

Disc: It is safe to assume that I have vested interest in Polyplex