NILKAMAL was incorporated in 1985, and is a pioneer in the plastic industry and is credited as the leader amongst the leading manufacturers of moulded plastic products in India. The company has three divisions, viz Plastics division which contribute around 82 % of the revenue, Lifestyle Furniture, & Furnishings and Accessories, Retail contributes around 12 % of the revenue and Mattress & others contributes 6 % to the Nilkamal’s revenue. The products of these divisions are sold through the company’s own retail chain “@home”. The company has recently forayed into the mattress business. The company’s manufacturing plants are located at Barjora and Hooghly in West Bengal, Hosur in Tamil Nadu, Jammu, Kharadapada and Vasona in Dadra & Nagar Haveli, Noida in UP, Sinnor in Maharashtra and in Pudducherry. Nilkamal is a market leader in the Material Handling segment too, backed by its ability to directly reach a very diverse set of industrial customers through 400+ self-employed sales people & operating from 50+ regional sales offices which is located across India. The Moulded Furniture segment of the company enjoys a 39 % market share in its category. Nilkamal has 26 small format stores along with a strong network of 40+ depots and 1000+ channel partners on a pan India basis, this not only increases the division’s ability to serve remotest rural markets but also further augment Nilkamal’s leader ship position in the near future. Nilkamal enjoys leadership position with a market share of around 32 % and a lead of over two times its closest competitor. While economic growth leading to higher investments by corporates will lead to higher demand & Nilkamal is well geared by adding a variety of products in the seating solutions segments like office chairs, designer chairs etc. for commercial establishment like food courts, malls etc. to address the raising need of the personal consumption for plastics furniture the company has set up one stop furniture showroom “Nilkamal Home Ideas” for all Nilkamal furniture products in the categories of living; bedrooms; sofas; dining; designer chairs etc. Higher purchasing power backed by the higher income levels and increased urbanization rising construction activity in housing segment will continue to boost the growth in mattress industry. Such scenario leads to increase in spring mattress segment where, Nilkamal has invested in machinery and marketing strategy for growth. Nilkamal’s Plastic products are made from polymers such as polyethylene (PE), polypropylene (PP), polystyrene (PS) and polyvinyl chloride (PVC) which are processed in numerous ways to achieve the desired shape and design of the product and so the key raw material used in manufacturing of Nilkamal’s products are polymers which are derived from crude oil and the Crude oil prices have corrected from a high of US$115 per bbl in August 2014 to US$ 53 per barrel currently which makes raw material cost for Nilkaml cheaper. Furthermore demand for polymers in China has weakened substantially on the back to economic slowdown. This will translate into marked reduction in raw material prices for Nilkamal resulting in a strong CAGR in nearer future. Nilkamal is one of the strong brands in the plastic segment that can be further classified into material handling commanding market share of around 36 % and moulded furniture category commanding value market share of 40 %. The company has 1200 distributors and over 5000 touch points across India. Nilkamal has nine manufacturing units for manufacture of plastic moulded furniture and material handling solutions. Material handling and moulded furniture contribute 57 % and 43 % to segment revenues, respectively. The Indian economy was relatively stable during the fiscal year 2015-16. The country’s gross domestic product (GDP) grew by 7.4 % compared to 7.2 % growth in GDP in 2014-15. The country’s GDP is expected to grow by 7.7 % during the year. Domestic consumption is expected to be the main driver of the likely acceleration in economic growth this year. The Plastic Business has achieved a volume growth of 3 % and value growth of 5 %. During the financial year 2015-16 it has achieved total turnover of Rs. 1,765.72 Cr as compared to Rs. 1,695.21 Cr in the previous year. To enhance product offering, this Year the Nilkamal has widen school furniture and SOHO (small office/home office) furniture range by adding more than 50 products in this segment. The Company has reinforced their market presence by adding more Modern Trade outlets, E-commerce portals and just dial to promote the sales of various value added products. The Company has rationalized the prices of Mattress and enhanced the dealer engagement programs to further enhance the market share in South, West & East. In the current financial year the Company plans to enhance its range of rubberized coir, foam and spring Mattress which will serve the comfort, back support for the spine and wellness factors sought by our esteemed customers. The company is in process to partner with digital Payment/Wallet companies to further improve customer experience both in Online and Offline Channel. Nilkamal is optimistic on a revival in demand for material handling products, going forward, supported by various initiatives (like “Swachh Bharat Abhiyan”) taken by the newly formed government at the Centre. The long awaited GST bill has been passed in both the houses of the Parliament and also got the approval from most of the states and its implementation is expected to be from 1st July 2017. The objective of GST is to end the regime of multiple taxes on goods and services and bring them under one rate, which would make the pricing of the products more rational. The system will change from the current production-based taxation to being consumption-based, which would bring uniformity in taxes across states and is expected to increase efficiency and compliance in the system. Implementation of GST would be a game changer for the organized plastic players as it would reduce the pricing gap between organized and unorganized players and make the organized players’ pricing equally attractive. Plastic processing industry is highly fragmented with unorganized players accounted 70 % of total industry size. This would shift consumer attention and preference towards quality branded products and help to gain market share from unorganized players. Further, unorganized players are currently out of the tax purview, thus enjoying lower costs by evading taxes. Post GST implementation, this is likely to be diminished sharply and the market share of the organized players would increase significantly. Nilkamal being strong player in organized plastic sector and would be benefited from GST implementation as it would create incremental demand for its branded products. During nine months, Nilkamal’s revenue grew at 4.8 % to Rs. 1,526.2 Cr in 9MFY17 from Rs. 1,456.8 Cr in 9MFY16. The plastic segment witnessed a growth of 6.1 % to Rs. 1,370 Cr from Rs. 1,291.7 Cr same period last year. However, retail segment remained flat with drop of -1.2 % to Rs. 174.10 Cr in 9MFY17 from Rs. 176.20 Cr in 9MFY16. EBITDA margins remained flat during the nine month period at 10.4 % and grew at 5.8 % to Rs. 158.70 Cr in 9MFY17 from Rs. 150.10 Cr in 9MFY16. Retail segment EBITDA margins improved to 4.6 % in 9MFY17 from 2.4 % in 9MFY16. EBITDA grew at a healthy phase to Rs. 8 Cr in 9MFY17 from Rs. 4.20 Cr in 9MFY16 registering a growth of 91.9 %. Nilkamal’s revenue during Q3FY17 registered a double digit growth of 16.4 % YoY at Rs. 528.90 Cr compared to Rs. 454.6 Cr in Q3FY16. The plastic segment being the major contributor grew at 19.1 % YoY to Rs. 476.70 Cr mainly on account of the growth in volume and value at 22.0 % and 19.0 % respectively. Nilkamal is a pioneer in the plastic industry and is among the leading manufacturers of moulded furniture. Company has established a strong brand value over the years in the organized plastic industry, which accounts 20 % of total plastic industry. The rollout of GST from next financial year would be a game changer for the industry as it would narrow down the price differential between organized and unorganized players, thus witness a shift of consumer attention and preference towards quality and branded products, gaining market share from unorganized players. Besides, company would be benefited from lower polymer prices across the globe and would aid to improve its margins and return ratios. Management has hired consultancies like ATK earney and BCG consulting group to bring structural changes in Material handling and Furniture segment. As per the strategy, company would maintain RoE of 20 % for its future business and would bring back its pricing power. Management expects long term revenue growth of 12-15 % in next 3-5 years with EBITDA margin in the range of 13-15 %. Management intends to cap its EBITDA margin, hence any recovery in crude oil prices would not impact its margins and even company would not pass on any raw material cost benefit to customers. Further, company would maintain capex of Rs. 25-30 crore annually going ahead, hence no major capex has lineup. Pick up in domestic economy would also fuel the demand for its products as its products demand depend on the discretionary spending. Further, company has maintained healthy balance sheet by paying off the debt and generating surplus cash flows to fund its working capital requirements. It is quite optimistic on the company’s long term growth story and do believe in coming years the company would emerge as a long term wealth creator for the investors. On valuation front, company is also attractively traded. At the current market price of Rs. 1685.15, the stock is trading at a PE of 19.14 x FY16E and 17.73 x FY17E respectively. The company can post Earnings per share (EPS) of Rs. 88.00 in FY17E and Rs. 95.00 in FY18E. It is expected that the company’s surplus scenario is likely to continue for the next three years keeping its growth story in the coming quarters also.
|SALES (₹ Crs)||2,003.30||2,123.50||2,315.00||2,530.20|
|NET PROFIT (₹ Cr)||113.30||131.40||141.80||155.10|
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