Saturday, September 08, 2012

Uflex Ltd: Flexing Muscles
 CMP: Rs.92.85
(i) The group commenced its operations in 1983, and is now one of the leading corporate houses in the Asia Pacific Region offering, among the other things, a single window Total Packaging Solutions. Over the years, Uflex Ltd has integrated its operations from manufacture of polyester chips, films (BOPET, BOPP and CPP--both in plain and metalized form), coated film, laminates, pouches, holographic films gravure cylinders, inks and adhesives to all types of packaging & printing machines, offering total flexible packaging solution. The company has four divisions:  (a) Film Division, (b)  Ink & Adhesive Division, (c) Cylinder Division, (d) Holography Division. It is now India's largest flexible packaging company. Uflex Ltd's market share in India is around 35% of the organized market.
(ii) Uflex Ltd has five manufacturing plants spread over the world--India, Egypt, Dubai, Mexico and Poland. It is currently, getting 35% revenues from overseas market, which is expected to be 50:50 by 2015. Therefore, the depreciation of INR against the USD is expected to have a positive effect on the balance sheet of the company. 
(iii) Uflex Ltd came out with good set of number for Q1FY13, on a standalone basis.The total income of the company for Q1FY13 came out to be Rs.869.06 Cr as against Rs.797.83 Cr in the same period previous year. The PBDT of the company for Q1FY13, came out to be Rs.93.66 Cr as against Rs.74.90 Cr in the same period previous year. The Net profit of the company for Q1FY13, came out to be Rs.41.15 Cr as against Rs.33.10 Cr in the same period previous year. The EPS of the company for Q1FY13 came out to be Rs.5.70 as against Rs.4.59 in the same period previous year. Now, for full year we can expect an EPS of Rs.20.
However, on a consolidated basis, the net profit fell 41.4% to Rs.56.32 Cr on 24.4% growth in net sales to Rs.1359.47 crore in Q1 June 2012 over Q1 June 2011. But if we observe the accounts of the company for this period, then we would find that, net profit fell due to (a) Higher cost of materials (b) Higher employee benefit expenses (c) Higher power and fuel cost (d) Higher finance cost (e)  and less other income. These synthetic strains are going to ease out in the coming days, as the sales of the company is doing fine and according to the sources, the company is taking measures to iron out the kinks. Moreover, the company is growing by 25-30% CAGR and have about a billion dollar revenue--this gives much comfort to the bulls. With that growth rate, it should clock, close to Rs.9,000 or Rs.9,500 crore by FY15.
(iv) Uflex Ltd is looking to double turnover to around Rs.9,500 crore in three years and is in the process of spending $250 million on capex spread over two years. This will involve investments in setting up new manufacturing facilities and capacity expansion at existing locations. The company has a plant in Egypt.
The investment includes $80 million being spent on setting up a polyester film plant in Kentucky (USA) that is slated to be operational by December, adding that the plant will have an annual capacity of 30,000 tonne. It is the first greenfield investment by an Indian company in Kentucky, as also Uflex Ltd's first manufacturing facility in the US.
Uflex closed the financial year ended March 31, 2012 with 30% growth in consolidated revenues of Rs.4,543 crore, as against Rs.3,540 crore for the previous year, on favourable demand trend for its products globally. 
(v) Another very important point which is worth noting is that the company's 30,000 tonne per annum Poland facility commenced operations in July, 2012 and during the last financial year it completed the second phase of expansion of facility in Mexico, aggregating a total annual capacity of 60,000 MT of PET film. The company's total investments in Egypt are pegged at $135 million (Rs.743 Cr, approx), while the investments in Mexico amounted to $109 million (Rs.600 Cr, approx). 
The facility in Egypt has trade pacts with Gulf nations, Southern Europe and Africa, Middle East, West Asia and CIS countries to access larger markets, while that in Mexico has trade pacts and is part of North American Free Trade Agreement, thus it has access to a large market like North America. The company may also go for acquisitions if it comes across companies that would fulfill the requirements.
Chartcheck: Though the chart is not giving an immediate buy signal, but the patterns are forming for an expected upmove in the coming days. It seems the scrip has formed a temporary bottom of sorts, around the CMP of Rs.92.85 
Conclusion: Now, since the FMCG sector is doing fine, the best thing one can do is to buy the stocks from the sectors, which are related to this. And packaging is one of the names which falls under this category.  
One should therefore, buy the scrip at around Rs.92.50-93, for a very short term target of Rs.96-101, SL--Rs.89. In the medium term, I have placed a target of Rs.129-132.
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