Emmbi Poly: Strong revenue growth; EBITDA margin declines

Emmbi's Q2FY13 revenue exceeded CRISIL Research’s expectations while earnings were below expectations. Revenues grew by 51% y-o-y (due to capacity expansion) and 30% q-o-q to Rs 367 mn. EBITDA margin declined by 173 bps y-o-y and 77 bps q-o-q to 8.1%. Employee cost increased by 60% y-o-y and 62% q-o-q. Adjusted PAT declined by 36% y-o-y (up 35% q-o-q) to Rs 7 mn. PAT margin declined by 276 bps y-o-y (flat q-o-q) to 2%. Although the global flexible intermediate bulk containers (FIBCs) industry is witnessing a slowdown, we believe Emmbi was able to grow its revenue by lowering realisations to increase volume offtake; this impacted EBITDA margin. However, as we have not been able to interact with the management, we do not have sufficient clarity on this. We expect the business environment to remain challenging over the next few quarters. We maintain the fundamental grade of 2/5, indicating that its fundamentals are moderate relative to other listed securities in India.

Domestic business drove revenue growth; company entered new geographies in Q2
Emmbi’s domestic revenue doubled y-o-y (up 19% q-o-q) to Rs 206 mn driven by growth across all product segments FIBCs, geotextiles, flexible tanks and canal liners. The export revenue grew by 16% y-o-y (up 47% q-o-q) to Rs 161 mn. During the quarter, the company expanded into three new countries Denmark, Holland and Uruguay.

EBITDA margin declined despite increase in contribution of value added products
The contribution of value added products increased 22% from 17% in Q2FY12 and 20% in Q1FY13. However, we believe its EBITDA margin declined by 173 bps y-o-y and 77 bps q-o-q to 8.1% mainly because the company lowered its realisations to increase volume offtake. Employee cost, which increased to 6.2% of sales from 5.8% in Q2FY12 and 4.9% in Q1FY13, also impacted EBITDA margin. We have lowered our FY13 EBITDA margin estimates by 100 bps to 8.5% and FY14 EBITDA margin and estimates by 75 bps to 9.7%.

Earnings revised downwards for FY13 and FY14; fair value revised to Rs 20
We have revised the earnings estimates downwards for FY13 and FY14 by 16% and 12%, respectively, to factor in lower EBITDA margin, higher depreciation and interest cost. Accordingly we revise the fair value to Rs 20 per share from Rs 21 earlier. At the current market price of Rs 13, our valuation grade is 5/5.

Disclaimer: This report (Report) has been commissioned by the Company/Investor/Exchange and prepared by CRISIL. The report is based on data publicly available or from sources considered reliable by CRISIL (Data). However, CRISIL does not guarantee the accuracy, adequacy or completeness of the Data / Report and is not responsible for any errors or omissions or for the results obtained from the use of Data / Report. Opinions expressed herein are CRISIL's opinions as on the date of this Report.  The Data / Report are subject to change without any prior notice. Nothing in this Report constitutes investment, legal, accounting or tax advice or any solicitation, whatsoever. The Report is not a recommendation to buy / sell or hold any securities of the Company. CRISIL especially states that it has no financial liability, whatsoever, to the subscribers / users of this Report. This Report is for the personal information of the authorized recipient only. This Report should not be reproduced or redistributed or communicated directly or indirectly in any form to any other person or published or copied in whole or in part especially outside India, for any purpose.

© CRISIL Limited . All Rights Reserved. Published under permission from CRISIL"