Buy Nilkamal; target of Rs 480: Sushil Finance

“Nilkamal is one of the leading company manufacturing injection moulded plastic products like furniture, plastic crates used for material handling, storage & distribution and custom mouldings. Additionally, the company has made a successful foray into the lifestyle furniture retailing business through “at home”, a home solution store.”
 
“Nilkamal’s delivered a muted performance during the quarter ended 31st Dec, 2010 (Q3FY11). While it posted net sales of Rs 3047.5 million, registering a growth of 22.4% YoY, its EBITDA decreased by 14.9% YoY to Rs 296.4 million and EBITDA margins decreased by 425 bps YoY to 9.72%. Its APAT stood at Rs 115.7 million registering a fall of 31% YoY. Its AEPS for the quarter stood at Rs 7.75. During 9MFY11, Nilkamal’s Revenues (on standalone basis) increased by 25.3% YoY to Rs 9086.8 million. Its EBIDTA was almost flattish at Rs 980.8 million, while the EBIDTA margins fell by 256 bps to 10.8%. Its APAT remained flattish at Rs 410.4 million. The main reasons for the fall in EBIDTA margins were due to increased raw material prices, higher employee bill and impact of higher base effect.”

“Traditionally, we have observed that the company is unable to fully pass on the increased raw material cost in the same quarter and generally there is a lag of 2-3 months in doing so. Also, during Q3FY10, the company earned better margins on account of inventory gains & one-time income (keyman policy insurance income of Rs.18.6 mn) and hence, the previous quarter numbers were on a significantly higher base. In addition to above, during Q3FY11, its employee bill grew significantly on the back of high new recruits & high increments (including Rs 14 million pertaining to H1FY11 increments). The combination of above as well as high transportation costs led to a sharp fall in its EBIDTA margins during Q3FY11.”

“While its Material Handling business has been growing steadily with stable margins, its Plastic Furniture business Volumes & EBIDTA margins do get impacted with the volatility in the RM prices. In a rising RM prices scenario, its margins tend to drop temporarily (by about 50 to 100 bps) while in a falling RM prices scenario, its margins tend to grow faster and normalize to its average levels with a lag of 1-2 quarters. Q3FY11 saw the RM prices growing fast while in Q3FY10, RM prices were falling, hence its margins in Q3FY11 fell, while its margins in Q3FY10 were the highest. Going forward, we expect its margins to stabilize & get back to its average levels in FY12.”
 
“We have revised our FY11 & FY12 estimates of the Company based on our interaction with the Management and considering its muted performance in Q3FY11. We now expect its FY11 & FY12 revenues to grow 21.5% & 18% and its FY11 & FY12 APAT to grow at 13.6% & 22.6% respectively. At the CMP of Rs 278, the stock is available at an attractive valuation of 7.8x its FY12E earnings of Rs 48. We maintain our “BUY” Rating on the stock with a target price of Rs 480,” says Sushil Finance research report.

Disclaimer: The views and investment tips expressed by investment experts on moneycontrol.com are their own, and not that of the website or its management.Moneycontrol.com advises users to check with certified experts before taking any investment decisions.