Buy Uflex; target of Rs 501: Networth Stock Broking

“UFlex posted spectacular Q2FY11 numbers thanks to a more than 1.5x increase in polyester film prices being reflected directly in the bottom line. Consolidated revenues increased by 25% QoQ and 47% YoY to Rs 823 crore. This is primarily due to a significant increase in net realization rates for polyester films from Rs 85/kg in Q1FY11 to Rs 200/kg by the end of Q2FY11. Exports amounted to 45% of the total revenues with the balance being domestic sales. EBITDA increased significantly by 120% QoQ and 175% YoY deriving EBITDA margins of 37% compared to 18-20% historically. Net profit increased by a stunning 134% QoQ and 3.4x YoY ensuring profit margin of 25% compared to 8-10% historically. Average realizations for plastic films business was at Rs 147/kg with EBITDA at Rs 63/kg as against Rs 23/kg inQ1FY11. Packaging business was stable with EBITDA at Rs 61/kg as against Rs 55/kg in Q1FY11.”

“PET films prices are expected to remain firm for the next 3-4 quarters (check our Thematic Report on Polyester film prices). With the capacities coming only in mid FY12E, we expect the PET film prices to stabilize at around Rs 165/kg by FY12E. The management has given a guidance of Rs 800 crore of net income in FY11E (200% up from its last quarter guidance). We estimate FY11E and FY12E revenues to be at around Rs 550 crore and Rs 650 crore respectively. At 5x FY12E earnings we derive at a price target of Rs 501 per share (59% upside),” says Networth Stock Broking research report.

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