Hold Polyplex Corporation: target of Rs 950: Sharekhan

Sharekhan's research report on Polyplex Corporation

Q3FY21 consolidated adjusted operating profit at Rs. 329 crore (up 54.6% y-o-y; up 1.6% q-o-q) slightly lagged estimates as beat in volumes (up 19.6% y-o-y) was offset by a miss in OPM by 89 bps to 26.6%. BOPET spreads seem to have peaked out and could contract going forward as realisations fall with a rise in supplies, while raw material costs also harden as oil prices surge to $61/bbl. We believe that PCL’s FY2021E margin/PAT of 26.7%/Rs. 516 crore are near peaks of the BOPET margin cycle and are not sustainable over FY2022E-FY2023E despite addition of new capacities (capex plan of $195 million).

Outlook

Post a sharp increase in PCL’s stock price, valuation of 6.3x FY2023E EPS is above its 5-year average one-year forward PE multiple of 5.2x and limits further valuation re-rating given cyclical natural of the business. Hence, we downgrade PCL to Hold (from Buy) with a revised PT of Rs.950.