Moneycontrol
Last Updated : Jun 27, 2018 10:18 AM IST | Source: Moneycontrol.com

Motilal tips this industry to create high value, lists 5 potential winners

India’s plastics industry is one of the biggest in the world. Industry volumes are estimated at 16MMTPA (in FY17), with market size at Rs 1.8 lakh crore.

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India is set to see a major overhaul in the trade structure in favor of the organized sector thanks to the government’s initiatives such as demonetization and GST, among others. The shift will be prompt for some sectors, gradual for others, and might remain challenging for a few.

India’s plastics industry is one of the biggest in the world. Industry volumes are estimated at 16MMTPA (in FY17), with market size at Rs 1.8 lakh crore. In volume terms, the industry has grown at a CAGR of 10 percent over FY10-17 and is expected to grow at a CAGR of 10.5 percent to 22MMTPA by FY20.

A similar shift is taking place in the plastic industry, Motilal Oswal said in a report. The industry is highly fragmented and numerous unorganized players account for 44 percent of the industry.

Channel checks conducted by the domestic brokerage firm suggests that changes in the administrative procedures under GST using technology platform and effective implementation of the e-way bill are likely to help hasten the shift towards formal trade.

The market share (in value terms) of organized players has increased from 45 percent in FY12 to 56 percent in FY17, driven by (a) growing brand awareness, (b) growth of organized retail, and (c) the formal segment’s ability to offer better quality and greater convenience.

The industry primarily comprises four components: Packaging, Pipes, Industrial Products, and Consumer Products. Of these, Consumer Products, Pipes, and Packaging have a significant presence of unorganized players.

Motilal Oswal is of the view that due to the formalization of the end-user industry, the shift in the B2B Plastics industry, primarily comprising of Packaging and Pipes, will be faster than in the B2C Consumer Products segment.

Supreme Industries, Astral Polytechnik, Finolex Industries, MoldTek Packaging, and Essel Propack are likely to be early beneficiaries of the shift of trade from the unorganized to the organized segment in the Plastics industry.

Here is a list of top 5 stocks as highlighted by Motilal Oswal which are in focus:

Supreme Industries

Supreme Industries (SI), founded in 1942, is one of the largest plastic processors in India, processing over 340kMT annually. It offers the widest and most comprehensive range of plastic products in India.

Its portfolio includes plastic piping systems, storage and material handling products, molded furniture, XF films and products (agriculture, industrial), performance films (industrials), protective packaging products, composite plastic products, and petrochemicals.

Apart from piping products used in the housing segment, it produces automobile parts, crates/boxes for material handling, furniture (tables/chairs), doors/panels for refrigerators, and packaging for edible and hydrogenated oils.

It enjoys sizable market share across each of its four verticals. Plastic piping, packaging, industrial products, and consumer products contribute 55 percent, 22 percent, 14 percent, and 7 percent of its total plastic products revenue, respectively. Over FY08-18, SI posted 14.6 percent revenue CAGR and 22 percent PAT CAGR.

Astral Polytechnik:

Astral PolyTechnik (ASTRA) is one of India’s leading plastic pipe companies, with leadership in CPVC pipes. With its acquisition of Resinova in the UK and Seal It in the US in 2014, Astral has now become a pipes, adhesives, and construction chemical company, with a larger home building materials brand.

It has a strong distribution focus, with 750+ distributors and over 25,000 dealers across India. The company is a prominent branded player in the CPVC pipes market, with 25 percent market share.

It is also the fifth-largest player in plastic pipes, with 6 percent market share. Over FY08-17, it has clocked 35 percent revenue CAGR and 32 percent PAT CAGR.

Finolex Industries

Finolex Industries (FNXP), founded in 1981, is India’s largest integrated rigid PVC pipes and fittings manufacturer and third-largest PVC resin manufacturer. FNXP is an established branded player in the domestic PVC pipes market, with 20 percent volume share.

Over FY08-17, it has clocked 9.5 percent revenue CAGR and 17.6 percent PAT CAGR. FNXP also enjoys backward integration into PVC resin, giving it a competitive edge and reducing earnings volatility. It has established strong brand equity and leadership in the agri segment, which contributes 70 percent to revenue.

It has also ventured into the fast-growing CPVC pipes market (24-25 percent CAGR) under the Finolex Flow Guard Plus brand post-tie-up with Lubrizol in February 2017.

Industry pegs the segment’s growth at 24-25 percent versus PVC pipes’ 10-11 percent. Entry to this high-growth segment should boost the company’s growth.

MoldTek Packaging

Mold-Tek Packaging (MTEP) was established in 1986 by two technocrats, J Lakshmana Rao and A Subramanyam. The company is the market leader in rigid plastic packaging in India and has more than 20 years of experience.

Mold-Tek did backward integration and started in-house manufacturing of robots (currently 45) to reduce cost and improve quality. It is the only completely backward integrated player in IML technology globally, as per the management.

The company is in the process of setting up two more plants at Vizag and Mysore, with total capacity of 6,000tpa, taking overall capacity to 36,000tpa by FY19. Over FY08-17, it reported revenue CAGR of 15 percent and PAT CAGR of 24.7 percent.

Essel Propack

Established in 1982, Essel Propack (ESEL) is a specialty packaging company engaged in the manufacture of laminated and plastic tubes, which are best suited to pack viscous products (such as pastes, gels, creams and ointments) that find application in various FMCG and pharmaceutical segments.

The market size for tubes in countries where ESEL operates is huge at about Rs 3,600 crore. Of this, Oral Care tubes account for Rs 1,400 crore, followed by Beauty & Cosmetics (Rs 1,200 crore) and Pharma & Others (Rs 1,000 crore). Over FY08-18, it reported revenue CAGR of 7.9 percent and PAT CAGR of 12.2 percent.

Disclaimer: The views and investment tips expressed by investment experts from Motilal Oswal 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.
First Published on Jun 27, 2018 10:18 am
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