Buy Uflex; target of Rs 150: Sunidhi Securities

Sunidhi Securities is bullish on Uflex and has recommended buy rating on the stock with a target of Rs 150 in its January 4, 2013 research report.
 
“Uflex founded in 1983 as Flex Industries by the Flex Group to manufacture multilayer laminated rolls of plastics, paper, cloth or metal foils that are used separately or in combination for various packaging applications. In November 1994, the company launched the operation of first line for the production of BOPET films with the capacity of 20,000 tpa. After having established a leadership position in India, Uflex set up its first overseas operation in 2005 at Dubai, UAE. This was followed by expansion there and new facilities at Mexico, Egypt and Poland that were commissioned in 2009, 2010 and 2012 respectively. Today, it has 14 state-of-the-art film lines located in 5 countries that run 24x7. Of these, 6 lines are 8.7 meters wide and run at 500 meters per minute which make them the largest film lines of their kind in the world.”
 
“During FY12, Uflex registered 28% increased sales of Rs4387 crore. Net profit. however fell 63% to Rs255 crore mainly due to lower margins. OPM and NPM stood at 15.6% and 5.8% Vs 33.3% and 20.4% in FY11. During Q2FY13, net profit fell 1% to Rs56.7 crore on 16% higher sales of Rs1222 crore. OPM and NPM stood at 15.0% and 4.6% Vs 14.1% and 5.4% in Q2FY12. During H1FY13, net profit decreased 26% to Rs113 crore on 20% higher sales of Rs2581 crore. OPM and NPM stood at 14.4% and 4.4% Vs 16.1% and 7.2% in H1FY12. H1FY13 EPS works out to Rs15.7 Vs Rs21.2 in H1FY12.”
 
“Uflex’s BOPET film is one of the main products. Uflex has not only succeeded in retaining its market share but also continues to expand its markets in today’s dynamic & rapidly changing packaging scenario. Biaxially Oriented PET film (BOPET) is used successfully in a wide range of applications, due to its excellent combination of optical, physical, mechanical, thermal, and chemical properties, as well as its unique versatility. Uflex has a strong global sales & distribution network and customers in over 100 countries. Blended tax experience for the consolidated entity is lower because of lower tax regime in overseas locations-Dubai: zero tax rate; Egypt: 20% and Mexico: 30%. The demand for flexible packaging is mainly derived from the demand of the user industries like processed food, personal products, beverages, lubricants, pesticides and pharmaceuticals etc. Approximately 80% of company’s production is consumed by food & FMCG industry, which gives strong revenue visibility. Uflex has plans to go for acquisitions if it comes across companies that would fulfill the requirements.”
 
“Currently, Uflex has 35% revenues from overseas market and it expects this to be 50:50 by 2015. Uflex was growing by 20-25% CAGR and obviously, it has near to $1 billion revenue. Last year was very challenging for Uflex as its polyester films segment, which contributes about 63% to overall revenue, was hit due to demand deficit following the euro zone crisis. However, the situation has started improving dramatically and coupled with the continued growth in other segments Uflex is expecting good growth in net profit in FY13. Uflex’s market share in India is around 35% in the organised market. With the ongoing expansion and the growth rate at which the industry is moving, Uflex should clock the sales of Rs9,500 to Rs10,000 crore by FY16. At the CMP of Rs102, the share is trading at a P/E of 2.7x on FY13E & 2.0x on FY14E. We recommend BUY with a target price of Rs150 in the medium term,” says Sunidhi Securities research report.

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