Buy Emmbi Industries; target of Rs 160: ICICI Direct

ICICI Direct's research report on Emmbi Industries

Emmbi Industries (Emmbi) reported a healthy Q2FY19 performance Net sales in Q2FY19 were at Rs 73.3 crore, (up 21.8% YoY) EBITDA in Q2FY19 came in at Rs 10.3 crore with corresponding EBITDA margins at 14.0%, up 20 bps YoY PAT in Q2FY19 was at Rs 4.4 crore, up 18.9% YoY The company is putting its new capacity (food grade FIBC+ pond liner) to optimum use and is stated to attain peak capacity utilisation, going forward, in FY20E. Capacity utilisation in FY19E is expected at ~80%+ while the same is expected at 90%+ Emmbi is well placed to attain higher double digit topline and bottomline growth in FY18-20E.

Outlook

Emmbi is a capital efficient player with ~2x asset turnover, stable ~14% EBITDA margin profile and ~90 days working capital cycle. Hence, it generates RoICs to the tune of 16%+. It generates healthy cash flows with present CFO yield at 10%+. Its present debt: equity was at 0.7x as of FY19E and is expected to taper down to 0.5x in FY20E. Going forward, we expect sales volume to grow at 11.3% CAGR in FY18-20E to 22,500 tonne in FY20E. Consequent, sales & PAT are expected to grow at a CAGR of 14.0% & 24.5%, respectively, in FY18-20E. We value Emmbi at 12.0x P/E (0.5x PEG) on FY20E EPS of Rs 13.4 to arrive at a target price of Rs 160. We maintain our BUY rating on the stock. We believe the recent correction in stock price offers a good buying opportunity.