Buy Emmbi Industries; target of Rs 150: ICICI Direct

Emmbi started its journey in 1997 with the manufacture of plain vanilla FIBCs with application in handling of bulk commodities. Thereafter, along its journey till date Emmbi has been innovating its product profile to suit the changing market needs. In the FIBC range, it now manufactures FIBC, which are anti corrosive, anti carcinogenic, etc. Emmbi has also launched polymer based flexible water tanks, which are an effective means of storage and transportation of water. The company also manufactures polymer based canal liners; agri products like crop covers, shade nets, etc. Thus, the DNA to innovate and adapt to changing market needs gives visibility over long term sales growth and profitability.

On the back of executing a substantial capex schedule we have tweaked our estimates for Emmbi, going forward. We have built a capex of Rs 22 crore for FY17E and built in increase in debt against the earlier assumption of debt repayment from cash flow from operations. We expect sales, PAT to grow at a CAGR of 14.8%, 29.3%, respectively, in FY16-18E. It includes a margin expansion of 100 bps in the aforesaid period. The return ratios also expected to improve with FY18 RoE & RoCE expected at 18%. We value Emmbi at Rs 150, i.e. 15x P/E on FY18E EPS of Rs 10.40/share and maintain BUY rating on the stock.