ICICI Direct recommended hold rating on Wim Plast with a target price of Rs 360 in its research report dated June 17, 2020.
ICICI Direct's research report on Wim Plast
Wim Plast (WPL) reported a sluggish performance in Q4FY20 with a decline in revenue by ~31% YoY to Rs 76 crore. Plastic segment (~87% of revenue) revenue declined 23% YoY while other segment (includes extrusion sheet, moulds, air cooler) revenue declined 53% YoY in Q4FY20. In general, Q4 happens to be a strong quarter with contribution of ~30% in annual sales. However, we believe the lockdown situation in March 2020 would have slashed Q4 revenue by Rs 25-30 crore (I-direct estimate). Besides, a sharp increase in gross margin by ~440 bps YoY in Q4FY20 was due to better product mix, benign raw material prices. However, higher other expenditure and employee cost (both up ~190 bps, 418 bps YoY, respectively) dragged overall EBITDA margin. With a value market share of ~20%, WPL has faced stiff competition from unorganised players in its major operating markets such as Gujarat, Rajasthan and Maharashtra. However, revenue contribution of value added products (VAP) categories has increased from 11% to ~17% in the last four years, making a huge impact on gross margin front (up ~500 bps YoY in FY20) despite muted sales of traditional products. We believe that while FY21E is likely to be a challenging year due to lockdown, a major recovery would be witnessed from FY22E onwards.
WPL is the third largest players in the plastic furniture industry with ~14,000 touch points across India. In the last five years, it has focused on increasing share of value added product category (currently ~17%) in its revenue. Although this has led to muted topline growth, EBITDA margin of the business stayed elevated with increasing profitability of other segments (EBIT margin rose from 2.6% in FY19 to 8.6% in FY20). While the company stayed debt free, lower asset turnover on incremental capex, higher inventory days led to lower return ratios. We cut our FY21E revenue, earning estimates by ~37%, 35%, respectively, factoring in lockdown situation and introduce FY22 estimates with revenue, earnings growth of 16%, 34% YoY, respectively. We roll over our valuation on FY22E and maintain HOLD rating on the stock with a revised TP of Rs 370, valuing at 10x FY22E earnings.
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