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Rushil Decor shares rallied nearly 10 percent intraday Tuesday after research house Investment Imperative sees 43 percent potential upside in the stock on company's aggressive expansion plans in MDFs and WPCs.
"We are giving a target of Rs 1,277 for FY20 with an expectation for timely implementation of MDFs project in AP, utilisation rate of above 80 percent for newly implemented WPC project by FY20," it said while having a Buy call on the stock.
The company is currently trading at 19x on enterprise value to earnings before income tax on last twelve months basis. It is commanding premium in line with the industry averages largely due to strong growth expectations of the overall sector, it added.
Rushil Decor is betting on aggressive expansion in medium density fibreboard (MDF) space and green product wood polymer composite or WPC boards in the current and upcoming years. It is targeting almost three times capacity addition of 800 cbm/ day from the current capacity of 300 cbm/ day. Rushil has also started WPC board plant in January 2018 which is environment friendly and preferred option for green buildings.
It is focusing on brand building process and carving out a niche in mid to high segment, product offerings. The company is foraying into green, durable products keeping a tab on global trends and expected changes in the current consumption.
"Rushil’s foray in to MDFs has been quick and rewarding with high utilisation rates, and higher operating margins. The company is looking to scale its capacity, as well as foray into WPCs to cater to green buildings, smart cities, and state of the art infrastructure projects in the country," Investment Imperative said.
According to the research house, MDFs and WPCs are expected to see strong penetration in the Indian markets, as has been the case globally, largely due to their durability, environment friendly nature and premium feel.
Incorporated in 1993, Rushil is engaged in manufacturing of decorative laminate products and MDFs. The company has an operating capacity of approximately 35 lakh sheets per annum in the laminates segment, forming around 3 percent of India’s total production capacity, marketed across the globe with a major concentration in Asia and Middle East.
The company is clocking more than 85 percent utilisation rates across laminates and MDF space. "For the full year FY2019, we are estimating Rushil Decor’s revenues at Rs 450 crore and EBITDA at Rs 82 crore. The company’s net is expected to grow by 60 percent to Rs 45 crore," the research house said.
According to the brokerage house, capex of Rs 20 crore in FY18 and Rs 341 crore during FY19-FY20 period is expected to bring leverage of around Rs 280 crore book equity of Rs 110 crore in FY17. It is expecting leverage to decline below 1x by FY22, within two years of implementation of MDFs project.
Rushil posted revenues of Rs 255 crore in 9M18, compared to Rs 221 crore in the prior year period. The growth reflected higher utilisation rates across the laminates and MDF segments due to strong demand backed by residential and commercial development projects.
At 13:29 hours IST, the stock price was quoting at Rs 880.90, up Rs 61.35, or 7.49 percent on the BSE.
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