These plastic segment stocks are set to be money magnets going forward - Expert says you should 'Buy'
Over the past five years, at 70% of PVC consumption, plastic pipes & fittings has a Rs 280 billion market with a CAGR of 12%.
Due to government’s rising thrust on irrigation programs and housing & infra expenditure, it is now expected that the Indian pipes sector, which accounts for 70% of plastic product industry, is set to be a big gainer. Over the past five years, the plastic pipes & fittings segment has a Rs 280 billion market with a CAGR of 12%. This is driven by mounting demand from key user industries (irrigation, water infrastructure, housing). Significantly, Ashish Poddar, Research Analyst at Anand Rathi expects the market to grow at a similar pace to as high as Rs 460 billion by 2022.
Poddar explains that growth challenges are there, but expects a gradual recovery. The focus on product diversity and value addition has worked well for large manufacturers in recent years.
Initiating coverage on a few plastic-related stocks, Poddar listed new investment calls that can become money magnets on stock exchanges. These are:
Astral Poly Technik (Initiating, with a Buy, TP: Rs 1,275; 15% potential)!
On establishing a leading position in plumbing pipes, Astral is expanding vigorously into adhesives. It chose through acquisitions to diversify its portfolio, improve performance and achieve rapid growth. Relentless branding, innovative product launches and successful diversification have been its key strengths.
Poddar says, “We expect revenue/EBITDA/PAT to grow 14%/17%/22% over FY19-21 owing to growth across segments. We initiate coverage on Astral with a Buy recommendation and a target of `1,275 (48x FY21e EPS vs. the five-year average of 60x). Margin improvement in adhesives is a key monitorable.”
Finolex Industries (Initiating, with a Hold, TP: Rs 563; 14% potential)!
The leader in agricultural pipes, Finolex is the only company backward integrated into manufacturing PVC resin (the key raw material for plastic pipes). Anand Rathi expects, only a 5% earnings CAGRs over FY19-21 despite 10% revenue growth. Due to the low potential, we initiate coverage on Finolex with a Hold, and a target of Rs 563 (at 19x FY21e EPS - the mean for FY14-19). CPVC-pipe and PVC-margin growths are key monitorables.
Supreme Industries (Initiating, with a Buy, TP: Rs 1,304; 19% potential)!
One of the largest plastic processors in India, Supreme sells over 0.4m tons of plastic products across five categories. Its strong brand equity, leading position in key segments, regular capacity additions and focus on value added products have been its key strength. It has 25 plants across India and three more envisaged in the next 1-2 years.
Ahead, Poddar expects Supreme to grow faster (at 14%/16%/14% CAGRs over FY19-21), owing to healthy growth across segments, generating a healthy RoE (23%+) and FCF. Coverage with a Buy recommendation and a target of Rs 1,304 (25x FY21e EPS vs. 28x mean over FY14-19) is given.
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Wim Plast (Initiating, with a Hold, TP: Rs 594; 8% potential)
The third-largest plastic furniture manufacturer, Wim Plast has a wide distribution network and plants across regions. While its bubble/flute guard business is growing, its newer air-cooler business under the ‘Cello’ brand, has yet to see the desired level of success (a reason for de-rating).
Despite this, the company has generated FCF and continued debt-free. Anand Rathi expects a gradual demand recovery and estimate a 9% CAGR in EPS over FY19-21. In the last five years the stock has been significantly re-rated on expectation of success in the air-cooler business, which did not fructify. Coverage with a Hold, assigning 15x FY21e P/E, the same as Nilkamal, versus 27x, the mean for FY14-19.
Nilkamal (Maintaining a Hold, TP: Rs 1,495; 6% potential)!
The leader in material-handling products and plastic furniture, Nilkamal also has operations in non-plastic furniture, furnishings & accessories, mattresses and bubble-guard sheets. After a strong, 20%, earnings CAGR over FY14-19, we expect a low 12% PAT CAGR over FY19-21 due to the challenging environment.
Anand Rathi analyst indicated his liking for Nilkamal for its leading position in its core businesses and low-leveraged balance sheet. On the little potential, we retain our Hold recommendation with a target of Rs 1,495 (15x FY21e EPS).
Thereby, if you are looking to buy stocks, then have a look at the above mentioned stocks as well, as these can lead to gains going forward.
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