Jindal Poly Films Ltd: Packaging Highest Ever Profits.Cmp Rs 573

Jindal Poly Films Ltd: Rationale for Recommendation:

1. Leading producer of Polyester and BOPP Films for Flexible packaging industry

2.Largest producer in the WORLD of BOPP films

3. Apart from India, two plants in U.S.A and three in Europe

4. FY15 Sales Rs 7284 crores and PAT of Rs 172 crores (after One-time provision of Rs 118 crores)

5. FY15 Eps (after one-off) Rs 43.22

6. H1/FY16 PAT can be Rs 247 crores (much higher than PAT of entire FY15) with Eps of Rs 58-59

7. FY16 Eps can be Rs 123-130

8. PE Ratio just 4.50 (FY16E earnings) despite being leading player in flexible packaging industry

9. QIP likely to be priced @ Rs 700+

10 Even if JPFL gets modest PE Ratio of 10 (in a scenario where PE Ratio of 20-30 has become norm even for much much smaller companies), its stock can be Rs 1200-1300 next year

BACKGROUND:

JPFL is a leading producer of Polyester and BOPP films mainly used for the flexible packaging industry. The company's manufacturing facility at Nasik is world's single largest location factory for producing these plastic films. After acquiring BOPP films divison of ExxonMobil, JPFL has become largest producer of BOPP films in the world with combined capacity of 4.45 lac TPA.

BOPET Film:  BOPET Film is a versatile product broadly classified according to thickness of the film, Thick films find application in photographic/X-Ray, electronics, printing, textile, pre-press back up films, for hoto voltaic cells used for generating solar power and office supplies, motor insulations photopolymer plates and document

lamination. Thin films are used in flexible packaging metallic yarn, cables, transformers, capacitors, audio/video tape, hot stamping foils etc  JPFL has capacity to manufacture 1.27 lac TPA of BOPET film.

BOPP Film: Better moisture retention properties render BOPP film more suitable for food products like snack foods, biscuits, pasta, dried foods and woven polypropylene bags. Further, BOPP film also finds application in over wrapping fo cigarettes, CDs, adhesive tapes,readymade garment bags and print lamination. JPFL has capacity

manufacture 2.10 lac TPA of BOPP films 

METALIZED FILMS: Vacuum deposition of Aluminium on BOPET and BOPP films increases the barrier properties of such films, Besides, flexible packaging metalized BOPET films is used for metallic yarn. Metalized BOPP is widely used for gift wrapping.

COATED FILMS: PVDC coated BOPP and BOPET films are used in the flexible packaging industry and co has capacity of 4500 TPA to manufacture3 PVDC, Acrylic and LTS coated films.

JPFL also produces various grades of BOPP films, like heat seal film, ape and textile film, metalized films, pearlized films, opaque film etc

JPFL also has in-house facility to produce polyester chips for its BOPET film business. Co has installed capacity of 1.76 lac TPA.

FINANCIALS:

                          2014-15

                            Rs/Cr

Sales                    7284

Interest                     82

Depreciation            226

One-Off                   117

PBT                        233

PAT                        172

Equity                    42.05

EPS Rs                  43.22

For FY15, JPFL reported Eps of Rs 43.22 after one-off provision of Rs 117 crores. But for same, Eps would have been Rs 65+.  JPFL made huge provision of 226 crores for depreciation which means CASH PROFIT OF NEARLY Rs 400 crores.

CURRENT YEAR:

For H1 ALONE, JPFL can report PAT of Rs 247 crores. It means H1 EPS SHOULD BE IN RANGE OF Rs 58-59.  H1 PAT SHOULD BE HIGHER THAN PAT OF ENTIRE FY15. Such huge rise in profit margins has been possible due to soft crude prices on one hand. And, strong demand for its products on the other hand leading to pricing power.

                                 2015-16E

                                  Rs/Cr

Sales                            7800

PAT                              520

Equity                           42.05

EPS Rs                        123

JPFL's Indian operations are Debt-free. JPFL has resorted to borrowings for acquisition of 5 plants of ExxonMobil.  Now, company is planning to raise funds via QIP for part payment of its debt. QIP is likely to be priced @ Rs 700+ (substantial premium to its current market price)

JPFL IS CURRENTLY TRADING AT PE RATIO OF ONLY 4.65 DESPITE BEING LEADING PLAYER IN FLEXIBLE PACKAGING INDUSTRY.  These valuations are extremely low by any yardstick, particularly at a time when at Bse/Nse hundreds of companies (with much much smaller size/turnover) are trading at PE Ratio of 20-40.

JPFL is our Top Muhurat Pick. Even if JPFL get very modest PE Ratio of 10, based upon estimated earnings for FY16, its stock price should be Rs 1200-1300 (if stock markets remain stable and do not tumble).

A large sized company available at very attractive valuations where downside is low and UPSIDE SHOULD BE HUGE