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

Q2 RESULS OF ITC LTD;

CNBC estimates sales at Rs 9420 crores. However, we feel that sales of ITC in Q2 may decline to Rs 8805 crores (9023 crores in Sept 14 quarter). PAT may be Rs 2431 crores as against CNBC estimate of Rs 2550 crores.  Degrowth in sales is a negative which may pull down the price. 
TP Rs 314-322

Aegis Logistics -- Buy

Aegis Group, claims to be "a leader in Oil, Gas and Chemical Logistics and has a strategy to build a necklace of terminals around India’s coastline enabling it to offer comprehensive facilities at every gateway into and out of India for a large number of cargoes to its customers.” The company was recently allotted additional 5 acres of land in Kandla Port making a total of 20 acres. Further, the company was allotted 3 acres of land in New Mangalore Port on 30 year lease by the MPT. With these land allocations, Aegis Logistics will expand its presence to Six Ports of India – Mumbai, Pipavav, Kandla, Kochi, Haldia, and New Mangalore. These ports together manage 70% of POL Traffic handled by the Major Ports in India.  

The Q2 results are to be announced on  Nov 3rd along with a proposal to pay interim dividend. This indicates that the working of the company for Q2 is likely to be robust. In the last 2 quarters, the promoters shareholding has

gone up marginally which shows their confidence in the business. The share price has come down from Rs.900 to Rs.88 on stock split (10:1).The P/V action has more than doubled which shows buying from interested quarters.

The share can be bought at the present market rate for an initial target price of Rs.120 over a 3 months time frame. However, with growing emphasis on infrastructure, the share can be bought & held on a longer time frame (9 - 12 months), subject to further review. The broader market is likely to remain robust on both domestic & global cues with the Nifty going above 8,300, reduction of lending rate by China and more stimulus expected from ECB. However, F&O rollover and Fed meet on OCT 28, can keep the market on a subdued level with intermittent profit booking.

Contributed by a friend Analyst Mr G R CHARI

Price Updates on our 2 Recommendations:

1. Jindal Polyfilms Ltd : In August 2015, we had recommended this stock for investment @ Rs 347. Since then stock has gone upto Rs 550.It means 65% appreciation in less than 3 months. We advise fellow investors not to sell even at current price. QIP price is likely to be fixed @ Rs 700/ and stock price of JPL should be in 4 digits in 2016

2. Gujarat Ambuja Exports Ltd: GAEL was recommended by us in August 2015 @ Rs 47. Now stock has touched Rs 61. It means appreciation of
30% in less than 3 months. Fellow investors are advised to hold and not to book profit at present level. We estimate stock price to cross Rs 75 by Decemeber 2015 and can be in 3 digits by May 2016

UPDATE ON SKS MICRO Q2 RESULTS

As estimated by us, PAT is 78 crores. Major highlights of Q2 results are:

1. Cost to Income has gone down by 5.3% QoQ basis to 47%
2. SKS has increased its guidelines of PAT for FY16 from 235 crores to 290 crores.
3. Gross Loan Portfolio for Q2 has increased by whopping 80% YoY and 14% QoQ.
4. Loan disbursement have increased 57% YoY to 2665 crores
5. GROSS LOAN DISBURSEMENT HAS REACHED ALL-TIME HIGH OF 5434 CRORES
(previously achieved in Q2/FY11)
6. Networth now stands at 1203 crores
7. Capital Adequacy Ratio is 24.6%
8. Cash/equivalients stand at 834 crores

We feel that SKS can cross Rs 500 by October Expiry (as forecast by us before announcement of results). Hence, investors are advised not to book profit in .

BREAKING NEWS:  SKS MICROFINANCE Cmp Rs 439/ ( 440 strike Call @ Rs 16)

SKS Micro is set to announce bumper nos for Q2 Wherein its PAT should be Rs 78 crores which will be around 37% higher YoY basis and around 27% higher QoQ basis. These nos are also substantially higher than market / bloomberg estimate of 66 crores

Stock had climbed to Rs 589 after Q1 results.

Stock had risen sharply on Friday and today but fell due to news that CBI has registered case against Dilli Raj. Mr Raj was working for First Leasing few years back and currently employed with SKS Micro. It may be noted that this CBI case is pertaining to some fraud done by promoters of First Leasing. Hence, such a case is completely unrelated to SKS Micro and should not in any way affect fortunes of SKS.

We estimate that stock can rise to Rs 490-500 by October expiry.

Buying strongly recommended.