PROFITING FROM PLASTICS

If we look back a few years ago, the scenario was that moulded furniture was basically used as lawn furniture or in outdoor restaurants. With simple designs and low cost that was bound to happen. However, change is the only constant thing and hence as time changed, moulded plastic furniture began to increase its footprints in interior designing and architecture due to numerous reasons. To a major extent, plastic has replaced wood in the furniture industry. As compared to wood and other materials, plastic furniture offers more flexibility in terms of shape, size, colours, and most importantly, durability. The rapidly changing lifestyle of consumers and a greater inclination towards designer furniture that offers high degree of cost-effectiveness have propelled the demand for moulded plastic furniture in India and many other regions across the globe. 

As such, many companies engaged in this business have managed to capture good opportunities in this sunrise sector. Wim Plast is one of such companies that manufacture series of moulded furniture with premium range of products and plastic bubble guard and flute board sheets which have a number of applications for packaging, advertising and interior decoration activities along with multiple usages for household and industrial sectors. The company’s ‘Cello’ brand also enjoys significant brand recall. Therefore, we provide here a detailed analysis of the company. We also had a discussion with Madhusudan Jangid, CFO, Wim Plast, to understand the business in a better way.

Leveraging Cello

Wim Plast is a part of the Cello Group and has been marketing all its products under the brand name of Cello since 1994. It has thereby been successful in creating an ample market share for the brand in the plastic furnishings’ market. Over the years it has established a robust distribution network comprising around 450 dealers (300 in 2011) and around 12,000 retail dealers (8,000 in 2011). Leveraging on its strong brand equity, Wim Plast has now expanded to the southern and eastern regions with a strong dealer network by adding 10 per cent retail dealers’ base across India. Wim Plast has constantly also launched new products through innovation which has enabled it to grow its revenue by 23 per cent CAGR from Rs 130 crore in FY10 to Rs 296 crore in FY14.

Strong Turnaround Ability

Apart from its ability to foresee opportunities to drive growth there are significant additional capabilities that the management has showcased. If investors will recollect, in 2005 Wim Plast incurred capex of around Rs 30 crore to venture into a new line of business by manufacturing bubble guard sheets at Baddi, basically used for making boxes for fruits and vegetables and used as replacement of corrugated boxes to increase the life of the material packed inside and thereby reduce loss in transit. However, within a short period of time, the demand for this product phased out due to a hike of 50 per cent in the raw material prices.   

After a three-year struggle period, the company successfully introduced a new application of bubble guard for making false ceilings, wall panels, door panels, partitions, and floor protectors. The bubble guard plant thus became Asia’s number one plant and the third of its kind in the world with an installed capacity of 8,000 MT. Currently it is running at 100 per cent capacity utilisation. The company also started to promote its bubble guard sheets to established builders, thus proving that it is capable of overcoming any kind of adverse situation through innovation and R&D.

Focusing on Premium Products

As part of its long-term strategy, Wim Plast continues to launch new products. And if we go by the statement made by the management, going ahead there are going to be premium products like gas-assisted injection moulding chair, polycarbonate chairs, etc. The premium products have been categorised as those with EBIDTA margin of around 23 per cent. The company has also introduced bathroom accessories and storage materials with more new products in the pipeline. As per the management, the company is now serious about advertising to capture a niche market and create brand awareness through various ways like participating in trade shows as well as exhibitions.

Capex Through Internal Accruals

Till FY11 Wim Plast’s focus was limited to the western and northern regions of India with manufacturing units located in Daman and Baddi (Himachal Pradesh). However, over the last three years, Wim Plast has started four new manufacturing units for different products in Chennai, Haridwar, Kolkata and Daman. Over the past three years, Wim Plast has now doubled its production capacity with an investment of around Rs 55 crore through internal accruals. With this the company will have opportunities to serve segregated regional customers in the southern and eastern regions. 

In FY15 Wim Plast started to manufacture in-house moulding at Chennai which helps to review product designs with experienced engineers who can provide valuable inputs that have an impact on the final production process. The company has planned a capex of Rs 25 crore for the next two years for both brownfield as well as greenfield projects. It will be ready to take leverage in the future for bigger capex if the demand remains consistent. However, it would be too early to comment on the same.

Strong Financials

Despite a series of expansions over the last three years, the company has maintained its debt-free status by implementing the entire capex through their internal accruals. Wim Plast’s net sales have grown at a CAGR of 23 per cent to Rs 296 crore during FY10-14 while its EBITDA and PAT reported a CAGR of 21 per cent and 18 per cent to Rs 53.6 crore and Rs 33.5 crore respectively. In order to maintain its margin of more than 18.5 per cent, Wim Plast has introduced around 30 new products with multiple applications every year over the last four years.

Our key readings about Wim Plast are as follows: (1) Earnings are expected to grow at 15 per cent CAGR over FY14-16, (2) Strong operating cash flows and debt-free status, (3) Highest EBITDA margins among the peers at around 18 per cent and net margins at around 11 per cent, (4) High profitability combined with robust ROCE at around 30 per cent, and (5) Advantage of lower crude oil prices in the forthcoming quarters. At its CMP the stock trades 14.75x its FY16E earnings of Rs 78. Hence, our recommendation is to buy the counter with a target price of Rs 1,550 (20x FY16E EPS) at 35 per cent upside over a period of 12 months.