Recommendation From Packaging Sector

·         Topline and bottomline grew at a CAGR of 24 per cent in the last five years.

·         New line of business to spur future growth.

·         Available at attractive valuation of PE of 11x.

In the last one year the government has taken various initiatives to ignite economic growth and one such initiative is making India a manufacturing hub. This will be a growth booster to the manufacturing sector overall and particularly to those companies whose wide range of products serve a variety of industries and applications across the world. In the case of Emmbi Industries, its promoters too are increasing their stake continuously, which increased from 52.49 per cent as on September 2014 to 57.39 per cent as on September 2015, which gives us confidence of recommending this scrip.

Emmbi Industries (EIL) is into the field of woven polymer-based products. EIL manufactures flexible intermediate bulk containers, canal liners, protective irrigation systems, etc. The products are used in disposing hazardous nuclear waste, carcinogenic material, lining canals, preserving crops, transporting vehicles as well as packaging material used by leading e-commerce retailers.

Currently the polymer sector in India is valued at USD 30 billion, and this grew at 8 per cent last year with the growth rate being pegged at 10 per cent for the coming year. Moreover, India is steadily gaining a foothold in the global market as China no longer offers the same cost and other advantages. EIL has exploited this opportunity and its export has increased from Rs 28.1 crore in FY11 to Rs 101.9 crore in FY15. Going ahead it will continue to show good growth as traditionally North America and Europe were the mainstay markets but this is changing with increasing demand from Asia on account of greater consumption needs. EIL is also setting up operations in Scandinavia by strengthening its distribution capabilities to cater to the larger European markets.

In addition to the international market, domestically too the demand for the company’s product will increase as lifestyle changes place greater demand for polymers in India where it’s per capital consumption of 10 kg is below the world average of 30 kg. On the other hand, the company’s recent business lines, including water conservation products and the agriculture division, are expected to become the future growth engines. The company is building channel partners and investing in a distribution network to take advantage of being a first mover in this field.

The financials of the company reflect the business fundamentals. In the last five years ending FY15, the topline and bottomline of the company have grown at a CAGR of 25 per cent and 24 per cent respectively. The trend has continued in Q1 FY16 wherein the company posted yearly revenue growth of 19 per cent at Rs 46.16 crore while its net profit more than doubled in the same period to Rs 2.16 crore. The reason for such a stellar performance is the better product mix. The margins and return ratios too have seen considerable improvement in Q1 FY16. EIL has been paying dividend consistently since the last five years and its share is available at a trailing 12-month PE of 11x. Looking at the business potential and financial performance of this company, we recommend this scrip with a target of Rs 60 in the next one year.