Recommendation From Packaging Sector
This section gives a recommendation of a stock having stock price below Rs 100 with sound fundamentals and expected to give handsome returns over a one-year time horizon.
ESTER INDUSTRIES LTD: POISED FOR IMPRESSIVE GROWTH
HERE IS WHY
✓Goods returns on capital employed
✓Huge potential for growth
✓Rising demand for the products
With its experience of 30 years, Ester Industries Ltd. has gained a competitive position to become a leading manufacturer of polyester films, specialty polymers and engineering plastic compounds. Polyester films find application mainly in flexible packaging while specialty polymer is used in niche areas like rigid packaging, textiles, etc. The engineering plastic segment processes materials demanded by industries such as automotive, electrical and electronics, appliance and telecom. It has a global presence with a large customer base and supplies to 40+ countries.
The company reported net sales of Rs991.76 crore in FY21 compared to Rs1,039 crore in FY20, implying de-growth of nearly 4.5 per cent. The EBIDTA stood at Rs239.2 crore in FY21 as against Rs198.7 crore in the previous year – growth of over 20.38 per cent. EBITDA margins stood at 15.9 per cent, a downfall of nearly 600 bps from the previous quarter. This was mainly due to surge in ocean freight and increasing input cost for end-user industries which in turn impacted the top-line. Also, the PAT saw growth of 38.2 per cent with an increase from Rs99.5 crore to Rs137.49 crore from FY20 to FY21, respectively.
The rise in profitability was mainly attributed to the improved performance of polyester film which enjoyed higher margins as well as engineering plastics on account of higher volumes and better margins. Speciality polymer was affected the most due to the pandemic but has been witnessing traction since Q4FY21. The management expects this trend to continue. A decline of nearly 14.2 per cent can be seen in the cash flows from operating activities, decreasing from Rs176 crore in FY20 to Rs151 crore in FY21. The company witnessed a strong quarter and high growth in volumes on the back of consistent demand from end-user industries.
Net sales for the quarter ended June 2021 stood at almost Rs318.92 crore, a growth of 7.3 per cent on QoQ basis. The EBITDA, exclusive of other income, was Rs61.63 crore which saw a slight growth of 7.7 per cent QoQ. The net profit stood at Rs36.93 crore, a growth of 14 per cent QoQ. To counter the changing dynamics of the challenging business environment, the company plans to increase its share of value-added products to 30 per cent by FY23. It contributed to about 17 per cent in revenues during the fiscal. Ester Industries has planned to pump in capex of Rs587 crore to set up new plants with commencement of operations expected from October 2022.
The company has delivered good returns to the stakeholders with a dividend yield of 2.54 per cent for the fiscal. Its ROE stood at 30.6 per cent with ROCE even better at 33.3 per cent. The price to earnings multiple is within reach, trading at 7.54. The debt-to-equity ratio stands at 0.33 which is considerable given the manufacturing side. The management expects to see margin recovery on the back of its growing product portfolio, expansion in range of products with recycled content and higher sales of offline coated products. With the recovery of its speciality polymer segment and the current momentum in its film and engineering plastic business, Ester Industries is expected to witness robust growth in FY22. By virtue of these factors, we recommend our investor-readers to BUY the stock.
