UFLEX
CMP 117/-
RESULTS UPDATE:
For Y/E March'10, company reported consolidated earnings of Rs 29, which is discounting this historical earnings by just 4X. Though earnings were below our expectations, it may be due to higher interest & depreciation charges due to new capacities coming in to operations, as well due to higher pre-operation expenses [as polyester film plants takes longer time to stabilize].
· Uflex is unique kind of Flexible packaging giant in India, with full integration, capturing margins across the value chain - from Film making to converting in to packaging material and final packing of variety of FMCG products.
· FMCG products - particularly daily consumable food and utility items are not affected by any recession or slowdown and hence Uflex's business is also recession proof as it caters to this segment of economy.
· The small unorganized players are far behind in integration and hence they are not able to pose any meaningful threat to its business. Rather due to size, integrated operations and better quality, company gets orders from larger clients and thus offers better earnings visibility.
· The new capacities commissioned in Mexico will add to top line and bottom line from current FY, similarly Egypt facilities will add only partially this year and full from next FY. Once these new facilities are stabilized and reach full contribution stage, the turnover of company may double in couple of years from now.
· So growth potential is immense and this along with recession proof nature of business, deserves a much better discounting for company from current historical 4X.
· The stock valuations are dam cheap now and we think, this should improve substantially from 4X historical to 8X forward, which gives us target of Rs 320 in 12-18 months. But conservatively we look forward to a target of at least Rs 220 in next 12 months.
