Uflex Ltd.

2904

Recommendation BUY Better times ahead!

Uflex Ltd. reported a good set of numbers in Q1FY19. Sales for the quarter
CMP Rs. 312
increase by 17.4% YoY to Rs 1904.9 Cr. During the quarter, the company
Target Price Rs. 443 witnessed a strong overall sales volume growth of 14.9% YoY, with packaging
Sector Plastic business volumes growing 11% and film volumes growing at 15.9% YoY. The
management has maintained its guidance for double digit overall sales volumes
Stock Details
growth in FY19 with improved margins of 15%, given the stability in crude prices.
BSE Code 500148 EBITDA margins saw a dip from 14.3% in Q1FY18 to 13% in Q1FY19 and remained
NSE Code UFLEX flat on a QoQ basis. The negative impact on EBITDA margins was primarily
Bloomberg Code UFLX IN because of a sharp spike in crude oil prices squeezing the packaging business
Market Cap (Rs cr) Rs. 2247 margins. PAT in Q1FY19 was at Rs. 94.1Cr with PAT Margins higher by 1% QoQ.
Free Float (%) 56.0% Key Highlights
52- wk HI/Lo (Rs) 507/265  Aseptic Packaging: The company is seeing good traction and currently serves
Avg. volume BSE + NSE (Qrly) 176560 20 customers vs. 12 in Q4FY18. The plant is currently running at 20-25%
capacity utilization, and the management is taking efforts to rope in large
Initiating Coverage

Face Value Rs. 10

clients. Though the company does not see any pricing pressure, however
Dividend (FY 18) 20%
there could be a lag of 1-2 quarters, to achieve targeted revenue of Rs. 350Cr.
Shares o/s (Cr) 7.2  The company witnessed a pressure on the standalone packaging business
Relative Performance 1Mth 3Mth 1Yr margin due to a sharp spike in crude prices, which it could not pass on to the
Uflex 21.6% 2.2% -26.4% customers. However, it is likely to get normalized in Q2 and with the crude
Sensex 3.7% 6.4% 18.5% prices stabilizing, there would be an improvement in margins.
 The BOPET industry continuous to see an improvement with respect to both
600
demand and margins. The company realized margins of Rs. 50/kg in BOPET
films vs. Rs. 32/kg in Q1FY18 and believes to add another Rs. 3-4/kg to the
400
margins going ahead. Higher demand has resulted in a healthy order book for
the company.
200
 The BOPP industry is facing margin pressures and constitutes a small portion
Jan-18
Sep-17

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Aug-18

of Uflex’s product portfolio. The management believes this will not

significantly affect its margins going ahead.
Shareholding Pattern Jun ‘18  The company had taken up expansion of the holographic line in Jammu
Promoters Holding 44.0% incurring a capex of ~Rs. 150 Cr, which is likely be completed by Q2FY19. The
Institutional (Incl. FII) 11.1% management expects the line to add ~Rs. 200 Cr to the top line with a margin
Corporate Bodies 11.0% of 25-30%.
Public & others 33.9%
Valuation & Recommendation
We expect Uflex’s revenues to grow at 11.5% CAGR from FY18-20E and EBITDA to
Runjhun Jain (+91 22 6273 8177) grow at 16.6% during the same period. PAT is expected to grow at 30.5% CAGR
Sr. Research Analyst during the same period. ROE is expected to improve from 7.8% in FY18 to 11.0% in
runjhun.jain@nirmalbang.com FY20E and ROCE shall improve from 8.7% in FY18 to 11.6% in FY20E.
We have valued the company on EV/EBITDA basis, as we believe that packaging
Dnyanada K. Vaidya (+91 22 6273 8186) business deserves a higher multiple than the commoditized film business. We have
Research Associate valued Packaging business incl. Aseptic at 6x EV/EBITDA on FY19E EBITDA and the
dnyanada.vaidya@nirmalbang.com films business at 4.5x on FY19E earnings and arrived at a target of INR 443, which
implies 42% upside from current levels. We maintain “BUY” rating on the stock.

Consolidated Sales (Cr) Growth EBITDA (Cr) Margin PAT Margin EPS (Rs) P/E RoE
FY17A 6156.7 2.0% 874.3 14.2% 348.5 5.7% 48.3 6.5 9.6%
FY18A 6786.5 10.2% 879.4 13.0% 310.5 4.6% 43.0 7.3 7.8%
FY19E 7417.1 9.3% 993.9 13.4% 395.5 5.3% 54.8 5.7 9.1%
FY20E 8341.0 12.5% 1166.9 14.0% 533.4 6.4% 73.9 4.2 11.0%

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 Uflex Ltd.
Quarterly Result
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 The company continues to see a healthy volume growth during the quarter, with Film business registering a
stellar growth of 15.9% YoY and the packaging business growing 11% YoY during the quarter. The company
expects the growth momentum to continue for the rest of FY19 and have maintained the earlier guidance of
overall volume growth of 10% (Packaging volume growth >12% and films business volume growth 6-7%)
 Revenues for Q1FY19 stood at Rs.1904.9 Cr vs. Rs. 1622.6 Cr during Q1FY18, growing at 17.4% YoY. EBITDA
Margins during Q1FY19 were subdued on the back of increase in raw material prices and a sharp increase in
crude oil prices. EBITDA margins saw a dip from 14.3% in Q1FY18 to 13.0% in Q1FY19, but improved from 12.3% in
Q4FY18.
 The packaging business faced headwinds due to macro-economic factors, such as a sharp rise in crude oil prices
by 17% during the quarter. The pressure on the margins is owing to the lag of 1-2 months in passing on the prices
to the customer. The management expects the prices to stabilize in the coming quarter and thus improve
margins.
 Interest is expected to decline, as the company is likely to reduce its net debt by Rs. 150-200 Cr till the end of
FY19.
Fig 1. - Packaging Business Volume Growth (YoY) Fig 2. - Films Business Volumes Growth (YoY)

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 Uflex Ltd.
Financials (Consolidated)
Profit & Loss FY17A FY18A FY19E FY20E Balance Sheet FY17A FY18A FY19E FY20E
Net Sales 6156.7 6786.5 7417.1 8341.0 Property and CWIP 3858.4 3917.8 3880.5 3960.6
% change 2.0% 10.2% 9.3% 12.5% Total Investments 34.1 43.7 43.7 43.7
EBITDA 874.3 879.4 993.9 1166.9 Oth Non CA 210.1 196.4 308.8 309.8
EBITDA margin 14.2% 13.0% 13.4% 14.0% Inventories 678.6 796.8 927.1 1042.6
Depn & Amort 317.5 351.6 362.1 385.0 Debtors 1659.0 1939.0 2183.9 2502.3
Operating income 556.8 527.8 631.7 781.9 Cash & Bank 296.3 315.5 402.5 407.1
Interest 186.8 197.1 182.9 168.9 Current Tax As s ets 0.0 0.0 0.0 0.0
Other Income 20.5 20.0 22.0 22.0 Other Current As s ets 368.7 435.5 431.7 433.7
PBT 390.4 350.7 470.9 635.0 Total Assets 7148.6 7688.2 8221.7 8743.2
Tax 43.8 41.7 75.3 101.6 Total Equity 3628.8 3974.7 4354.2 4862.3
MI & EO -1.8 -1.5 0.0 0.0 Non Controlling Int. 15.2 4.9 4.9 4.9
Initiating Coverage

PAT 348.5 310.5 395.5 533.4 Total Borrowings 2102.1 2079.4 2009.5 1856.5
PAT margin (%) 5.7% 4.6% 5.3% 6.4% Total Provisions 30.8 32.2 32.2 32.2
Sh o/s - Diluted 7.2 7.2 7.2 7.2 Other Non CL 129.8 132.6 132.6 132.6
Adj EPS 48.3 43.0 54.8 73.9 Trade Payables 957.3 1196.4 1318.6 1482.8
Cash EPS 92.2 91.7 104.9 127.2 Current Tax Liabilities 35.4 18.5 18.5 18.5
Qtrly-Consol Sept.17 Dec.17 Mar.18 Jun.18 Other CL 244.4 243.8 345.7 347.7
Revenue 1593.3 1674.4 1811.6 1904.9 Total Eq. & Liabilities 7148.6 7688.2 8221.7 8743.2
EBITDA 229.7 194.4 223.5 247.7 Cash Flow FY17A FY18A FY19E FY20E
Dep & Amorz 84.5 91.2 92.6 92.1 EBITDA 874.3 879.4 993.9 1166.9
Op Income 145.2 103.2 130.9 155.6 Change in WC 119.1 -225.3 -259.8 -270.6
Interest 43.8 56.9 51.3 53.4 Tax -43.8 -41.7 -75.3 -101.6
Other Inc. 5.8 5.3 5.0 6.1 CF from Operation 949.7 612.4 658.7 794.7
PBT 107.3 51.6 84.6 108.3 Capex -627.3 -275.3 -324.8 -465.0
Tax 13.6 0.0 13.9 15.3 Oth Inc & Investments 21.9 10.3 22.0 22.0
EO -0.6 -0.4 -0.5 -1.1 CF from Investing -605.3 -265.0 -302.8 -443.0
PAT 94.3 52.0 71.1 94.1 Financing
EPS (Rs.) 13.1 7.2 9.9 13.0 Diviend Paid -27.8 -30.4 -14.4 -25.3
Performance Ratio FY17A FY18A FY19E FY20E Share Capital 0.0 0.0 0.0 0.0
EBITDA margin(%) 14.2% 13.0% 13.4% 14.0% Loans -37.4 -22.7 -69.9 -153.0
EBIT margin (%) 9.0% 7.8% 8.5% 9.4% Interest -186.8 -197.1 -182.9 -168.9
PAT margin (%) 5.7% 4.6% 5.3% 6.4% Others -184.0 -78.0 -1.7 0.2
ROE (%) 9.6% 7.8% 9.1% 11.0% CF from Financing -435.9 -328.2 -268.9 -347.0
ROCE (%) 9.7% 8.7% 9.9% 11.6% Net Chg. in Cash -91.6 19.2 86.9 4.7
PAT growth (%) 11.0% -10.9% 27.4% 34.9% Cash at beginning 387.9 296.3 315.5 402.5
Debt/Equity (x) 0.6 0.5 0.5 0.4 Cash at end 296.3 315.5 402.5 407.1
Valuation Ratio FY17A FY18A FY19E FY20E Per Share Data FY17A FY18A FY19E FY20E
PE (x) 6.5 7.3 5.7 4.2 Adj EPS 48.3 43.0 54.8 73.9
Price/BV (x) 0.6 0.6 0.5 0.5 BV per share 502.5 550.4 603.0 673.3
EV / Sales 0.7 0.6 0.5 0.4 Cash per share 41.0 43.7 55.7 56.4
EV / EBITDA 4.6 4.6 3.9 3.2 Dividend per share 3.9 4.2 2.0 3.5

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 Uflex Ltd.

Disclosure:

This Report is published by Nirmal Bang Securities Private Limited (hereinafter referred to as “NBSPL”) for private circulation. NBSPL
is a registered Research Analyst under SEBI (Research Analyst) Regulations, 2014 having Registration no. INH000001766. NBSPL is
also a registered Stock Broker with National Stock Exchange of India Limited and BSE Limited in cash and derivatives segments. It is
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NBSPL has other business divisions with independent research teams separated by Chinese walls, and therefore may, at times, have
different or contrary views on stocks and markets.

NBSPL or its associates have not been debarred / suspended by SEBI or any other regulatory authority for accessing / dealing in
securities Market. NBSPL, its associates or analyst or his relatives do not hold any financial interest in the subject company. NBSPL or
its associates or Analyst do not have any conflict or material conflict of interest at the time of publication of the research report with
Initiating Coverage

the subject company. NBSPL or its associates or Analyst or his relatives hold / do not hold beneficial ownership of 1% or more in the
subject company at the end of the month immediately preceding the date of publication of this research report.

NBSPL or its associates / analyst has not received any compensation / managed or co-managed public offering of securities of the
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Analyst Certification: I/We, Runjhun Jain, Research Analyst and Dnyanada Vaidya, Research Associate authors of this report, hereby
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making any recommendations.

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 Uflex Ltd.
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