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Uflex Ltd.

Recommendation HOLD Aseptic Packaging picking up momentum!


CMP Rs. 269 Uflex Ltd. reported a decent quarter where consolidated sales for the quarter
Target Price Rs. 305 increased by 13.5% YoY to Rs 2057.3 cr, however, the overall volume growth
remained muted on the back of flattish packaging and film volume growth.
Sector Plastic
Consolidated EBITDA margins remained flat YoY at 12.5% in Q4FY19 vs 12.3% in
Stock Details Q4FY18 however improved sequentially from 11.4. PAT for Q4FY19 was at Rs. 70.1
BSE Code 500148 cr vs Rs 71.1cr/54 cr in Q4FY18/Q3FY19 respectively. PAT was lower due to higher
tax rate, which is expected to normalize at current levels going ahead. Adjusting
NSE Code UFLEX
for same, PAT margins decreased marginally and stood at 3.4% vs 3.9% in Q4FY18.
Bloomberg Code UFLX IN Key Highlights
Market Cap (Rs cr) 1942  Aseptic Packaging: Uflex is continued to see good traction in the business and
currently has 55 customers vs. 40 in Q3FY19. The company has broken-even
Free Float (%) 56%
on EBITDA level by Q4FY19 with an exit run-rate of 80mn packs during FY19.
52- wk HI/Lo (Rs) 355/181 We expect the company to sell ~1.5bn packs in FY20.
Avg. volume BSE + NSE (Qrly) 1,21,630
 Packaging Business: The packaging business volumes have not been very
Initiating Coverage

encouraging lately. However, the management expects a pick-up in business


Face Value Rs. 10 with volumes growing by 9-11% in FY20 broadly in-line with our expectation
Dividend (FY 19) 20% of a volume growth of 10% in FY20.
 Film Business: BOPET Gross margins have seen an improvement sequentially
Shares o/s (cr) 7.2 and stood at ~Rs. 50-54/kg vs Rs. 47/kg in Q3FY19. The management sees the
Relative
1Mth 3Mth 1Yr growth momentum intact for the next 12 months both domestically and in
Performance
the overseas markets. The company has also seen a drastic improvement in
Uflex 13.1% 28.1% -18.5%
the BOPP margins with the BOPP industry exhibiting signs of revival. The
Sensex 1.2% 9.5% 13.0%
BOPP margins too have seen a jump and stood at Rs. 42-45/kg vs Rs. 35-38/kg
in Q2FY19.
370  Facilities at Egypt, Mexico and Dubai are yet to achieve 100% capacity
utilization where the company will look to consolidate. The rest of the plants
320
are running at full capacity.
270  The company had in the previous quarter announced a new facility of 40000
MT in BOPP based film in Hungary. In Q4FY19, the company announced the
220 setting up of another BOPET film facility in Nigeria for ~$80mn which will
170 largely cater to the West African markets and will have a ‘first mover’
May-18 Aug-18 Nov-18 Feb-19 advantage. The cumulative capex for both the projects is estimated to be
~$130mn and are expected to come up in the next 2 years.
Shareholding Pattern Mar’19 Valuation & Recommendation
Promoters Holding 44.0%
We expect Uflex’s revenues to grow at 8.6% CAGR from FY19-21E and EBITDA to
Institutional (Incl. FII) 8.4%
grow at 9.9% during the same period. PAT is expected to grow at 21% CAGR during
Corporate Bodies 14.0%
the same period. ROE is expected to improve from 7.3% in FY19 to 9.0% in FY21E
Public & others 33.6%
and ROCE shall improve from 9.5% in FY19 to 11.0% in FY21E.
Runjhun Jain (+91 22 6273 8177) We have valued the company on EV/EBITDA basis, as we believe that packaging
Sr. Research Analyst business deserves a higher multiple than the commoditized film business. We have
runjhun.jain@nirmalbang.com valued Packaging business incl. Aseptic at 4.5x EV/EBITDA on FY20E EBITDA and
Dnyanada K. Vaidya (+91 22 6273 8186) the films business at 3.5x on FY20E EBITDA and arrived at a target of INR 305,
Research Associate which implies 19.5% upside from current levels. We recommend “HOLD” rating on
dnyanada.vaidya@nirmalbang.com the stock.
Consolidated Sales (Cr) Growth EBITDA (Cr) Margin PAT Margin EPS (Rs) P/E RoE
FY18A 6786.5 10.2% 879.4 13.0% 310.5 4.6% 43.0 6.3 7.8%
FY19 7957.2 17.3% 989.8 12.4% 313.8 3.9% 43.5 6.2 7.3%
FY20E 8446.7 6.2% 1062.0 12.6% 366.3 4.3% 50.7 5.3 7.9%
FY21E 9358.7 10.8% 1196.0 12.8% 458.1 4.9% 63.4 4.2 9.0%
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Uflex Ltd.

Quarterly Result
Particulars (Rs Cr) Q4FY19 Q4FY18 YoY Q3FY19 QoQ FY19 FY18 YoY
Total Revenues 2057.3 1813.0 13.5% 1979.3 3.9% 7957.2 6708.5 18.6%
Cost of materials 1234.4 1127.9 9.4% 1234.4 0.0% 4861.9 4035.9 20.5%
Employees Cost 176.2 141.3 24.7% 165.0 6.8% 662.4 588.8 12.5%
Other exps 389.9 320.3 21.7% 354.0 10.2% 1443.2 1204.4 19.8%
EBITDA 256.8 223.5 14.9% 225.9 13.7% 989.8 879.4 12.6%
Margins 12.5% 12.3% 11.4% 12.4% 13.1%
Depreciation 96.0 92.6 97.2 380.7 351.6
EBIT 160.9 130.9 22.9% 128.7 25.0% 609.1 527.8 15.4%
Interest 54.4 51.3 6.2% 56.6 -3.8% 217.9 197.1 10.6%
Other Income 6.7 5.0 3.8 20.7 20.0
PBT 113.1 84.6 33.7% 76.0 48.9% 411.9 350.7 17.4%
Initiating Coverage

Tax 39.3 13.9 19.6 93.5 41.7


Tax rate 34.8% 16.5% 25.8% 22.7% 11.9%
EO items & MI 3.7 -0.5 2.4 4.5 -1.5
PAT reported 70.1 71.1 -1.5% 54.0 29.8% 313.8 310.5 1.1%
EPS 9.7 9.9 7.5 43.5 43.0

Film Business:
Given the continued improvement in the market scenario of BOPET films, the management expects margins to
stabilize at current levels of Rs. 50-54/kg. The outlook for BOPET films both domestically and internationally remains
strong for the next 12 months. The company has announced a new BOPET film line in Nigeria.

The BOPP films, which form a small part of the company’s product portfolio, have seen an improvement in prices and
margins. BOPP film market is seeing gradual revival and is expected grow FY20 onwards. The company is also setting
up a facility in Hungary for films with a base of BOPP films.

Other Business Highlights:


The Aseptic packaging facility is shaping up well operating at 40% capacity utilization and has achieved EBITDA break-
even in Q4FY19. The number of customers it currently serves is at ~55 vs 40 in Q3FY19. The management has guided
that the plant would achieve a capacity utilization of 57-60% by FY20 and would be able to achieve sales 1.8-2Bn
packs in FY20 with PAT break-even.

Other expenses were higher by ~Rs. 56 Cr on account of one-off elements like, a JV in Israel where expenses to
replace certain parts were incurred and as per IFRS these expenses should be charged to P&L. Another reason for
such increase is an advance extended by one of the subsidiaries to a company which has gone into NCLT. Thus the
company had to make a provision. Excluding the one-time expense, the consolidated EBITDA margin would stand at
15.2%.

The tax rate during the quarter was higher due to fading away of tax exemptions in certain international facilities. Tax
rate is likely to be in the range of 23-24% for the coming year.

The expansion of the Hologram line in Jammu is yet to be completed and will take another 3-4 months.

The current gross debt (incl. Working capital) stood at ~Rs. 2100 cr.

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Uflex Ltd.

Exhibit 1. - Film Business Volume Growth (YoY) Exhibit 2. - Packaging Business Volumes Growth (YoY)

350 10% 12% 100 20% 25%


300 10% 20%
8% 80 16%
250 7%
8% 12% 15%
200 60
4% 6% 5% 10%
150 40 3%
4% 5%
100 0%
1% 1% 20
50 2% 0%
0 0% 0 -5%
FY14 FY15 FY16 FY17 FY18 FY19 FY14 FY15 FY16 FY17 FY18 FY19

Volumes ('000) YoY Growth Volumes ('000) YoY Growth


Initiating Coverage

Source: Company, NBRR Source: Company, NBRR


Source: Company, NBRR Source: Company, NBRR

Valuation and View

We expect Uflex’s revenues to grow at 8.6% CAGR from FY19-21E and EBITDA to grow at 9.9% during the same
period. PAT is expected to grow at 21% CAGR during the same period. ROE is expected to improve from 7.3% in FY19
to 9.0% in FY21E and ROCE shall improve from 9.5% in FY19 to 11.0% in FY21E.

We have valued the company on EV/EBITDA basis, as we believe that packaging business deserves a higher multiple
than the commoditized film business. We have valued Packaging business incl. Aseptic at 4.5x EV/EBITDA on FY20E
EBITDA and the films business at 3.5x on FY20E EBITDA and arrived at a target of INR 305, which implies 19.5%
upside from current levels. We recommend “HOLD” rating on the stock.

Pkg incl Asceptic FY20E


EBITDA – Rs cr 360.6
EV/E Multiple 4.5
EV – Rs cr 1,622.7

Film FY20E
EBITDA – Rs cr 701.4
EV/E Multiple 3.5
EV – Rs cr 2,455.0

Consolidated FY20E
EV – Rs cr 4,077.7
Less: Debt – Rs cr 1,878.0
Mcap – Rs cr 2,199.7
No of shares 7.2
Tgt price 305
Potential 13.2%

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Uflex Ltd.
Financials (Consolidated)
Profit & Loss FY18A FY19 FY20E FY21E Balance Sheet FY18A FY19 FY20E FY21E
Net Sales 6786.5 7957.2 8446.7 9358.7 Property and CWIP 3917.8 4005.2 4006.0 4180.5
% change 10.2% 17.3% 6.2% 10.8% Total Investments 43.7 14.7 14.7 14.7
EBITDA 879.4 989.8 1062.0 1196.0 Oth Non CA 196.4 343.6 260.8 260.8
EBITDA margin 13.0% 12.4% 12.6% 12.8% Inventories 796.8 843.5 915.1 1013.9
Depn & Amort 351.6 380.7 414.2 450.5 Debtors 1939.0 2045.5 2158.6 2391.7
Operating income 527.8 609.1 647.8 745.6 Cash & Bank 315.5 288.1 390.8 249.1
Interest 197.1 217.9 187.8 167.8 Current Ta x As s ets 0.0 0.0 0.0 0.0
Other Income 20.0 20.7 22.0 25.0 Other Current As s ets 435.5 377.3 437.2 439.2
PBT 350.7 411.9 482.0 602.8 Total Assets 7688.2 7959.6 8224.7 8591.5
Tax 41.7 93.5 115.7 144.7 Total Equity 3974.7 4304.3 4652.6 5092.6
MI & EO -1.5 4.5 0.0 0.0 Non Controlling Int. 4.9 0.0 0.0 0.0
Initiating Coverage

PAT 310.5 313.8 366.3 458.1 Total Borrowings 2079.4 2078.0 1878.0 1678.0
PAT margin (%) 4.6% 3.9% 4.3% 4.9% Total Provisions 32.2 46.2 46.2 46.2
Sh o/s - Diluted 7.2 7.2 7.2 7.2 Other Non CL 132.6 190.1 190.1 190.1
Adj EPS 43.0 43.5 50.7 63.4 Trade Payables 1196.4 1056.3 1173.1 1299.8
Cash EPS 91.7 96.2 108.1 125.8 Current Tax Liabilities 18.5 26.1 26.1 26.1
Qtrly-Consol Jun.18 Sept.18 Dec.18 Mar.19 Other CL 243.8 258.6 258.6 258.6
Revenue 1904.9 2015.8 1979.3 1048.2 Total Eq. & Liabilities 7688.2 7959.6 8224.7 8591.5
EBITDA 247.7 259.6 225.9 115.9 Cash Flow FY18A FY19 FY20E FY21E
Dep & Amorz 92.1 95.7 97.2 60.6 EBITDA 879.4 989.8 1062.0 1196.0
Op Income 155.6 164.0 128.7 55.3 Change in WC -225.3 -288.5 -44.8 -207.2
Interest 53.4 53.6 56.6 42.6 Tax -41.7 -93.5 -115.7 -144.7
Other Inc. 6.1 4.1 3.8 9.2 CF from Operation 612.4 607.8 901.5 844.2
PBT 108.3 114.5 76.0 22.0 Capex -275.3 -468.1 -415.0 -625.0
Tax 15.3 19.3 19.6 7.7 Oth Inc & Investments 10.3 49.8 22.0 25.0
EO -1.1 -0.5 2.4 0.0 CF from Investing -265.0 -418.3 -393.0 -600.0
PAT 94.1 95.7 54.0 14.3 Financing
EPS (Rs.) 13.0 13.3 7.5 2.0 Diviend Paid -30.4 -14.4 -18.1 -18.1
Performance Ratio FY18A FY19 FY20E FY21E Share Capital 0.0 0.0 0.0 0.0
EBITDA margin(%) 13.0% 12.4% 12.6% 12.8% Loans -22.7 -1.4 -200.0 -200.0
EBIT margin (%) 7.8% 7.7% 7.7% 8.0% Interest -197.1 -217.9 -187.8 -167.8
PAT margin (%) 4.6% 3.9% 4.3% 4.9% Others -78.0 16.9 0.0 0.0
ROE (%) 7.8% 7.3% 7.9% 9.0% CF from Financing -328.2 -216.9 -405.8 -385.9
ROCE (%) 8.7% 9.5% 9.9% 11.0% Net Chg. in Cash 19.2 -27.4 102.6 -141.7
PAT growth (%) -10.9% 1.1% 16.7% 25.1% Cash at beginning 296.3 315.5 288.1 390.8
Debt/Equity (x) 0.5 0.5 0.4 0.3 Cash at end 315.5 288.1 390.8 249.1
Valuation Ratio FY18A FY19 FY20E FY21E Per Share Data FY18A FY19 FY20E FY21E
PE (x) 6.3 6.2 5.3 4.2 Adj EPS 43.0 43.5 50.7 63.4
Price/BV (x) 0.5 0.5 0.4 0.4 BV per share 550.4 596.1 644.3 705.2
EV / Sales 0.5 0.5 0.4 0.4 Cash per share 43.7 39.9 54.1 34.5
EV / EBITDA 4.2 3.8 3.2 2.8 Dividend per share 4.2 2.0 2.5 2.5

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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
also a registered Portfolio Manager having registration no as INP000002981.

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
company covered by Analyst during the past twelve months. NBSPL or its associates have not received any compensation or other
benefits from the company covered by Analyst or third party in connection with the research report. Analyst has not served as an
officer, director or employee of Subject Company and NBSPL / analyst has not been engaged in market making activity of the subject
company.

Analyst Certification: I/We, Runjhun Jain, Research Analyst and Dnyanada Vaidya, Research Associate authors of this report, hereby
certify that the views expressed in this research report accurately reflects my/our personal views about the subject securities,
issuers, products, sectors or industries. It is also certified that no part of the compensation of the analyst(s) was, is, or will be directly
or indirectly related to the inclusion of specific recommendations or views in this research. The analyst(s) principally responsible for
the preparation of this research report and has taken reasonable care to achieve and maintain independence and objectivity in
making any recommendations.

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Uflex Ltd.
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