Prima Plastics – Riding Consumption Wave

Prima PlasticsA middle class family satisfies its demand of furniture by purchasing mostly plastic chairs, tables etc. Easy maintenance, light weight, durability and economy are some of the features of the plastic furniture, which gives edge above the conventional wooden and metal furniture. Plastic molded furniture contributes immensely in saving forests. Moreover, customization in case of shape, design & molding can be easily done. Further, recycled plastics can be used for the manufacturing providing huge support to environment. The demand for plastic furniture from the rural and urban India is likely to pick up in upcoming years. The Indian plastic sector is highly unorganized and comprises 25,000 firms of which the top 100 odd players just account for 20% of the Industry turnover. Only 10%-15% firms are classified under medium scale operations while the rest of the units operate on a small scale basis. The per ca-pita consumption of plastics in our country is very low compared with western country consumption and is bound to increase in years to come. In case of molded furniture there are few listed players in India like Wimplast, Nilkamal, National Plastic Industries Ltd, Supreme industries etc.

prima

Plastics

Prima plastics designs and manufactures plastic molded furniture like chairs, baby chairs, dining tables, stools and teapots. The company started its operations in the year 1993. Also, Prima plastics has introduced India’s first poly carbonate chair “Crystal” which has been appreciated by consumers & architects. The furniture division has augmented its range in the last financial year by adding a variety of products in categories like office seating solution, living and bedroom furniture, computer table, dining, designer chairs etc. The company also manufactures Aluminum composite panel (ACP) which are used in making building’s exteriors and interiors. 90% of the revenue is derived from the molded plastics division while 10% comes from the ACP division. Further, 79% revenue is derived by the company from the local sales while 21% revenue comes from exports. Company exports products to USA, Africa and the Middle East. At present, Company is sustaining its ACP business with certain losses and once this business will pick up it will add to the profitability of the Company. The capacity of ACP division is underutilized at the current level which will be utilized to the fullest in upcoming years. In Year 2013, company made a loss of 1.15 cr in ACP vertical, although the overall operations were in profits. When the demand for real estate will pick up in the upcoming years, rebound in the ACP segment will be visible. The company is expecting the revenue increase of 15% to 20% in the molded furniture division. Moreover, management expects the sales revenue of the ACP segment to increase by 100 % in the upcoming years. The MFA (molded furniture) exports business is performing at a growth of more than 20% and Prima has secured top export awards in almost all years in past 15 years from PLEX Council of India. It is expected to perform on similar line in coming years. The Company have set up a joint venture in Cameroon (Africa) called Prima Dee-Lite Plastics Pvt. Ltd (wherein prima plastic holds 50% share holding) in the year 2005 to manufacture MFA business which is performing as per expectation and encouraged by the performance, it had diversified to manufacture Woven sacks Bags in the year 2012. The rise in prices of crude and similar impact on its bye products and uncertainties in its availability will remain a concern for the Molded Furniture business being major input material. In case of ACP business the risk is the excessive credit time taken by the real estate business and fluctuation in the prices of aluminum. Prima Plastics has three manufacturing units (IS09001 certified) at Daman, Cochin & Cameroon, (West Africa) with annually installed capacity at 9000 metric ton of polymer. Moreover, company has diversified into manufacturing of high quality PVDF coating Aluminum Composite Panel with the brand name called “ALUMA” with annually installed capacity to produce 1.2 million sq. mts in various sizes. The company has dealer network Rohtak, Jammu, Delhi, Coimabatore, Punjab, Kanpur, Hyderabad, Jaipur, Vapi & Hugly.

Financials: At the market cap of 22 crores company is generating revenue of 102.53 crores and the profits of 7.60 crores ( Financial year 2013-14 ). The company has a marginal debt of 10 crores, as compared to net worth of 53.02 crores. It has managed average operating margins of 11% in past three years. Furthermore, the company has earned averaged 20% return on invested capital during last three years. The stock is trading at CMP of Rs 20.75 much below the book value of Rs 55.17. The company is generating EPS of Rs 6.91 on the face value of Rs 10 per share. At the P/E of Rs 3.10 the stcok is available at the cheaper valuation as compared to peers. Furthermore, In  past three years the sales and profits have grown at the CAGR of 16% and 39% respectively. Company has been consistently spending on capital expenditure to cater the rising demand. Company has been has been paying dividend of Rs 1 which at CMP of Rs 20.75 comes to around 5%. Prima plastic is listed only on BSE. Fundamentally, company appears strong at the current levels.

Prima Plastic Price

Risks: Prima plastics is a penny stock with very less amount of volumes. In case of low volume stocks, it’s hard to get in and get out of the stock under such conditions. Low volume stocks can move up or down very fast in circuits without giving an opportunity to enter or exit.

Disclosure : This is not a stock recommendation. We keep on coming across companies that look interesting. However due to various factors like low volume & lack of free float shares, market cap, circuit limits etc. we tend to avoid recommending such stocks to our clients. Please do your own research before considering any action on the stocks mentioned in Small wonders section.

 

Chetan is the founder director at Alpha Invesco. An avid reader, he prefers to study small & medium size businesses that can become big tomorrow. Stock picking & research at alpha invesco is centred around identifying wealth creating midcap opportunities.