UFlex – A Re-Rating On The Cards

Expansions at Mexico and Egypt will contribute fully from late FY11 and FY12 in full measure. Based on the FY10 EPS of Rs.29, UFlex trades at 5.5 times historical earnings. In view of rising consumption of edible grade packaging film, there is merit in the PE multiple itself rising to 8XFY11 earnings. This should give the stock a end FY11 value of roughly Rs 320 per share.

Also, the management has announced a rights issue of Rs 400 crore, to be issued in the ratio of 1:3. Reverse calculation indicates that the Rights may get priced at Rs 180 per share. The market price of the stock has thus got to rise much above Rs 180 per share to keep the existing investors interested in the rights issue…Buy with a 12 month holding period.

Financials

For Y/E March’10, company reported consolidated earnings of Rs.29, which is discounting this historical earnings by just 5.5X. 

Uflex is a 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 historical PE of 4X.

Valuations should improve substantially from 4X historical to 8X forward, which gives us target of Rs 320 in 12‐18 months.

*The above views are from a fwd email we received & are not ours. This article is not a buy/sell recommendation. Seeking advice from your Financial Financial Advisor is suggested.

VRIDHI

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