manjushree tech no pack ltd initiating coverage

Company Profile:

The Bangalore headquartered Manjushree Technopack Ltd (formerly

Manjushree Extrusions Limited) is engaged in the manufacture of specialty

plastic packaging products mainly containers and jars for multinational

companies in FMCG, pharma, carbonated soft drinks, and food processing

sectors. Manjushree Technopack over the years has built technology and

experience in providing rigid packaging solutions in PET, Monolayer and

Multilayer containers by utilizing European and Japanese technologies.

The company provides total packaging solutions under one roof, right from

concept to design, R&D, tooling and commercialization of the package. To

expand its reach across the country it has marketing offices in the major

metros including at Mumbai, Chennai and Bangalore. The major plants of

the business are located in Guwahati and at Bommasandra Industrial Area,

Bangalore.

Management: Mr. Vimal Kedia is the Founder and Managing Director of

Manjushree Technopack Ltd. He envisioned the huge potential from the

packaging industry way back in 1984 and set up Manjushree's plant in

Bommasandra, Bangalore after completing his Bachelors in Commerce

from Guwahati University. Under his leadership and vision the company

has grown by leaps and bounds over the years. He was also felicitated with

the "Best Entrepreneur" award from the President of India for his

outstanding contribution to the packaging sector in India.

We initiate coverage on Manjushree Technopack with a 'Buy'

recommendation. The company delivered strong set of performance

numbers in FY11 despite the business witnessing continuously rising raw

material prices for the business. We expect the company to maintain its

track record of healthy growth with sales growing at a rate of 20.75% in

FY12E and 38.6% in FY13E and an EPS of Rs 12.52 in FY12E and Rs 15.6 in

FY13E posting a growth of 15% in FY12E and 24% in FY13E. The growth in

the business is expected to flow in from rising demand from FMCG

business, expansion of existing capacity in FY12E and operations of new

plant in Bidadi in FY13E. Given the company's excellent client base and

ability to maintain margins by its large scale operations we value

Manjushree Technopack at 8(x) FY13E earnings of Rs 15.6 to arrive at a

target price of Rs 120.

EUREKA RESEARCH www.eurekasecurities.com

ANALYST

Sakshi Malhotra

MANJUSHREE VS SENSEX (1 YEAR GRAPH)

[email protected]

0 98300 84057 / 91-33-3918 0386 - 87

RESEARCHBUY

20th October, 2011 INITIATING COVERAGE

MANJUSHREE TECHNOPACK LTD

Recommendation

CMPTARGET

: Rs. 90.00: Rs. 120.00

COMPANY DETAILS

SHARE HOLDING PATTERN %

BSE Code

NSE Symbol

Bloomberg

Market Cap. (Rs. Crs)

Free Float

52 Week High(Rs)

52 Week Low(Rs)

Dividend Yield (%)

Beta

Face Value

Foreign

Institutions

Non-Promoter Corp Holding

Promoters

Public &Others

TOTAL

532950

MANJUSHREE

MTPL IN

122.63

109.80

55.50

1.1

0.70

10

3.06

0.74

8.43

59.11

28.66

100


20th October, 2011

EUREKA RESEARCH 2 www.eurekasecurities.com

Investment Rationale:

! Strong list of diversified clientele: Manjushree Technopack has several reputed clients from FMCG and other diversified

industries that have primary and secondary packaging needs for retailing their products. The Company is a regular

supplier to companies like Hindustan Lever, Cadbury India, Nestle, Tata Tea, P&G, Britannia, Glaxo Smith Kline, Perfetti,

Heinz, Godrej, PepsiCo, Pfizer, Lotte India, MTR, Wrigley's etc. Top FMCG companies contribute 80% to the top line of the

business where Pepsi, Coco Cola, Hindustan Unilever, Tata Tea and Cadbury are the top five clients of the company

contributing 80% of the FMCG business. Strong track record of timely deliveries of orders has enabled the company to

maintain existing relationships and build on new ones. The company's business is expected to grow at the back of rising

volumes from new and old FMCG players.

! Capacity expansion to drive further growth: The Company has recorded double digit sales growth since FY06 on the back

of rapid capacity expansion. The company has expanded capacity from 300 MTPA in 1996 to a 36000 MTPA in FY11 at

37.6% CAGR. It is currently operating at a capacity utilization of 90% with its two manufacturing facilities in Bangalore. In

order to meet the growing packaging requirements from FMCG industry, the company is further augmenting its capacity.

It plans to add 12000 MTPA capacities in FY12 which will take the total capacity to 51225 MTPA at the end of FY12. In

second half of FY13 the new plant of the company in “Bidadi” is expected to begin operations which will increase the total

capacity to 63225 MTPA.

Particulars (Rs crore):

Revenue

% Ch.(Y0Y)

EBIDTA

% Ch.(Y0Y)

PAT

% Ch.(Y0Y)

ROE

ROCE

EPS

% Ch.(Y0Y)

P/E

EV/EBIDTA

P/B

FY13E

356.99

38.48

78.88

39.45

21.12

2.45

18.56

12.90

15.59

24.49

5.64

3.55

0.91

FY12E

257.79

18.92

56.57

18.07

16.97

1.46

18.99

12.62

12.52

14.69

7.03

4.23

1.23

FY11

216.78

44.69

47.91

146.83

14.80

119.82

19.72

13.14

10.92

40.00

8.06

4.72

1.46

FY10

149.82

41.22

19.41

13.84

1.14

-8.30

1.78

4.27

7.80

41.05

5.57

3.52

0.84

FY09

106.09

43.36

17.05

66.18

6.70

16.38

11.86

10.11

5.53

70.15

2.71

2.73

0.33

Financial Highlights:

YEAR

FY07

FY08

FY09

FY10

FY11

FY12E

FY13E

Capacity

4140 MTPA

9120 MTPA

21740 MTPA

29210 MTPA

39225 MTPA

51225 MTPA

63225 MTPA

Details of Capacity

3780 TPA for PET Containers and 360 TPA for Multilayer Containers

Installed capacity was at 4380 MTPA for PET Containers and 4740 MTPA for Preforms and

Multilayer Containers.

The major capacity additions was for the manufacture of PET Preforms to the tune of

11100 MTPA and the balance capacity was added for the containers. Installed capacity

was at 5900 MTPA for PET Containers and 15840 MTPA for Preforms and Multilayer

Containers.

The major expansion was for the manufacture of PET Preforms by 6,360 MTPA and the

balance of 1,110 MTPA capacity for the manufacture of containers. Installed capacity was

at 7010 MTPA for PET Containers and 22200 MTPA for Preforms and Multilayer Containers.

The major capacity additions have been done for the manufacture of PET Preforms to

the tune of 6000 MTPA and the balance 1440 capacity has been added for the containers.

Additional capacity expected in the production of PET Preforms taking the installed

capacity of Preforms to 42060 MTPA.

With operations of the Bidhai plant we expect an additional 12000 MTPA of capacity in

performs to be installed.


20th October, 2011


! Targeting new industries: The food industry is demanding better packaging now to keep the products fresh for a longer

shelf life. This has opened new opportunities for Manjushree in newer industries like tea, alcohol and milk products

packaging. Tea, alcohol and milk were mainly packed in tin or glass items. Leveraging on the changing demand of

consumers for better and innovative packaging as well as rising prices of tin and glass the company has added high profile

clients like Tata Tea and Radico Khaitan to its client list.

! Innovative approach to business: Manjushree Technopack has maintained an innovative and advanced approach to

business ever since the days of inception. It was the first company to launch 6 layer co-extrusion technologies for

manufacturing multilayer bottlers for the perishable food industry in FY03. The company also pioneered in producing PP

ISBM (Polypropylene Injection Stretch Blow Moulding) in collaboration with GlaxoSmithKline to produce Polypropylene

Containers for its malt and chocolate powder beverages. Manjushree was also among the first few to bring to India the

hot fill technology for producing bottles which can take up 85 degree Centigrade filling temperatures which today is

extensively used in juice and beverages industry. The company has constantly been involved with upgrading of existing

technology like in FY07 it introduced high speed machines from Husky Injection Molding Systems, Canada, to produce

PET performs for carbonated soft drinks, juices and packed bottles. The company is expected to continue with its track

record of being an innovator and leader within the packaging industry.

! Consistent growth prospects: Manjushree Technopack acts like a packaging solution provider for its clients and is one of

the only companies providing a total packaging solution starting from design to commercialization. It has maintained a

top line growth of 24% CAGR from FY06 to FY11 and a bottom line growth of 22% during the same period. It is expected to

grow at a steady rate at the back of strong growth of the FMCG, food and beverages sectors during FY12E and FY13E.


20th October, 2011


Business Overview:

Manjushree Technopack serves a variety of markets like tea & coffee, pharmaceuticals, confectionery, fruit juices, aerated

beverages, liquor, sauces & ketchups, household cleaners, pickles, health supplements, mineral water, promotional items

and spices. It services these markets through two main products:


20th October, 2011


1. PET/PP Jars and Bottles: The main reason for increasing usage of Pet containers is that its unbreakable but being

transparent it gives the look of glass. PET has good barrier properties against oxygen and carbon dioxide. Therefore, it is

utilized in bottles for mineral water. Other advantages of PET bottles and jars are lightweight, can be colored and shaped

into various forms. Even though PET has various benefits there was a need to develop containers for the industry with the

same attributes but at a cheaper price. It was then that Manjushree Technopack started production for Polypropylene

(PP) Jars and Bottles. Not only is PP less dense but it is also cheaper than PET.

Manjushree Technopack provides one of the largest ranges of PET/PP containers and bottles in wide array of designs. PET

containers are ideal to carry products like spices, medicines, confectionary, tea, liquor, beverages and food products. The

company supplies PET bottles to Coca cola, Pepsi and Bisleri while it supplies PET Jars to Perfetti, P&G and Tata tea. PP Jars

and bottles are ideal for storing food supplements, health drink powders and drinking water. Glaxo Smith Kline consumer

is the major customer for its PP Jars.

Manjushree has established long term relations with major FMCG companies and supplies packaging material to them

on a regular basis. Besides it does conversion work for its regular long term clients Coca Cola and Pepsi where some or all

of the raw materials are supplied by these companies and Manjushree is only involved with production of the bottles. The

Conversion business contributor almost 10% of the topline in FY11.

2. Multilayer Barrier Containers: Multilayer barrier containers were introduced for the first time in India by Manjushree

Technopack. They have oxygen barrier properties and are retortable upto 120° and are transparent. These containers are

an ideal packaging solution for food items that needs to stay fresh and safe from moisture containers; besides preserving

aroma and taste. These containers are formed by integration of various plastics within a multilayer structure in order to

combine their distinct properties. It has replaced glass, tin and aluminum lined paper cartons. These packaging solutions

are mainly used for products like ketchup, mayonnaise, other sauces, milk & dairy products, fresh fruits/fruit Juices,

pickles, potato chips and dry fruits (cashew, resins, almonds etc.). The major customers for these containers are HUL,

Delmonte and Heinz.


20th October, 2011


Key Risks:

! Margins dependent on raw material prices: The two major raw materials of the company are PET chips and PP chips.

These are petrochemical products whose prices are dependent on the price of crude oil. With crude prices increasing

continuously in FY11 prices of PET and PP have also increased significantly. As a result margins have declined from

Q1FY11 to Q4FY11. However margins have started recovering in Q1FY12 owing to slight decline in raw material prices.

! No long term contracts with buyers: Orders received by the company are not on the basis of any long term contracts

signed by them rather it is at the back of good business relations with the customers. Even though Manjushree has

received continuous business from most of its clients there is no guarantee that there would not be and change in the

buying pattern of its clients.


20th October, 2011


Growth Opportunity for Manjushree:

Carbonated Soft Drinks (CSD):

Soft Drinks have become part and parcel of the lifestyle of Indians, irrespective of age and season. The Indian soft drinks

market generated total revenues of $3.8 billion in 2010, representing a compound annual growth rate (CAGR) of 11% for the

period spanning 2006-2010. Carbonates soft drinks proved the most lucrative for the Indian beverage market in 2010,

generating total revenues of $1.9 billion, equivalent to 50.5% of the market's overall value.

For many years virtually all carbonated soft drinks were packaged in glass bottles sealed with crown cork but now bottling of

CSD in PET is established on a worldwide basis. PET is preferred because of its lightweight, clarity, barrier, softness,

toughness, food grade and shatterproof characteristics. The average annual consumption of cola per person in India is

currently 8 liters but cola majors have plans to increase this to 20 liters. In countries such as Pakistan, the average

consumption is 60 liters per annum. As consumption of cola increases the demand for pet bottles will grow simultaneously

and Manjushree is well positioned to benefit from this growing trend in beverages industry as the top players in the market

are Pepsi and Coco-cola both of which are tied with the company.

Mineral Water:

Water is one among the basic necessities of human beings and the health awareness among the people and shortage of

water in most parts of India has brought development in the mineral water industry in India. The major market share of the

mineral water industry is occupied by the three players like Bisleri International, Coco-Cola's Kinley and PepsiCo's Aquafina

even though there are about 200 bottled mineral water brands in India and nearly 80% of them are local brands. This

segment is a big consumer of PET bottles in India more so as the government has placed a ban on PVC bottles for Mineral

Water. The company, having good working relations with Bisleri, Coco Cola and Pepsi, it is in a comfortable situation to

benefit from the new brand of health conscious Indian who treats mineral water as a necessity.

Confectionery:

Confectionery includes sweet food and high calorie content like mint candies, toffees, lollipops, chocolates, chewing gums

and candies. India's confectionery market is set to witness robust growth in the coming years on the back of buoyancy in

demand from increasing young population. Pet jars are used to stock confectionary items in grocery shops and other retail

outlets to be sold to retail customers. The major players in the confectionery category are Cadbury India Ltd, Lotte India Co.

Ltd, Nestle, Perfetti and ITC. With Cadbury India, HUL and Nestle as key players already in Manjushree's client list the

company is well set to benefit from this opportunity.

Alcohol:

Even though PET and other form of plastic packaging enjoys every strong market share and acceptance in carbonated drinks,

healthcare, edible oil, mineral water and other FMCG products its acceptance till now has been very low in the liquor/beer

industry. Liquor/beer packaging is mainly concentrated by glass and tin. But with the rising commodity prices of both these

raw materials we are slowly witnessing that the Indian liquor/beer companies have started innovating with PET and other

forms of plastic packaging. These include the likes of McDowell, Mohan Meakins, United Breweries, Radico Khaitan and

Shaw Wallace. PET Multilayer Containers have outstanding resistance to a very wide range of solvents including alcohol. We

believe there is ample scope for leading packaging players like Manjushree Technopack to build on his growth opportunity.


20th October, 2011


Financial Performance:

Valuation & Recommendation:

Manjushree Tehnoplast has recorded a steady 6 year CAGR growth of 22% in Net Sales from Rs 65 crores in FY06 to Rs 216

crores in FY11 and a bottom line growth of 22% CAGR within the same period. The growth of business was at the back of

strong performance from both the job work and manufacturing business from various FMCG clients of the company. The

robust growth in sales for the business was also supported by expansion in capacity for the company which expanded at a

rate of 56% CAGR from FY07 to FY11. With rapid expansion in capacity and sales the company has been in a position to

expand its operating margins from 16.15% in FY09 to 22.16% in FY11. During the same period there has been considerable

improvement in the capital efficiency ratios also where the ROE has improved from 11.86% in FY09 to 19.72% in FY11 and the

ROCE improved from 10.11 % in FY09 to 13.14% in Fy11.

Even with difficult economic situations and rising raw material prices in the last one year Manjushree Technopack has been

in a position to maintain consistent sales growth along with margin expansions. Since the export portion of the business

constitutes only 4.5% of the top line we expect the performance not to be affected by slowdown in developed countries. On

a conservative side we expect the top line of the business to grow at a rate of 20.75% in FY12E and 38.6% in FY13E. This

growth is mainly expected to flow in from the volume growth in FMCG business of existing client as well as company's

capability to target new clients.

We initiate coverage on Manjushree Technopack with a 'Buy' recommendation. The company delivered strong set of

performance numbers in FY11 despite the business witnessing continuously rising raw material prices for the business. We

expect the company to maintain its track record of healthy growth with sales growing at a rate of 20.75% in FY12E and 38.6%

in FY13E and an EPS of Rs 12.52 in FY12E and Rs 15.6 in FY13E posting a growth of 15% in FY12E and 24% in FY13E. The growth

in the business is expected to flow in from rising demand from FMCG business, expansion of existing capacity in FY12E and

operations of new plant in Bidadi in FY13E. Given the company's excellent client base and ability to maintain margins by its

large scale operations we value Manjushree Technopack at 8(x) FY13E earnings of Rs 15.6 to arrive at a target price of Rs 120.


20th October, 2011


Particulars

Gross Sales

Excise Duty

Net Sales

Other Income

Total Income

(Inc)/Dec in stock

Raw Materials

Power & Fuel Cost

Employee Cost

Other Manufacturing Expenses

Selling and Administration Expenses

Miscellaneous Expenses

Total Expenditure

EBITDA

EBITDA Margin (%)

Interest

Depreciation

PBT

Tax

PAT

PAT Margin (%)

EPS

FY13E

404.76

48.57

356.19

0.80

356.99

-33.91

201.25

24.93

18.88

49.87

16.03

1.07

278.11

78.88

22.15%

13.07

33.56

32.25

11.13

21.12

5.93

15.59

FY12E

292.03

35.04

256.99

0.80

257.79

-21.97

149.05

17.48

13.62

30.84

11.56

0.64

201.22

56.57

22.01%

9.60

21.06

25.90

8.94

16.97

6.60

12.52

FY11

241.85

25.68

216.17

0.61

216.78

-14.74

119.11

16.43

11.44

26.82

9.41

0.40

168.87

47.91

22.16%

6.24

19.06

22.61

7.81

14.80

6.85

10.92

FY10

160.05

11.02

149.03

0.79

149.82

-9.43

81.73

12.07

8.35

20.99

6.63

0.64

120.98

28.84

19.35%

3.52

9.75

15.57

5.00

10.57

7.09

7.80

FY09

118.79

13.19

105.60

0.49

106.09

-0.79

56.95

6.05

6.19

13.97

5.55

0.33

89.04

17.05

16.15%

1.44

4.94

10.67

3.97

6.70

6.34

5.53

Financial Projections:

Income Statement (Rs crore):

Particulars (Rs Crores):

Sources of Funds:

Share Capital

Reserves Total

Total Shareholders' Funds

Total Debt

Deferred tax liability

Total Liabilities

Application of Funds:

Gross Block

Less : Accumulated Depreciation

Net Block

Capital Work in Progress

Inventories

Sundry Debtors

Cash and Bank

Loans and Advances

Total Current Assets

Current Liabilities

Provisions

Less: Total Current Liabilities

Net Current Assets

Miscellaneous Expenses not written off

Total Assets

FY13E

13.55

103.49

130.51

160.72

12.14

303.37

268.50

99.98

168.52

0.00

82.83

54.80

8.00

35.43

181.06

21.01

25.50

46.51

134.55

0.30

303.37

FY12E

13.55

83.51

97.06

120.00

9.75

226.81

168.50

78.92

89.58

30.00

59.77

39.54

7.82

30.81

137.93

14.01

17.00

31.01

106.92

0.30

226.80

FY11

13.55

68.11

81.66

106.91

5.77

194.34

157.11

59.86

97.25

14.67

50.94

32.74

1.20

26.79

111.67

13.34

16.19

29.53

82.14

0.28

194.34

FY10

13.55

54.90

68.45

51.78

5.76

125.99

132.79

40.85

91.94

0.06

20.09

26.92

7.94

15.51

70.46

28.11

8.93

37.04

33.42

0.57

125.99

FY09

13.55

45.91

59.46

29.42

3.59

92.47

89.16

31.24

57.92

0.00

16.19

15.86

0.44

8.13

40.62

4.87

2.05

6.92

33.70

0.85

92.47

Balance Sheet (Rs crore):


20th October, 2011


Particulars:

OPM (%)

NPM (%)

ROE (%)

ROCE (%)

Debt-Equity ratio

Debtors turnover ratio

EV/EBIDTA(x)

P/E(x)

P/BV(x)

EBITDA Margin (%)

FY13E

22.15

5.93

18.56

12.90

1.23

6.50

3.55

5.64

0.91

22.15

FY12E

22.01

6.60

18.99

12.62

1.24

6.50

4.23

7.03

1.23

22.01

FY11

22.16

6.85

19.72

13.14

1.31

6.60

4.72

8.06

1.46

22.16

FY10

13.02

0.76

1.78

4.27

0.76

5.54

3.52

5.57

0.84

13.02

FY09

16.15

6.34

11.86

10.11

0.49

6.66

2.73

2.71

0.33

16.15

Ratio analysis:


Registered Office :

Corporate Office :

Mumbai Office :

7 Lyons Range, 2nd Floor, Room No. 1, Kolkata - 700001

B3/4, Gillander House, 8 N S Road, 3rd Floor, Kolkata - 700001Phone : 91-33-2210 7500 / 01 / 02, Fax: 91-33-2210 5184e: [email protected]

909 Raheja Chamber, 213 Nariman Point, Mumbai-400021Phone : 91-22-2202 5941 / 5942e: [email protected]

DISCLAIMER : The information in this report has been obtained from sources, which Eureka Research believes to be reliable, but we do not hold ourselves responsible for its completeness in accuracy. All estimates and opinions in this report constitute our judgement as of this date and are subject to change without notice. Eureka Research will not be responsible for the consequence of reliance upon our opinion or statement contained herein or for any omission. Any feedback can be mailed to the following ID.

Analyst : Sakshi Malhotra

Email : [email protected]

Ph. : 0 98300 84057 / 91-33-3918 0386 - 87


20th October, 2011

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manjushree tech no pack ltd initiating coverage

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