Polyplex Corporation – Anand Rathi Research Report

Anand Rathi have put a strong buy on Polyplex Corporation. The investment rational is this:

Polyplex Corporation is one of the leading player in Polyster film industry in India as well as globally, with subsidiaries in Thailand and Turkey, where in it owns 70% stake.

Polyplex Corporation has Polyster film capacity of 51,000 MTs in India, 58,000 MTs in Turkey and 42,000 MTs in Thailand. In India, out of 51,000 capacity; 30,000 MTs was commissioned recently in April’10. This line has achieved90% utilization recently in Aug.’10. So, full benefit of this line will be available in second half only.

With Input prices stable and realizations on fire, margins are rising like anything. The average realizations for June quarter were Rs 115/‐ while that of Sept. quarter will go up to 145‐150; and for next Dec quarter this may be around Rs 175/‐ per Kg.

As raw material prices are stable, whole incremental rise in revenue may boost profits, so Sept.’10 quarter results may be much better then June’10 quarter. Similarly the Dec.quarter will be much better then Sept quarter.

The manufacturing units of Polyplex Corporation in all countries is located strategically in Tax free zones and hence tax out go is minimum.

This very strong cash flow period will improve the debt profile and balance sheets of Polyplex Corporation and thus the stocks should getre‐rated.

Polyplex Corporation‘s Thai subsidiary alone having market cap of appx. Rs 2000 Crswhich is more then double of Parent Polyplex Corporation, which is at Rs 950 Crs. Further, Stock is available at less then 2X of cash generation of current year and less then half of FY’11sales.

Polyplex Corporation is likely to report EPS of around Rs 200/‐for FY’11 and very strong cash flows due to large depreciation and tax efficiency. We expect stock to be discounted at least by 4‐5X, so looking for a target of Rs 800 at least in next couple of months. BUY. [We may revise target upwards post Sept quarter results]