Uflex posted blockbuster Q2 FY 2011 results (see Uflex: Blockbuster Q2 FY 2011 Results). However, this may only be the tip of the iceberg if one goes by what R K Jain, Group President-Finance of Uflex told ET Now. R K Jain said that there were two reasons for the great results posted by Uflex in the second quarter. First, there has been an upturn in the prices for polyester film and net profit has been mainly on account of that. That was a major factor which contributed to the higher profit of Uflex for this quarter. Secondly, Uflex‘s other business of packaging and BOPP has been growing as well. Uflex‘s polyester BOPP and packaging resulted in a net profit of Rs 203 crore this quarter, showing a growth close to 380%.
Uflex benefited heavily (along with other polyester manufacturers like Garware Polyester, Polyplex, Ester etc) from the steep rise in polyester film prices. Polyester film prices are currently (effective 1st October) Rs 225 a kg for the basic PET film and the average price realizations by Uflex and others during the last quarter has been around Rs 170 a kg for the PET film. The result of the current high prevailing PET prices of Rs 225 per kg (from 1st October onwards) is that Uflex‘s profits and the margins all going to be much higher than the previous quarter. The best thing is that while the prices of polyester film have gone up, there has not been a corresponding increase in the cost of the raw material or the conversion cost. The result is that the entire increase in prices of polyester film is being converted into profit for Uflex and the other polyester PET film manufacturers.
Uflex‘s other key trump card is that its overseas subsidiaries are getting operational in the third and fourth quarters. Uflex‘s Egypt subsidiary has just started operations and has not contributed anything majorly in the September results of Uflex. However, in the coming quarters and years, the Eygpt subsidiary is expected to contribute major revenues and the profit to Uflex‘s top-line and bottom-line. Uflex‘s Dubai and Mexico have also been seeing a lot of capacity expansion. Uflex is confident that the capacities of the Dubai & Mexico plants will contribute to the revenues sometime next year in the period of April-May 2011 and September-October 2011.
Uflex expects to reach revenue of $1 Billion (INR 4,500 crores) by the financial year 2012 thanks to the aggressive expansion plants implemented by it and the demand for polyester film products. More importantly, Uflex expects its EPS to touch Rs. 100 and perhaps even exceed it. In the September 2010 Quarter Uflex reported a diluted EPS of Rs. 28.42. For the half-year ended September 2010, Uflex reported a diluted EPS of Rs. 36.96. Now, given that Uflex has been able to get better realizations for Polyester Film from October 2010 onwards, Uflex‘s results for the third and fourth Quarter should be even better than Q2 and it should not be surprising if Uflex is able to better the second half’s EPS and touch the magic figure of Rs. 100 EPS for the whole year. In fact, R. K. Jain hinted that the profit for FY 2011 would be about Rs 812 crores or so.
If that happens, Uflex will be a compelling BUY because at the CMP of about Rs. 320, the Uflex stock will be quoting at a PE that is about 3 or thereabouts and also offer a high dividend yield.
Of course, the unknown factor is the prices that polyester prices will take in the future. If the price of PET film slumps suddenly, all bets are off. As of now, there appears to no reason for the prices of polyester prices to drop according to Industry experts.