BUY NILKAMAL STOCK AT 310 FOR TARGET PRICE 400

BUY NILKAMAL STOCK AT 310 FOR TARGET PRICE 400

Material handling segment has the potential to report healthy growth/margin.Nilkamal is the market leader in moulded plastic products and plastic crates. The products offered by its largest division, material handling, are sold (on B2B basis) directly by its more than 350 sales personnel to engineering, automobile, pharmaceutical industries etc.

NL enjoys a market share of 60% in this segment, with the second-largest player being Supreme Industries (SIL). Fast growth in the material handling business, which incidentally is also NL’s most profitable segment, is being driven by a multitude of sectors like agriculture, hospitality, logistics, industry, waste management, automobiles, dairy and horticulture products. Because of the diversified customer base, there has not been much impact of the recent slowdown in IIP growth. The Management expects this business to continue to grow at 20% CAGR, with sustainable EBITDA margins of around 14%.

Also another attractive point for NL is that EPS growth over the next three years between FY14 to FY16 is expected to average 18-20% plus YoY but valuation multilpes look quite low between 8x on FY15 and 7x on FY16E. Also NL’s cash earnings have grown robustly in last 3 years with CPS being Rs 67 in FY14 as compared to Rs 51. in FY13 which will further increase to Rs 78. in FY15 and Rs 91 in FY16. Hence it would be prudent to value NL on cash earnings rather then net earnings alone.
To add the current market cap of NL at Rs 527. crs, the NL stock trades a market cap to sales multiple of just 0.27x on FY15E whereas the potential revenue over the next 2 years is over Rs 2200 crs.
Hence I believe that the NL stock should be purchased at the current price for a price target of around Rs 310.

It is best to consider that, i have vested interest in this stock as i have invested !!!