UFLEX FUNDAMENTAL REPORT

Recommendation   Price     Target Price Time Horizon 
    Buy    Rs. 275   Rs. 335(Upside 22%) 9-12 Months

Uflex Ltd, the flagship company of the Flex group is an India-based flexible packaging company. The flexible packaging business consists of multi-layer laminated rolls of plastics, paper, cloth or metal foils that are used separately or in combination for various packaging applications. The company also manufactures printing ink and adhesives.The Company’s products include printed, laminated, metalized, co-extruded, coated, embossed, plain plastic films and hologrammed sticker sheets. Its plastic film products include oriented polypropylene (OPP) films, polyester films, metalized and specialty films, and polyester chips of different grades

Stock Details

Market Cap. (Cr.) 1966.28
Face Value 10
Equity (Cr.) 72.21
52 Wk high/low 334.00/132.20
BSE Code 500148
NSE Code UFLEX
Book Value (Rs) 270.03
Industry Packaging

Share Holding Pattern %

Promoter

44.02
FIIs 26.37
Institutions 0.28
Non Promoter Corp. 9.40
Public & Others

Government

19.94

0.00

Total 100.00

Price Chart

 2017-02-10 at 12-51-11 2017-02-10 at 12-51-30

Source: Capitaline Corporate Database, EWAL Research

Key Highlights:

  • Net profit of Uflex rose 16.76% to Rs 90.35 crore in the quarter ended September 2016 as against Rs 77.38 crore during the previous quarter ended September 2015.
  • The sales of the company rose 1.60% to Rs 1501.88 crore in the quarter ended September 2016 as against Rs 1478.23 crore during the previous quarter ended September 2015.
  • The total global market for flexible packaging is forecast to grow at an annual average rate of 3.4% during the period 2015-2020, reaching $248 billion. Food packaging occupies over 70% of the global consumer flexible packaging market; it is growing by 4.0% on average in volume terms and reached over 18.8 million tonnes in 2015.
  • The Company is setting up facility in the State of Gujarat for manufacture and sale of Aseptic packaging materials for liquid products with an annual capacity of 7 billion packs. The project shall be fully completed in two stages. The first stage shall comprise the built up of complete infrastructure and commissioning of all equipment’s and one more printing line shall be installed during Financial Year 2018-19.
  • The Company keeps investing towards acquisition of modern equipment’s & machines; deploying new technologies and processes that assist in improving the efficiency and innovation of the products. The Company has plans to invest around Rs. 500 crore for this purpose between Financial Year 2015-16 and 2017-18.

INDUSTRY OVERVIEW

Flexible packaging offers all properties needed for primary packaging such as lightweight, high performance, high barrier, low contamination, keeping the product completely sealed off from the environment. Flexible packaging products use far less material than rigid packaging options and also consume smaller space during packaging and on shelves in retail outlets. Flexible packaging also offers a number of sustainability advantages including low raw material consumption owing to light weighting thus leaving lesser carbon footprint. Flexible packaging paves way for reduced energy usage at manufacturing, transportation and disposal stages besides producing relatively low waste produced as compared to conventional packaging formats.

Flexible packaging is the most economical method to package, preserve and distribute food, beverages, other consumables, pharmaceuticals and other products that need extended shelf life. It can be designed with barrier properties tailored to fit the products being packaged keeping in mind the end-use, whereas other packaging formats generally provide a one-size-fits-all approach. Flexible packaging can now be made in a wide variety of innovative shapes, sizes and appearances, and can include components such as handles and opening and reclosing features such as zips and spouts to name a few. Changing consumer lifestyle has increased dependence on processed, pre-cooked and packed foods, which also mobilized the entire flexible packaging supply chain to sync product offering as per end customer’s requirement. The flexible packaging industry has witnessed introduction of new and efficient films that are used in flexible packaging. Modified Atmosphere Packaging (MAP), vacuum skin packaging are some of the current trending packaging solutions which have been developed to meet end customer demand.

The total global market for flexible packaging is forecast to grow at an annual average rate of 3.4% during the period 2015-2020, reaching $248 billion. Food packaging occupies over 70% of the global consumer flexible packaging market; it is growing by 4.0% on average in volume terms and reached over 18.8 million tonnes in 2015. Whilst Asia-Pacific and Western Europe have enjoyed the largest areas of growth over the period 20102014, sales of consumer flexible packaging have been growing at a high average annual rate in Asia-Pacific and Eastern Europe.

The global flexible packaging market is segmented based on end user, packaging types, printing processes, material, and geography. By end user type, the global flexible packaging market is segmented into consumer products, industrial, medical & pharmaceuticals, retail food, retail nonfood, institutional food, institutional non-food, and others. By packaging type, the global flexible packaging market is segmented into stand-up pouches, flat pouches, converted roll-stock, gusseted bags, wicket bags, laminated flexi- tubes, aseptic cartons/ packs, big bags and others. By material type, the global flexible packaging market is categorized into polypropylene (pp), polyethylene (pE), polyethylene Terephthalate (pET), poly Vinyl Chloride (pVC), Ethylene Vinyl Alcohol (EVOH), polyamide (pA),and others (paper, aluminum, and cellulosic)

GEOGRAPHY

By geography, the global flexible packaging market is segmented into North America, Europe, Asia Pacific, the Middle East and Africa, and Latin America. Currently, north America dominates the global flexible packaging market in terms of revenue share. However, Asia Pacific is expected to expand at the fastest growth rate in the global flexible packaging market owing to the rising disposable income, and rising demand, and changing packaging trends in the end user sectors, which are expected to have a positive impact on the global flexible packaging market. Currently, rising population and the significant demand for beverages, packaged foods, pharmaceuticals, and personal care products are driving growth of the flexible packaging market in countries such as India and China, whereas the North American flexible packaging market is expected witness moderate growth in the coming years, due to the highly saturated end-use market globally.

BUSINESS REVIEW

Packaging Film Business:

The main products of this business are Opp Films, polyester Films, Metalized & Specialty films and Polyester Chips of different grades etc.

The Company’s OPP films comprising BOPP (Biaxially Oriented polypropylene) and Cpp (Cast Polypropylene) films are highly cost effective and functionally efficient and have rapidly penetrated into high barrier sensitive packaging segment across the world. It is primarily being used for applications in packaging food products such as tea, coffee, confectionery, biscuits, bakery, pasta, dried foods, meats and others. The technologically superior and highly dependable BOPP film can be structured up to three layers and tailored for almost any machine requirements and is capable of meeting both Rotogravure and Flexography printing standards. The Company produces BOPP film from its Indian plant which largely caters to the captive & domestic market and Egypt plant which caters to the international market.

The Company has the facility to produce polyester chips of film grade, yarn grade and bottle grade. The film grade chips are used as raw material for manufacturing polyester films whereas yarn grade chips are used for manufacturing polyester yarn and bottle grade chips for production of pET bottles. The Company has made use of its state-of-the-art batch processing manufacturing facilities set up in India, by conveniently switching over to produce different grades of chips based on the demand and orders at hand. The Company manufactures a wide range of polyester chips suitable for various applications. Through continuous R&D efforts, the Company has developed different speciality polyester chips, which have been well accepted in the Indian and International market. presently the Chip Unit also caters to the requirement of the Specialty Chips of Company’s overseas Subsidiary Companies.

Flexible Packaging Business

The main products of this business are laminates made of various combinations of polyester, BOPP, poly, metalized & hologram films and others in roll form and in various preformed pouches & bags of many sizes, laminated flexi- tubes, rotogravure cylinders for various types of rotogravure printing, Anilox/Coating, rollers for flexo printing, elastomers & sleeves, Shims for holographic embossing and holograms, other anti-counterfeiting and brand protection solutions (to keep look-alikes at bay from eroding brand equity of customers), printing inks, adhesives, coatings, polyols, packaging & converting machines. This business entails customization according to the needs of customers globally. 

SUMMARY OF RESULTS

2015-16 2014-15
Consolidated Standalone Consolidated Standalone
Total Revenue 6144.80 3525.67 6201.40 3388.46
Profit before Finance Cost, Depreciation & Tax 841.25 508.96 752.67 435.96
Profit before Tax 378.73 233.00 286.35 155.56
Profit for the year 312.83 199.68 254.76 141.98

BUSINESS EXPANSION

The Company is setting up facility in the State of Gujarat for manufacture and sale of Aseptic packaging materials for liquid products with an annual capacity of 7 billion packs. The project shall be fully completed in two stages. The first stage shall comprise the built up of complete infrastructure and commissioning of all equipment’s and one more printing line shall be installed during Financial Year 2018-19.

The first stage completion shall be commissioned & operational by end of Financial year 2017 with capacity of 3.5 billion packs. It will further be expanded to 7 billion packs with addition of remaining one printing line in second stage by end of Financial year 2019. The expenditure of the project for both the stages is approximately Rs. 580 crore.

land admeasuring about 72 acres has been allotted by GIDC in Sanand II, Gujarat. Site development work has been completed. Architect & Civil Contractor have been appointed. Civil work has already commenced and progressing speedily. Order for procuring main equipments has been placed. Since 72 acres of land has been procured at Sanand, the facility may also house expansion of manufacturing facilities of the Company’s existing businesses. With the Aseptic packaging plant going fully operational, company’s margins will improve thereby positively impacting the bottom line.

In addition to above, the Company keeps investing towards acquisition of modern equipments & machines; deploying new technologies and processes that assist in improving the efficiency and innovation of the products. The Company has plans to invest around Rs. 500 crore for this purpose between Financial Year 2015-16 and 2017-18.

Four key trends driving the flexible packaging market are:

  1. Down gauging

The combination of environmental pressures and high polymer prices are increasing demand for thinner films. Flexible packaging uses less resources and energy than other forms of packaging. It provides significant reductions in packaging costs, materials use and transport costs and has clear performance advantages over rigid packaging. The flexible packaging industry is expected to promote more of the ‘pre-cycling’ benefits of these packages versus rigids as the combination of environmental pressures and uncertain polymer prices persist.

  1. High-Performance Films

Food packaging films are trending toward high-performance film structures that are less permeable to increase shelf life and enhance flavors. The ongoing success of flexible packaging as a replacement for glass and metal packages can be attributed directly to the substantial improvements in barrier properties of plastic films and particularly clear plastic films.

  1. Consumer Convenience

With increasingly busy life styles and hectic schedules, ready meals that are available in new flexible packaging formats are in a prime position to take advantage of the current social trend towards convenient mealtime solutions.Packaged fresh meat, fish and poultry consumption will grow at a faster rate than unpackaged produce to 2020. Growth in the pre-sliced sector and in premium lines has promoted growing demand for modified atmosphere (MAP) packaging. Demand for chilled food is also being driven by a greater variety of ready meals, fresh pasta, seafood and exotic meats.

  1. Bio-Derived and Bio-Degradable Technologies

The proliferation of bio-based packaging films continues with polylactic acid (PLA), polyhydroxyalkanoates (pHA) and polytrimethylene terephthalate (pTMT) showing the most promise on the materials side of the equation, and thermoplastic starch (TpS) films on the petroleum replacement side.

Particulars (Rs in Cr) 2015-16

2014-15

Consolidated Standalone Consolidated Standalone
A. TANGIBLE ASSETS
Freehold Land 43.14 0.19 41.09 0.12
Leasehold land 212.85 148.71 132.46 41.56
Buildings 762.32 328.77 736.97 319.13
plant & Machinery 3925.00 2040.13 3770.17 1989.46
Electrical Installations 134.89 53.12 134.62 53.74
Office Equipments 61.53 45.55 55.63 42.50
Furniture & Fixtures 60.03 51.09 56.92 48.72
Vehicles 35.88 25.81 28.14 20.79
Sub-total (A) 5235.64 2693.37 4956.00 2516.02
B. Intangible assets
Goodwill 0 0 0.03 0
Software 16.10 15.31 14.49 13.82
patent 6.40 6.40 5.00 5.00
Technical know-how 10.10 10.10 2.66 2.66
Sub-Total (B) 32.60 31.81 22.18 21.48
less: Accumulated Depreciation 1977.87 1361.37 1738.34 1255.72
Add: CWIp 224.97 214.96 30.05 24.00
Intangible Assets Under Development 4.27 4.27 2.37 2.37
Net Fixed Assets (A+B) 3519.61 1583.04 3272.26 1308.15

Results of operations: The summary of operating performance for the year is given below:

Particulars (Rs in Cr) STANDALONE CONSOLIDATED
Year ended march 31, 2016 Year ended March 31, 2015 year ended march 31, 2016 year ended March 31, 2015
Amount % Amount % Amount % Amount %
INCOME
Revenue from Operations 3487.45 4.82 3327.17 4.65 6105.84 -1.21 6180.34 5.41
Other Income 38.22 -37.64 61.29 -24.57 38.96 85.00 21.06 -37.16
Total Revenue 3525.67 4.05 3388.46 3.92 6144.80 -0.91 6201.40 5.17
expenditure
Cost of Materials consumed 2017.76 -5.36 2132.01 8.36 3412.18 -8.13 3714.07 3.61
purchase of Stock-in-Trade 125.53 205.43 41.10 -44.71 170.33 144.73 69.60 -61.45
Changes in Inventories of finished goods, work-inprogress and Stock-in-Trade (137) -88.39 (11.80) -207.38 (33.43) -178.24 42.73 -155.30
Employee benefits expense 313.12 22.43 255.76 14.45 498.41 13.97 437.31 12.05
Other expenses 583.85 6.00 550.78 4.44 1278.25 6.49 1200.36 7.42
Expenses Allocated to Self Constructed Assets (22.18) 44.50 (15.35) -3.68 (22.18) 44.50 (15.35) -3.68
Total Operating Expenses 3016.71 2.17 2952.50 5.91 5303.56 -2.66 5448.72 5.20
EBIDT 508.96 16.74 435.96 -7.78 841.24 11.77 752.68 4.95

CONSOLIDATED ASSETS & LIABILITIES

Particulars (Rs in Cr) 201603 201503 201403 201303 201203 201103 201003
      SOURCES OF FUNDS:
      Share Capital 72.21 72.21 72.21 72.21 72.21 72.18 64.97
      Reserves & Surplus 3271.53 2935.48 2750.69 2426.39 2116.51 1741.33 963.53
      Minority Interest 3.85 0.75 0.01 0 0 0.73 8.87
      Loan Funds 1772.88 1812.7 1923.93 1812.9 1582.96 1175.83 1463.82
      Deferred Tax Liability 136.65 120.07 141.18 171.99 156.4 160.65 134.57
      Other Liabilities 15.38 13.99 13 12.47 9.98 5.22 0
      Total Liabilities 5272.5 4955.2 4901.02 4495.96 4013.06 3230.94 2635.76
      APPLICATION OF FUNDS:
      Fixed Assets 3519.61 3272.24 3452.2 3377.5 2962.35 2059.18 1656.68
      Investments 140.35 138.03 125.86 101.88 96.46 108.66 95.99
      Current Assets, Loans & Advances 2901.81 2893.96 2844.66 2351.83 2035.68 1774.39 1421.5
         Inventories 620.83 660.97 610.74 470.2 433.63 365.06 180.72
         Sundry Debtors 1480.19 1508.71 1505.18 1276.03 995.57 763.69 591.1
         Cash & Bank Balance 389.33 192.19 207.42 162.22 168.08 278.28 191.71
         Other Current Assets 10.67 6.49 15.61 21.17 13.18 2.53 1.33
         Loans & Advances 400.79 525.6 505.71 422.21 425.22 364.83 456.64
      Current Liabilities & Provisions 1543.89 1512.74 1693.57 1468.25 1275.56 932.6 538.41
         Current Liabilities 1476.31 1450.22 1625.42 1403.43 1196.53 826.73 473.83
         Provisions 67.58 62.52 68.15 64.82 79.03 105.87 64.58
      Net Current Assets 1357.92 1381.22 1151.09 883.58 760.12 841.79 883.09
      Other Assets 254.62 163.68 171.87 133 188.31 218 0
      Total Assets 5272.5 4955.2 4901.02 4495.96 4013.06 3230.94 2635.76

2017-02-10 at 13-03-58 2017-02-10 at 13-03-44

Uflex recently launched profile pouch for liquids with sonically sealed spout in India and offered it to Paras Dairy for packing its ghee (clarified butter). The laminate of the pouch engineered at Uflex’s packaging plant at Noida is a three ply structure comprising isotropic PET/ isotropic PET/co-ex nylon polyethylene (PE). Two transparent lsotropic polyester layers provide excellent mechanicals to the laminate that are required to withstand harsh supply chain conditions. The three ply structure has been especially engineered to optimize the OTR and WVTR for extending the shelf life of the product packed.

OUTLOOK

UFLEX Limited engaged in the manufacture and sale of flexible packaging products. The Company also offers a flexible packaging solution to its customers across the globe. The Company’s products include printed, laminated, metalized, co-extruded, coated, embossed, plain plastic films and hologrammed sticker sheets. Its plastic film products include oriented polypropylene (OPP) films, polyester films, metalized and specialty films, and polyester chips of different grades. Its flexible packaging products include laminates, made of various combinations of polyester, bi-axially oriented polypropylene (BOPP), poly, metalized and hologram films and others in roll form and in various preformed pouches and bags of many sizes, and rotogravure cylinders for various types of rotogravure printing. It offers finished packaging to a range of products, such as snack foods, candy and confectionery, sugar, rice and other cereals, beverages, tea and coffee, desert mixes and noodles.

The global market for flexible packaging is forecast to grow at an annual average rate of 3.4-3.5% during the period 2015-2020, reaching $248 billion. The major growth engines are the Asia-Pacific countries.Substitutions of Traditional packaging and Retail Chains are the most important drivers for the market growth. The opportunity for the market growth lies in concentrating on developing nations or emerging economies.

The players in the flexible packaging industry worldwide are increasingly coming up with innovative and effective flexible packaging products and solutions. Through the development and utilization of flexible packaging films and continual innovations, the flexible packaging sector has been able to grow and evolve to adapt to the needs of products around the glove. Flexible packaging designs such as zippers, pouring spouts, peel-off lids, and microwavable pouches provide consumers with convenience in consuming and disposing of products like never before. Such packaging designs are being increasingly produced to meet the growing consumer demand for food and beverage products that offer higher convenience and portability. Many packaging companies are planning to devise innovative products. Most of them are focused on inventing new packaging designs or attempting to redesign existing packaging.

Flexible packaging by nature is highly adaptable. The clever and solution driven designs that the packaging companies are coming up with, further drives the sustainability benefit of the products which they clothe. Flexible packaging help minimize good and packaging waste by offering appropriate portion sizes and re-closable packs. The wide range of innovative flexible materials and new design concepts being introduced in this industry to minimize waste in terms of conservational and cost, attracts increasing number of customers.

The Company is setting up facility in the State of Gujarat for manufacture and sale of Aseptic packaging materials for liquid products with an annual capacity of 7 billion packs. The project shall be fully completed in two stages. The first stage shall comprise the built up of complete infrastructure and commissioning of all equipments and one more printing line shall be installed during Financial Year 2018-19.

On performance front, the company has reported EPS of Rs 43.32 in FY16. And going forward we expect company to deliver Rs 50-52.8 FY17E, on these earnings the company is available at a PEx of 5.20x FY17E. Hence the scrip can be boughtat CMPfor the target of Rs 335 for a time frame of 9-12 months.


DISCLOSURE IN PURSUANCE OF SECTION 19 OF SEBI (RA) REGULATION 2014

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