Nilkamal

Softer Input Costs Help; Stock Trades At A P/E Multiple Of 15, Far Ahead Of Its Peers

PLASTIC product maker Nilkamal witnessed a sharp rise of 7% in its stock price on Tuesday. The counter is buzzing following a turnaround in the company's performance in the past two quarters. The stock has been up over the past one month. 

   The scrip has gained 41% in one month, notwithstanding the sluggishness in the broader market. The benchmark Sensex posted a modest return of 2.7% during the period. Nilkamal's performance on the bourses stands out taking into account the returns for the three months, six months and one year. 

   For instance, in the past three months, the stock has gained 64%, and it has more than trebled in six months. The Sensex returns lagged behind in each of these periods. Compared to the yearago level, its current price of Rs 245 is four times higher. 

   Nilkamal, which grossed Rs 564 crore in the past four quarters in revenue, manufactures injection moulding products, including home furniture. It had posted net losses in the second half of FY09. The trend, however, has reversed since then. It has reported an impressive operating performance in the past two quarters. 

   This was largely aided by a significant drop in raw material prices due to a relative softening in prices of petrochemical intermediaries, including polyethylene and polypropylene. As a result, input costs as a percentage of sales fell sharply from 71% a year ago to 59% in the September 2009 quarter. 

   Lower costs have resulted in improved profitability. From the lows of 7% in the March 2009 quarter, operating margin expanded to 13% in the September 2009 quarter. At the current price, the scrip of Nilkamal commands a price-earnings multiple of 15 on a trailing 12-month basis. Other injection moulding manufacturers, including Supreme Industries and Wim Plast, are trading at a P/E of nine and seven, respectively. 

   Nilkamal's higher valuations partly reflect its financial recovery and its expansion plans for plastics retail. The company is investing in its own retail chain under the name @Home across the country. In the September 2009 quarter, it opened two new stores under this brand.