By Ekansh Mittal The rupee is trading around 70 mark to dollar and crude oil has crashed from its recent high of $80 per barrel to below $55 a barrel.
I personally believe rupee may continue to trade above 70 and it seems unlikely that oil will again rise very sharply.Over next few years companies that might do well will be ones that are majorly into exports and are dependent on crude or its derivative as raw material source.In line with above strategy, I would like to bring to your notice a smallcap company, called Kanpur Plastipack (KPL).
It is engaged in manufacturing of flexible intermediate bulk containers (FIBCs), HDPE/PP woven sacks, PP box bags, fabrics and high tenacity PP.
FIBCs are industrial bulk packaging products finding applications in packaging of food stuffs, chemicals, minerals and agricultural products.FIBC as a packaging medium is widely used in developed countries like US and Europe.
Exports account for around 75-80 per cent of companys sales and key raw materials used by company are PP and LDPE granules, whose prices are dependent on crude oil prices.The company is in process of expanding its manufacturing capacities and has raised capital through a rights issue last year.As on date, we like several points about this company:FIBC industry growing well India is now gaining centrestage in global packaging industry and has about 42 per cent of global market share of FIBCs.
There are only 25-30 players in Indian FIBC industry and only 10 have large capacities.
Globally, theres competition from China, Turkey and some South American nations.
However, increasingly they seem to be losing market shares (Turkey is losing market share because of political reasons) to their Indian counterparts.
That should help an industrywide growth of 10-15 per cent in India.Capacity expansion on verge of completion: The company has been facing capacity constraints since last three years and to overcome same, a major project is under way.
It will help substantial expansion of existing capacities and consolidation of operations.
The greenfield expansion will result in 60% increase in FIBC capacity and 100% increase in capacity of multi-filament yarn (MFY).The company has already commercialised some of capacities.
However, entire project (including shifting from existing locations) is expected to go on-stream in FY 20.
On back of greenfield expansions and consolidation of existing operations at new site, company is hopeful of recording a turnover of Rs 450 crore in next two years against Rs 280 crore recorded in FY18.Capacity expansions without much strain on balance sheet: In last two-and-a-half years, company has expanded its net block by more than 100 per cent.
The company has spent around Rs 80 crore on capacity expansions.
However, absolute debt has increased by only Rs 50 crore, while debt-equity ratio has deteriorated marginally from 0.98 to 1.10 (as of Sept18)Reasonable valuation: Last but not least, stock is currently trading around 9 times trailing 12-months earnings while during last 3-4 years it traded in range of 5-20 times earnings.
Taking into account capacity expansion and expected improvement in earnings, we believe downside is limited while upside could be much more over next 2-3 years.(Ekansh Mittal is founder of Kanpur-based Katalyst Wealth.
He was named a Wealth Wizard by Forbes India in 2015.
Mittal has personal holding in stock mentioned in this article and has recommended it to his clients.)Here's what 2019 may look like