Nilkamal Plastics expected to perform well in FY 2005

06-Jun-05

Despite a surge in crude prices expected to push up prices of raw materials, a strong growth in the manufacturing sector is expected to provide a cushion for the margins of Nilkamal Plastics, using polypropylene and polyethylene as its major raw materials accounting to 70% of its costs. Nilkamal is among the larger manufacturers of injection-moulded products such as furniture and industrial crates in India and its strong presence in the moulded furniture segment in the South has made it able to quote about 10 times its expected FY-05 earnings in its stocks. Though plastic furniture manufacturers face a threat from the unorganized sector, Nilkamal Plastics' diverse locations in India and abroad as well as outsourcing tie-ups have helped it diminish this risk. It's subsidiaries in Sri Lanka and Bangladesh give Nilkamal Plastics a sub-continental reach for its products. At Rs 126, the stock lingers around its book value, which is attractive considering the growth prospects. The company is already boasting of a 12% operating margin, higher than most of its competitors, eventually planning to reach out to the end consumer by opening retail outlets of its own and establishing franchisee stores, besides increasing production. The rise in raw material prices appears to eat away in its operating margins in the last two quarters of the current financial year. However, with crude prices stabilising, Nilkamal Plastics, along with other manufacturers, is expected to pass on the rise in costs to the consumers. This could lead to a turnaround in profitability that took a hit in FY-2005.