Nilkamal - High Prob. Of Re-Rating Driven by EBITDAM Expansion. Strong BS Metrics & Inexpensive Val.

Nilkamal– In-Line Q4-FY18, Better Vol. Gr. In Plastics/ Ramp-Up of New Biz - To Drive Re-Rating.

Independent Research Analyst

Mamta Verma

DC India Research

DC India Research LLP (DCIR) is based out of Mumbai, India.

We specialize in providing customized, independent research across listed and unlisted companies in India across equities and credit including sectoral research. Our customers include India focussed PE funds, special situation funds, domestic AMCs, Wealth Advisory& PMS firms, Rating Agencies & Investment Advisors. 

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Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/5323" target="_blank" data-smartkarma-citation="entities:5323:1">Nilkamal Ltd (NILK IN)</a>Nilkamal Limited (NILK) is an industry leader in the moulded furniture and material handling products with diversified product portfolio catering to different industries and a diversified base of customers including household customers, industrial customers and retail buyers. It also has presence in the retail business of lifestyle furniture, furnishings and accessories under its brand '@home' &amp; Nilkamal Mattresses. The company has two major business verticals - i) Plastic division and ii) Lifestyle Furniture, furnishings and accessories division. In Q1FY19, Plastics division contributed ~92% to the total revenues while the retail division ('@home') contributed ~8% to the revenue.Operaing &amp; Financial Summary –<ol><li>
Business: NILK started as manufacturer of plastic tumblers and buckets more than two decades ago and eventually expanded into several business segments related to plastics, home furnishing and home retail store chain. It manufactures products at its 9 plants (8 in India and one in Sri Lanka through a JV) and distributes them pan-India by leveraging its network of 40+ depots, 300+ sales staff, 980 channel partners and 15,000 dealers. NILK attempts to strengthen its market presence by adding more Modern Trade outlets, E-commerce portals and Just dial to promote the sales of various value-added products. The company website mentions the following as NILK’s core businesses: <ol>
<li>Material Handling</li>
<li>Furniture</li>
<li>@home</li>
<li>Nilkamal Mattress</li>
<li>Nilkamal Home Ideas </li>
</ol>
</li></ol><ol start="2"><li>
Earnings: Over the past five years (FY13-18), Consolidated Revenues, EBITDA and PAT for NILK have grown at 5%, 12% and 27% CaGR respectively. During the five-year period, consolidated EBITDA and PAT margins for NILK expanded 240bps and 310bps respectively. </li></ol><ol start="3"><li>
Balance Sheet: NILK has very low debt on its books with consolidated D/E ratio of 0.2xs for FY18. Working capital as % of sales and RoCE continue to remain in the 20-25% range.</li></ol><ol start="4"><li>
Valuation:<table class="table table-striped"><tbody>
<tr>
<td> </td>
<td>FY18</td>
<td>FY19</td>
<td>FY20</td>
<td>CaGR</td>
</tr>
<tr>
<td>EPS</td>
<td>82.7</td>
<td>95</td>
<td>109.25</td>
<td>15%</td>
</tr>
<tr>
<td>PE</td>
<td>                      22.13</td>
<td>                      19.26</td>
<td>           16.75</td>
<td> </td>
</tr>
<tr>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr>
<td> </td>
<td>PE</td>
<td>FV on FY20 EPS</td>
<td>Upside</td>
<td> </td>
</tr>
<tr>
<td> </td>
<td>20</td>
<td>                      2,185</td>
<td>19%</td>
<td> </td>
</tr>
<tr>
<td> </td>
<td>22.5</td>
<td>                      2,458</td>
<td>34%</td>
<td> </td>
</tr>
<tr>
<td> </td>
<td>25</td>
<td>                      2,731</td>
<td>49%</td>
<td> </td>
</tr>
</tbody></table>
</li></ol>Management: NILK was promoted by the Parekh brothers – Vamanrai and Sharad in 1985. Currently the third generation of Parekh family is at the helm of affairs in the company. While top positions are occupied by family members, the Board of Directors includes several professionals. Over the past three and a half decades, the management has steered NILK efficiently from being a plastic bucket and tumbler manufacturer to a company engaged in Material Handling Equipment, Plastic Furniture, Plastic Chairs, Mattresses and Pillows. While some decisions taken by the management (organized furniture retailing and opening large size stores) are yet to find acceptance in the market, the management has been continuously focused on innovations in product design, product quality and expanding the trade channel.

Nilkamal Ltd (NILK IN)Nilkamal Limited (NILK) is an industry leader in the moulded furniture and material handling products with diversified product portfolio catering to different industries and a diversified base of customers including household customers, industrial customers and retail buyers. It also has presence in the retail business of lifestyle furniture, furnishings and accessories under its brand '@home' &amp; Nilkamal Mattresses. The company has two major business verticals - i) Plastic division and ii) Lifestyle Furniture, furnishings and accessories division. In Q1FY19, Plastics division contributed ~92% to the total revenues while the retail division ('@home') contributed ~8% to the revenue.Operaing &amp; Financial Summary –
Business: NILK started as manufacturer of plastic tumblers and buckets more than two decades ago and eventually expanded into several business segments related to plastics, home furnishing and home retail store chain. It manufactures products at its 9 plants (8 in India and one in Sri Lanka through a JV) and distributes them pan-India by leveraging its network of 40+ depots, 300+ sales staff, 980 channel partners and 15,000 dealers. NILK attempts to strengthen its market presence by adding more Modern Trade outlets, E-commerce portals and Just dial to promote the sales of various value-added products. The company website mentions the following as NILK’s core businesses: 
Material Handling
Furniture
@home
Nilkamal Mattress
Nilkamal Home Ideas 


Earnings: Over the past five years (FY13-18), Consolidated Revenues, EBITDA and PAT for NILK have grown at 5%, 12% and 27% CaGR respectively. During the five-year period, consolidated EBITDA and PAT margins for NILK expanded 240bps and 310bps respectively. 
Balance Sheet: NILK has very low debt on its books with consolidated D/E ratio of 0.2xs for FY18. Working capital as % of sales and RoCE continue to remain in the 20-25% range.
Valuation:

 
FY18
FY19
FY20
CaGR


EPS
82.7
95
109.25
15%


PE
                      22.13
                      19.26
           16.75
 


 
 
 
 
 


 
PE
FV on FY20 EPS
Upside
 


 
20
                      2,185
19%
 


 
22.5
                      2,458
34%
 


 
25
                      2,731
49%
 


Management: NILK was promoted by the Parekh brothers – Vamanrai and Sharad in 1985. Currently the third generation of Parekh family is at the helm of affairs in the company. While top positions are occupied by family members, the Board of Directors includes several professionals. Over the past three and a half decades, the management has steered NILK efficiently from being a plastic bucket and tumbler manufacturer to a company engaged in Material Handling Equipment, Plastic Furniture, Plastic Chairs, Mattresses and Pillows. While some decisions taken by the management (organized furniture retailing and opening large size stores) are yet to find acceptance in the market, the management has been continuously focused on innovations in product design, product quality and expanding the trade channel.

Nilkamal: In-Line Q1-FY19, Maintain Buy Investment Thesis.