MEDIUM TERM PICK - HITECH PLAST

Hitech Plast Ltd
Impressive jump in revenues, well placed for growth
Fundamental Grade 3/5 (Good fundamentals)
Valuation Grade 5/5 (CMP has strong upside)
Industry Containers & Packaging
Fair Value Rs 132
CMP Rs 92.00 

Hitech Plast Ltd (Hitech) reported strong Q4FY11 results, in line with Equities’ expectations. Revenues increased largely on account of strong
demand for containers from the paints and FMCG sectors. The pressure on
margins was as expected in view of the rise in polymer prices and the lag in
passing the same to end-users. We are positive on Hitech’s future prospects
based on its leading position in paints packaging and the increasing
momentum in the FMCG packaging business through innovation and
investments. We maintain our estimates and the fundamental grade of 3/5.
Q4FY11 result analysis
• Hitech’s Q4 revenues grew by 31% y-o-y (10% q-o-q) to Rs 904 mn
driven by a 20% volume and 11% price growth. The company recorded
robust growth in containers for paint (35%) and FMCG (26%).
• EBITDA margin decreased by 154 bps y-o-y (107 bps q-o-q) to 11.7%
mainly driven by higher raw material costs due to an increase in polymer
prices.
• Adjusted PAT declined 8.6% y-o-y to Rs 25 mn due to lower EBITDA
margin coupled with higher depreciation and interest. The higher interest
burden was on account of the upward revision of interest rates on shortterm
borrowings. PAT margin declined 121 bps y-o-y to 2.8%.
Key developments
In April 2011, Hitech commenced operations at the plant in Rohtak, Haryana.
The plant caters to paints packaging. Hitech’s plant in Sitarganj, Uttarakhand
is scheduled to commercialise in June 2011. The plant will cater to containers
for FMCG packaging. Both the plants have been factored into our estimates.
Valuations: Current market price has strong upside.