Manjushree Technopack (MT)
Top 10 Brand Values
This was the article in “Economic Times” which specially attracted Dad. At number one, in respect of brand value, it was none other than Coca-Cola, and on a bit of research, it was revealed that Manjushree Technopack (MT) was providing bottling services to them. Yeah, it became an instant favorite :D .
MT is a packaging solutions provider with an experience of two and a half decades in providing its customers with cutting edge plastic packaging solutions.
Few positives:
- MT has been growing at CAGR of almost 25% for last 5 years. This growth rate is expected to continue for next few years based on the aggressive expansions the company has been undertaking. The company has been tying up with the top MNCs
- MT has an impressive client profile : Cadbury, Nestle, Coca Cola, P&G, Bisleri etc
- MT has been able to maintain very good operating margins and able to expand the same with increase in turnover. The other good things are its strong balance sheet – reasonable debt equity ratio, control over debtors and inventory to get strong cash flow.
- As per the recent announcements, the company has tied up with Coca Cola & Bisleri and is putting up exclusive capacities to cater to their requirements. As per the arrangement, the offtake will increase 50% every year.
- MT is also targeting to cater to the liquor industry and has tied up with likes of UB Group, Radio etc.
Attractive Valuations:
- At CMP of Rs. 32.50, the stock is available less than 5 PE.
- It is trading at a discount to its BV of 44 by almost 25%.
- Co is a regular dividend paying company & had paid 10% dividend last year.
Expectations:
- We expect MT to continue to grow @ 20-25% for next 2-3 years.
- For FY 2010, MT may be able to deliver 130-140 Cr turnover resulting into a NP of 8-10 Cr. Hence an EPS of 6-7.5
Snapshot of past financials:
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1 Q2 has been lower than q1 – is their business seasonal?
2 They have 30 cr of debt, however their interest payment is very low – and has come down – as per them their cost of capital is 13+% – effectively they should be paying 5 cr as interest, however they seem to be paying less than 1.5 cr – why? (Note that their re-payment schedule for paying back the loan is going to go up from 50 lacs/qtr to 75 -80 lacs as per the agreement with SBI)
3 How much of the export obligation till 2013 have they completed; what is the plan to catch you to the rest?
4 There are many players in the market in the PET bottles and packaging segment – why should they not get out of business?
5 Why are they expanding capacity again when their existing capacity utilization is 39% and Vimal Kedia himself does not expect that the utilization is going to go above 60% in the next 2 yrs.
6 What are they doing different to their competion to retain their customers? (assuming they are very cost competitive).
7 what was the reason that they were not trading on the regional stock exchanges when they came in with public cum rights issue? what is stopping them from listing on NSE? why the delay?
Have you had a chance to talk to the management?
Post your response on this; I will check it again later.
Nice set of queries
Answers:
1. Yes, the co expects better performance in second half
2. I also have this query at my end. The possible explanation is – cheap credit financing from their machinery supplier Huskey
3. No idea
4. Because they are managing things well, not highly leveraged and have relationship with the top FMCG players
5. Their current capacity utilization must be close to 55-60%. They have been doing job work offlate ?(Coca Cola contract) so their turnover is not increasing in the same proportion.
6. Not much clarity here.
7. No idea.
No, I haven’t been able to interact with the top mgmt.
Please do email about yourself, will like to get in touch.
Regards,
Appreciate you taking time for the response.
If you do get an opportunity to dig into this more, kindly post here. I also see from your profile that you are a CA by education – This is a fantastic opportunity for you towards studying the company balance sheet in detail. If possible please throw some light on how the company is accounting especially do they book revenue on delivery to the customer/order recieved/do they book revenue on their inventory etc.
I would also encourage you to go through their RHP of 2007 – The export related clause is a very important one – I find that they have not made any mention of this in their latest annual report which is a disappointment.
To the best of my knowledge they have made a full payment towards the machinery, so the interest payment is definitely something that should be queried to the company.
Other information that would be useful is to find out if they do benchmark themselves in the industry.
I have written to the management by email; if they do choose to respond I will post the comments here. In the meanwhile I will encourage you to connect with them as well.
Hi Dear Investor,
Bhaiya (Ayush) got married last week and is on a short leave. He would love to reply to the queries and might get in touch with the management once he is back (probably in two weeks time).
Hope you don’t mind the wait.
Regards,
Pratyush
Wonderful! Give my wishes and regards to your brother!
While you are at it, I was wondering on –
How does the raw material prices affect the company. Do they have long term contract with their suppliers? Can they pass on any increases in raw material to their customers (Pricing power)?
Do they have any innovations to their credit?
Hi,
I haven’t gone through the reports of the company yet and thought of replying once I read them.
However, I had been engaged in programming of a new stock screener for Indian stocks. We had planned to launch it this year, and thus had to meet this self-set deadline.
The beta is ready, and we would love to have you try it out (it should be extremely useful for any fundamentalist). Do flip me an email at pratyushmittal [at] hotmail [dot] com and I will send you the invite.
Also, brother will be back by tomorrow and using his genius analysis should answer your queries soon.
Extremely sorry for the late response,
regards,
Pratyush
P.S.: Updated the email, had mis-typed it earlier
Dear Investor,
Thanks for your wishes.
Answering your queries:
On full payment of machinery – there is an unsecured loan of 9.89 Cr from Huskey, classified as trade credit…though they have also written that the same will be repaid out of rupee term loan from SBI
. This trade credit might be at a very low interest rate.
Regarding accounting of sales & inventory – As per the accounting standards, sales are to be booked only on delivery (or similar nature) and no revenue should be recognised on inventory. So as there are no auditor qualifications, I doubt if they are doing anything wrong.
Yes, I have gone through their RHP of 2007. I don’t think there is a big liability if they are unable to complete the export obligation – at max it will be 25-30 Lac rupees.
I tried benchmarking the performance of the company as compared to other players in same field. They have the best fundamentals.
Raw material and competition is the main worry of this industry. There is always a pressure on margins and they don’t have too much of a pricing power. But in case of raw material price inc, they should be able to pass on the cost in the long run – as it is a industry problem.
Dear Investor, plz send over an email briefing about yourself and contact details….will like to call up and touchbase.
Regards,
Thanks for your inputs! I do look forward for a rewarding investment in this company.
I will be in touch with you through this blog.
Do you have any idea how much will be the debt of the company by Mar 2010?
http://www.bseindia.com/xml-data/corpfiling/announcement/Manjushree_Technopack_Ltd1_291209.pdf
At the end of Mar 2009 this was 30 cr, going by this, they will add another 100+ cr, debt equity will go above 1. This kind of leverage is certainly not good.
I don’t think the debt will overshoot 50 Cr by March 2010.
As per my interaction with them, they haven’t been utilizing the loan limits. The recent approval from SBI is for the future possible needs and they may not be utilizing the whole limit.
The company is doing the expansions based on the commitments and understandings from the existing cos.
Yes, there are always risks in expansion, but so are the rewards
Ayush
wonderful rally in the stock. I am out partially – the runup of 50% in the stock (32 levels to 49 today) has been wonderful & rewarding! I am looking forward to them getting new customers especially in the liquor space.