KR Choksey, a leading brokerage firm, is bullish on Emmbi Industries Limited. The brokerage recommends buy the stocks of the company for a target price of Rs 139. If we consider the given target price by the brokerage, investors buying the stocks of the company at the current market price are likely to gain 54% gains in 12 months. Emmbi Industries is a small cap packaging company having a market cap of Rs 160 crore.
The current market price of the stock after is Rs 90.65 apiece. The stock is currently trading Rs 14.15 above the 52 week low, and Rs 41.2 below the 52 week high levels of the stock. The stock's 52 week low level is 76.50 and the 52 week high level of the stock is Rs 131.85.
Returns on Investment
Over the past 1 week, the shares of the company have fallen 3.15%, whereas, in the past 1 month, the shares have fallen 1.95%. In the past 1, 3 and 5 years, the stocks gave negative returns of 16.26%, 27.68% and 49.92%, respectively.
- In Q1FY23, Emmbi's revenue grew 1.6% YoY to Rs 1,058 mn. Though on QoQ basis revenues declined by 3.0%.
- EBITDA has seen a decline of 4.7% YoY/17.3% QoQ to Rs 106 mn. The fall in EBITDA was due to higher other expenses, which increased 44.1% YoY to Rs 251 mn for the quarter. EBITDA margin also contracted by 66 bps YoY and 173 bps QoQ to 10%.
- PAT has seen a de-growth of 32.3% YoY/34.0% QoQ to Rs 30 mn. PAT margin contracted by 143 bps YoY/134 bps QoQ to 2.9%.
- Emmbi is embarking on the path to become a zero-waste company by FY23. The company is right on track for the same and is confident to reach the ambitious target.
Muted revenue growth on account of subdued domestic market performance
In Q1FY23, Emmbi's revenue saw a muted growth of 1.6% YoY to Rs 1,058 mn, on account of subdued performance in its domestic market. Sequentially revenues declined by 3.0% QoQ on a high base of last quarter. Emmbi is witnessing strong traction in its export market. The company has a robust export order book. Last year, Emmbi launched the Reclaim30 range products, to cater to the UK's new plastic packaging tax. Reclaim30 is Emmbi's range of sustainable plastic packaging, which uses 30%+ recycled polypropylene. The product which was launched last year is now a commercial success. New trials are now successful to produce some of the Avana Retail Range of products. This will be very pathbreaking innovation for the company. The company is now working on designing products with higher content of rPP.
Higher input costs impacted margin
EBITDA has seen a decline of 4.7% YoY/17.3% QoQ to Rs 106 mn. The fall in EBITDA was due to higher other expenses, which increased 44.1% YoY to Rs 251 mn for the quarter. Higher freight costs which were included in other expenses has jacked up the other expenses figure for the quarter. EBITDA margin also contracted by 66 bps YoY and 173 bps QoQ to 10%. PAT has seen a de-growth of 32.3% YoY/34.0% QoQ to Rs 30 mn. Higher interest costs (+14.6% YoY) and depreciation expenses (+17.2% YoY) impacted PAT. PAT margin also suffered a contraction of 143 bps YoY/134 bps QoQ to 2.9%
Update on Avana and capacity expansion plans
Emmbi successfully launched Avana Mulch Film during the quarter. As far as capacity expansion plans for FY23 goes, a new building has been Identified & leased and machineries are finalized. Order finalization process will be completed by end of August 2022 and deliveries of the machineries will be completed in next 90 days.
Future Growth Drivers
The growth of the packaging industry is directly correlated to GDP growth of the country. Emmbi has embarked on the path to debottlenecking its existing manufacturing facilities, which has helped the company to be able to produce higher quantities, with higher margins. Emmbi is keeping a strong focus on sustainable industry packaging and has applied for registering the Emmbi ReClaim trademark. The company is also working on new range of barrier packaging, which has high potential in the domestic packaging business.
For Avana, Emmbi follows an asset-light model with partner manufacturers. Going forward, the company expects good growth in Avana's brand loyalty. The company is focussed on consumer marketing through advertisements and YouTube collaborations. Emmbi has also adopted quicker Go-To-Market (GTM) strategies along with cross-selling and up-selling of its products.
The brokerage said, "We continue to remain bullish on the company's growth story led by its unique offerings of innovative solutions and first-mover advantage in the agro-polymers market. With a continued focus on expansion by diversifying into different products and introducing new products, the company has laid a firm ground for its consumer product. The company has launched new products and the management expects to further work on newer products to cater to the market. Reclaim 30 range has been launched to cater to the new UK's plastic packaging tax. This move can give company a first mover advantage as more countries would adopt to these laws. The company has also applied for registering the Emmbi ReClaim trademark."
Valuation - buy for a target price of Rs 139
According to the brokerage firm, "At Current Market Price of Rs 91, shares of the company are trading at a P/E of 4.6x/4.1x its FY23E/FY24E EPS. We continue to value the stock at 6.25x on its FY24E EPS of Rs 22.2/share, which yields a target price of Rs 139 (unchanged) giving an upside potential of 52.4%. Accordingly, we maintain our 'BUY' rating on the stock."
About - Emmbi Industries Ltd.
Emmbi Industries Limited was is a leading manufacturer of woven polymer-based products. The company is primarily engaged in designing and manufacturing Flexible Intermediate Bulk Containers (FIBCs). Emmbi's Woven Sacks and Liners have a wide range of applications in containers, irrigation canals, man-made water bodies, flexible tanks, car covers, furniture covers etc. Emmbi Industries has bagged numerous awards and accolades since its inception. The company's manufacturing unit is located at Silvassa, Gujarat.
The stock has been picked from the brokerage report of KR Choksey. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.