The company is into industrial packaging with focus on intermediate bulk containers (IBC), MS drums, and polymer drums. These drums are used for storage and transportation of solid, liquids, semi-solids, and pastes.
Despite being a small company, holds a market share of 40% in IBC. Primary use of IBC is by specialty chemical, agrochemical, and pharmaceutical industries.
Company’s products are also used by other industries like lubricants, edible oils, food, and beverages etc.
Fairly diversified in terms of revenue with top 5 customers contributing just under 20% and top 10 under 30%. Company is net debt free.
Company has 6 manufacturing plants in western India and is setting up a seventh one. Current utilization is close to 80%.
Company has healthy metrics with last 4 Year ROE being > 25%, working capital days at 68 days, cash conversion cycle at 55 days. Their products are recyclable and have UN certification.
With India’s booming chemical and pharmaceutical industry, company’s products will be in good demand for the foreseeable future.
Company is able to pass raw material price hikes with 1-2 month lag.
Vikas Khemani’s fund Carnelian Capital holds a minor stake in the company. High promoter stake at 74%.
Available at a fair forward valuation of 16 PE. Management has guided for 25% CAGR revenue growth for next 3 years and hinted at higher PAT growth (due to margin improvement).
Risks:
IBC, which is the value, added product will go to 40% of their sales by 2026. However, competitors have also announced capacity addition and we’ll need to track the evolving market dynamics.
Their metrics are significantly better than competitors in a business with a light moat. Need to understand whether this level of efficiency is sustainable and/or can be carried forward or not, where this efficiency is derived from.
If the chemical industry slows down, the company’s sales will be impacted.
Need to track availability and adoption of substitutes.
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