Kabra Extrusion: Hopes to gain from rising demand

Shares Up 50% Since Mid-Dec Against 5.6% Fall In Sensex

DEFYING the overall weakness in the stock market in the past couple of weeks, the shares of Kabra Extrusiontechnik (KETL) traded near its all-time high to close at Rs 188.5 on February 2, 2010. Although the superb December 2009 quarter performance was one key element in the latest upsurge, the scrip has substantially outperformed markets in the past one month. KETL shares have gained 50.3% since mid-December as against a 5.6% fall in Sensex. KETL recorded a handsome 572% jump in its December 2009 quarter profit at Rs 6.5 crore, although its sales grew only 42% to Rs 49.1 crore. The company was able to maintain prices of its plastic extrusion machinery although the raw material costs eased. KETL is a debt-free company with healthy operating cashflows. The company’s cash and equivalent investments have grown at a cumulative annual growth rate (CAGR) of 49.7% between FY05 and FY09. After steadily growing profits at a CAGR of 34% for five years, the company had reported a fall in profit in FY09. Even in the first half of FY10, the company’s performance was only marginally better than the year-ago period. Against this background, the sharp jump in its third quarter profits hints at improvement in the future prospects of the company. The plastic extrusion machinery industry is closely linked to the plastic consumption, which is growing fast in India. The demand for conventional PVC pipes is growing in double digits due to increasing irrigation activity as well as new applications in construction and infrastructure segments. Similarly, pipes manufactured from HDPE are gaining popularity in applications such as telecom ducting, water supply and natural gas distribution. Additionally, the consumption of packaging films is growing in industries such as food processing and healthcare. All these factors augur well for KETL, which had faced some sluggishness in net sales in the past three years. To benefit from the increasing demand, KETL is planning an aggressive investment of Rs 85 crore over the next 24 months. This will not only expand its capacities, but also improve the efficiencies.