10 October, 2008

Plastiblends
cmp: Rs 122.
target price: Rs 220

LKP Research has initiated a coverage on the stock with a “buy” rating, saying it expects a 25% compound annual growth rate(CAGR) growth in net profits over the next three years for the company, driven by a 27% growth in revenues over the same period.

According to the brokerage, despite being a small-cap company with a market capitalisation of only Rs 900 million, Plastiblends has not tapped the capital market since its IPO in the early nineties and given its strong balance sheet and robust cash flows.

It does not expect any equity dilution by the company, going forward, as it would be able to fund its expansion plans comfortably through internal accruals.

“Given the scalability of the business and the return on investments(RoI), we believe that PIL is well placed to achieve critical mass in master batches during the next three years and the stock trading at three times FY11E (estimated) with a dividend yield of 5% is an exciting small-cap pick,” said LKP in its note to its clients.