Jindal Poly Films Limited (JPFL), a part of B. C. Jindal Group, is one of the leading producers of flexible packaging films (BOPET and BOPP) in India and operates the world's largest single location facility for flexible packaging films at Nashik, Maharashtra.

Investment Rationale

Timely capex enables to capture the growing market while maintaining leadership with low cost - Over the next two years, JPFL would continue with the capacity expansion, programme started in FY09, both in BOPP (180,000 tpa currently to 312,000 tpa in FY13) as well as BOPET (127,000 tpa in FY10 to 217,000 tpa by FY13). This capex would be carried out in phased manner and is expected to be completed by FY13. The combined capex of INR 16bn would be funded through a mix of debt and internal accruals.

The timely capacity expansion would enable JPFL to consolidate its market leadership in both BOPET and BOPP business divisions and sustain growth for next two years. JPFL is a low cost producer (~10% lower costs compared to its peers) due to economies of scale, single plant location and low financial gearing. JPFL is the largest player in India and the sixth largest player in the world for BOPET films. In the BOPP segment too, JPFL is the largest player in India. JPFL also has a strong presence in the highvalue- add metallised market.

With higher capex and moderate realisation for next two years, JPFL is expected to capture the growth both on volume and price realisation parametres. Power Story to unfold over FY13 - For FY10, JPFL had investments of INR 1.53bn in subsidiaries and affiliates. It proposes to invest an additional INR 4.56bn in an 1800- megawatt (MW) pit-head coal-based power project in Angul district, Orissa, through subsidiary. Revenue, being back ended in nature, we haven't factored in the value of this investment. Our back of the envelop calculation gives, value of INR 245/ share which provides an additional margin of safety. The management intends to list this subsidiary eventually.

Edge over domestic peers in overseas market - JPFL has an edge over its domestic peers in the overseas market owing to lower burden of anti-dumping duty on its products when compared to others, enabling it to sell quality products with less marketing costs.

Robust Business with sound Balance-sheet - Despite debt-funded capex for core business and investments in power projects through subsidiaries, we believe that JPFL capital structure remains healthy over the medium term, supported by improved profitability and healthy cash accruals.

Concerns

Cyclicality of business, rising input costs and lower plant utilisation rate are the major threats.