December 15, 2010

Short analysis – WIM plast ltd

I typically look at 1-2 companies every week in some detail, to figure out whether they are attractive enough for further analysis. As I have said in the past – rejection is easy for me. It takes me 10-15 min or sometimes lesser than that to reject a company.

Investing into a company is like marrying or atleast a medium term relationship for me (unlike a one night stand) and as a result all the stars have to align themselves for me to commit my money to an idea.

WIM plast is one of those companies which has passed the initial filter phase and I am doing a little more detailed work on it.

WIM plast is in the business of plastic moulded furniture (brand – cello) and into extruded cello bubble guard sheets which have multiple applications such as false ceiling, signage etc.
The company has been in this business for the last 20+ years and is part of the cello group.

The company has had an erratic performance in the past. Most of the analysis you will find on the web and in broker reports talks about the great performance since 2007. These reports breathlessly report the doubling of the sales in the last 3 years and a 60% per annum growth in profits during the same time. This is a perfectly idiotic way of analyzing a company

One has to look at a much longer time period to analyze the performance of the company. I typically look at the last 10 years of performance (nothing sacred about that). A long term performance shows how the company has done during past slowdowns and gives a much better idea of the sustainability of the current performance.

The 10 year performance of WIM plast shows a very different view. The topline -sales dropped from 80 odd crores in 2000 to around 56 Crs by 2006. The profit also dropped during this period from 11 crs to around 2 Crs in the same period. I have not been able to find why the topline dropped over the span of 6 years. Most likely it looks like a combination of increasing competition in moulded furniture and slowing demand.

The company has since then been able to increase sales to almost 140 Crs in 2010 and had a net profit of around 16 Crs. During the current year, the company is likely to clock a topline of around 150-160 Crs and net profits of around 14-15 Crs (profits likely to stagnate due to rise in raw material cost which depend on petroleum prices)

The company came up with a new product – Cello bubble guard in 2004-2005 and completed the plant by 2006. The product seems to have started selling well from 2008 onwards. Again the company does not disclose the product splits, so I am guessing that this is the reason for the growth during the 2006-2010 period.

The positives
The company managed its balance sheet well during the down years. The company has been able to keep debt low (below 0.5 times equity) and is now debt free. In addition, the company has an above average ROE of 20%+, has been able to keep inventory and debtor levels low and improve the net margin during the 2006-2010 time period

The company has had a very good dividend policy and has kept the payout high even during the down years. The company has now started increasing the payout (dividend yield is around 2.5%) as its performance has improved.

The company is also investing around 100 Crs in its baddi plant for cello bubble guard to expand capacity and thus increase the turnover (see here)

Finally the company sells at a low valuation of around 6-7 times earnings

The questions
As I said earlier – I am still in the dating phase :). I have not made up my mind. There are still a lot questions in my mind
- Why did the performance drop from 2000-2006?
- How is cello bubble guard doing? What is the competitive situation for the product, its margins and what are the substitutes for this product?
If you or anyone has looked at this company or used its products or know someone who uses the products (cello bubble guard), please leave me a comment or email me on

I need to do further research on the company. The key to the success of this idea is the future performance of the cello bubble guard product. If this product does well and can get a good margin, then the net profit will increase and the stock price will improve too.

disclosure - no postion in the stock as of today


anil said...

from rd's chat

rjrd : WIMPLAST:- just wanted to caution that their promoters (Rathod) belong to Akruti group which has been banned by SEBI in sanjay dangi case.
Ramesh Damani : i think they have financed that group

Sachin Purohit said...

Of the few companies that I did research, I vaguely remember having touched Wim plast. Not sure why I stopped researching it further. Maybe the same reason you are mentioning - the bad performance from 2000-06 deterred me from digging more deeper. But if key to the success is performance of one product - cello bubble guard - then don't you think, it is anyway risky? After all, the kind of products it is into is not something that can not be emulated by others. Plastic moulded furnitures are a business in which there already are a lot of unorganised, cheap players and of course the chinese. If in such environment, if it has a single product to rely on for company's overall performance, then that itself seems like a red flag.

Rohit Chauhan said...

Hi anil
that would be a very strong reason not to invest !


Rohit Chauhan said...

Hi sachin
i think moulded furniture is really a commodity biz and i dont think wimplast has made much money in it.

cello bubble wrap although a single product has multiple applications. that said the biggest issue is that there enough substitutes for this product and i dont think brand would very important here.
so although this is not a red flag, i am definitely not comfortable with the situation

main reason for analysing the company was that it has low PE which is a good place to start, but does not mean the company is cheap


rayhaan said...

i rohit .heres hopefully a more understandable version of my last comments
just had a few questions- u think it's a good idea to have a look at money matters.? I mean as long as the accounting is alright and no serious liability is imposed on the firm, it might still make a good investment.what do you think?
Q2.please have a look at Empire industries.i mean it sure reminds of a former pick of yours has some freaking awesome numbers(consistent roe in the 20s, good margins and cool free cash flow numbers !)
Q3.Speaking of crazy situations , YOU might like to have a look at dhandapani finance,its an nbfc trying 2 go thrOUGH a deep CORPORATE DEBT RESTRUCTURING. Even though the chances of a bankruptcy are there, it might just prove to be a multibagger if the CORPORATE DEBT RESTRUCTURING goes through without hurting the shareholders too much , in this age of bailouts who knows? (i believe the results of the CORPORATE DEBT RESTRUCTURING process should be out in January.By the way i shot them an email seeking various details of the restructuring and they shot 1 right back asking me my client id/portfolio no. Is it a good idea to give it away? In case you are wondering ,the co. has come under new management) . in short , the market capitalization of the company is 5 crores while there is total debt of 144 crores and sundry debtors of 140 crores approx.(many ofthese are NPA ,these are September 2009 figures) so basically as they say in the world of vulture investing its either feast or famine! i mean I understand there is a real risk of bankruptcy here,but in this age of bailouts this does seem a good stock to track. really eager to hear your views.
p.s dude how about a DETAILED post on the dangers of investing in small and mid caps sometime soon?

Ranajit said...


If you get a chance take a look at Liberty phosphates. It is a small-cap fertilizer company which seems to benefiting from a recent catalyst - Govt subsidy (Nutrient Based Subsidy - NBS) to it's SSP fertilizer business, yet IMHO the market may not be valuing it properly. It may see some growth in topline and bottomline the next few years.

Btw, just to clarify, I am still looking at the company and haven't completed detailed valuation of the company based on DCF, EPV or historical valuations. However a cursory glance at the P/E ratio and P/B ratio, the company looks undervalued. Some of it's competitors like Rama phosphate or Khaitan chemicals have had major jumps in price recently. Will let you know if I find any red flags.

Crazy smallcap lover said...

hi rohit , i think u'll like to have a look at ceejay finance, its an nbfc with a d/e below 2 and a capital adequacy ratio of 45% approx. It 's selling at a p/e of 3 and a p/b of .5 .it has a div yield of 5%.however , its 10 year operating history is not so impressive, alongwith the fact that it's a micro cap with a mkt. cap of 6 crores(of course promoters hold a 50%stake.approx)would love to hear your views.
P.s how about a post on identifying undervalued banks or finance companies?

Rohit Chauhan said...

Hi rayhaan
i have not looked at any of the companies you mention in the comment. let me have look at them and then respond. you are too fast for me :) i cannot analyse companies as fast as you my friend


Rohit Chauhan said...

Hi ranajit
i have not looked at this company..i have looked at fertilizer companies in the past, but never invested due to the nature of industry. the govt controls the prices and has distorted the market ..a little like the power and petroleum companies. as a result these industries have always given sub par returns in the past.
let me relook if something has changed


Rohit Chauhan said...

Hi crazy small cap lover
frankly i have avoided micro-caps as it is difficult to get info on these companies. i have avoided NBFC's as the risk is too high.
so a micro-cap NBFC is way too speculative for me. now there could be value in this company, but i generally avoid such companies

its really trying to find one diamond in a huge pile of coal...

Chandresh Shah said...

As regards Ceejay Finance, the promoter of the co. is Mr. Praful Patel, civil aviation minister.

They have a Bldg, " CEEJAY HOUSE " at Worli