Nilkamal Ltd. share price target

Nilkamal reported a good set of numbers for 2QFY2016. It posted a top-line growth of 5.1% yoy to Rs482cr and a significant improvement in profitability. The raw material cost as a percentage of sales declined by 603bp yoy to 58.5%. However, the employee cost and other expenses increased by 55bp yoy and 176bp yoy to 6.7% and 24.3% of sales, respectively. As a result, the EBITDA margin expanded by 372bp yoy to 10.4%. Aided by higher other income, the net profit, at Rs26cr, came in higher than our estimate of Rs22cr. Plastics division to benefit from revival in economy: After witnessing volume de-growth in FY2014, the Plastic division witnessed a volume growth of 10% in FY2015. Material Handling and Moulded Furniture segments of the plastic division are directly impacted by the macro environment and we expect them to maintain steady growth, given the positive economic outlook. Additionally, with no major capex plans going ahead and sufficient capacity to service recovery in demand, we expect operating leverage to come into play, thereby aiding the bottom-line. Stable raw material cost to aid in maintaining margins: Polymer prices had declined by ~18% in the past quarter on yoy basis, thus leading to lower...