Prima Plastics Ltd Research ReportUpdate

Capacity addition aids sales growth…  Prima plastics Ltd (PPL) recorded standalone sales growth of 19% YoY (~23% QoQ) largely driven by volume growth (I-direct estimate: ~14% YoY) in Q4FY18. The strong volume was on the back of capacity addition in FY17 at Ongole (Andhra Pradesh). However, the gross margin of PPL declined by ~170 bps YoY mainly due to change in product mix and partial absorption of high raw material prices. Addition to this, sharp rise in employee cost and other expenses (up by ~58% and 23% YoY respectively) was mainly on account of expansion in new geographies. As a result, EBITDA margin declined sharply by ~505 bps YoY. Further, rise in depreciation and interest charges was offset by higher other income and lower tax outgo, resulting growth in PAT by ~10% YoY.  We have introduced FY20E estimates and modelled consolidated revenue CAGR of ~21% in FY18-20E led by 14% volume growth. We model revenue, earning CAGR ~22%, ~23% of Prima Dee-Lite in FY18-20E, which would result in Consolidated PAT CAGR of 35% during the same period. GST, capacity expansion and new launches to fuel domestic growth Operating mainly in the plastic furniture segment, PPL is the fourth largest player in the organized category after Nilkamal, Wim Plast and Supreme Industries.