ESTER INDUSTRIES

Current Price -: 133 Rs 

Ester Industries ins engaged in manufacturing Polyester Films, Specialty Polymers and Engineering Plastic compounds. Company servers wide range of Industries ranging from Food packaging, Industrials , Automotive , Optical fibres , Textiles etc.  Company has a global presence, supplying to large customer spread across 75 countries.

Once on the verge of Bankruptcy back in 2001 the Company was declared as a Sick Industrial Undertaking and Rehabilation package was approved by BIFR for one time settlement of Rs.5,520.40 lacs. Company later In 2004, successfully completed the modernization of Chips Plant and this modernization helped the Company to produce the chips at substantially lower costs. Since then Ester industries has come a long way. Today company operates mainly on three product lines such as

• Polyster Films
• Engineering Divison
• Speciality Polymers.

Business/Products

POLYESTER FILMS

Ester Industries is one of the leading supplier of polyester (PET) films. 

Normally there are two types of growth strategies adopted by industry players: 

• Volume driven strategy
• Innovation and Customised Solutions

Ester has adopted the Later strategy in which it provides customized solutions through use of innovation and technology to enhance packaging performance and contribute towards the environment.

Ester’s packaging film business is engaged in manufacturing of BOPET films since 1989 at Khatima, in the state of Uttarakhand, India. The production facilities have expanded since then to keep pace with significant development in polyester film applications and hence the demand. Ester now has 3 sophisticated production lines from Dornier (Germany) capable of producing films from 3.2 meter to 8.7 meter width. These lines are supported by two nos. state-of –the-art metalisers (Make: Applied Materials), a backward integrated PET resin plant (Continuous Polymerisation) and an offline coating machine. Our largest polyester film line (8.7 meters) is supplied by direct melt from the Continuous Polymerisation Plant which enables us to have a better control on product quality.

Company manufactures wide range of product under this product line which includes products such as-:

• ONE SIDE MATTE ONE SIDE GLOSS
• ANTI-FOG FILM
• ANTI-FOG SEALABLE PEELABLE FILM
• ANTIMONY-FREE FILM
• BIO-DEGRADABLE FILM 
• CHEMICAL RESISTANCE FILM
• DIGITAL PRINTING FILM
• DIRECT UV OFFSET PRINTABLE POLYESTER FILM
• EVA COATED FILM
• FLAME RETARDANT FILM
• LOW FRICTION SILKY MATTE FILM
• LOW EMISIVITY FILM
• MILKY WHITE FILM 
• OXO-BIODEGRADABLE FILM
• PVDC COATED FILM
• POST-CONSUMER RECYCLED FILM
• PRE-PRIMED FILM FOR EXTRUSION, THERMAL LAMINATION AND VARIOUS COATING
• RETORT FILM
• RELEASE/TRANSFER FILM
• SEALABLE PEELABLE FILM
• SILKY MATTE FILM
• STRAIGHT TEAR PET FILMS
• THERMOFORMABLE FILM
• TRANSPARENT HIGH BARRIER FILM
• ULTRA HIGH BARRIER METALIZED FILM
• VELVET TOUCH
• WINDOW METALIZED FILM

ENGINEERING PLASTICS

Engineering plastics division was established In 1995 where company has ramped up the capacity from 4 KTPA in 1995 to a present capacity of 26KTPA with 3 state of the art compounding lines at Khatima, in the state of Uttarakhand, India.

Ester is completely backward integrated in PET thus thereby company has huge advantage having wide range of portfolio spread across more than 350 grades under brand name ‘ESTOPLAST’.  

Company presently has been – one of the fastest growing Engineering Plastics company in India supporting all key Industrial segments viz. Automotive, Electrical and Electronics, Appliances, Textile, Optical fibre cables and consumer Industrial goods.

Ester’s Engineering Plastics Compounds Portfolio

• Polybutylene Terephthalate (PBT).
• Polyamide 6 (PA6) & Polyamide 66 (PA66).
• Polyethylene Terephthalate (PET).
• Polycarbonate (PC).
• Acrylonitrile Butadiene Styrene (ABS).
• Polyoxymethylene (POM).
• Polypropylene (PP).
• Alloys and Blends.

Ester’s continued focus on New product development to meet customer needs helped in expanding our product portfolio by ~40%, including specialized High wear resistance (MOS2/PTFE) grades, High filled (50%-60%) Glass fiber nylon grades with good flow characteristics and Carbon fiber reinforced grades in Nylon Polymer.

Ester offers, UL registration for selected PBT FR grades and PA66 grades

Ester provides sustainable solutions by offering complete portfolio of halogen-free engineering plastics, developed for a wide range of applications including high-performance. In phased manner, Ester is replacing environmental un-friendly materials, with the halogen-free alternatives.

Key Update

• UL card for entire range of PBT FR grades
• Expanding reach to customers in global markets
• Planning for additional manufacturing base in india
• Application Development capability. concept to commercialization

As Total solution provider for entire basket of Engineering Plastics compounds, company undertakes specific Application development programs including METAL to PLASTIC conversions with support from its strategic Partner- Wissen Baum Engineering Solutions LLP.

Ester is enhancing relationship with OEMs/Tier 1/Tier 2 customers in the automotive & electrical segments and securing approvals for long-term sustainability. Company also is Working on collaborative VAVE (Value Addition & Value Engineering) & localization projects with some of its OEM customers.

Key Awards and Recognitions

Ester is declared the “Gold Winner” under the category “Fastest Growing Enterprise – Processing Engineering Polymers” at the Plasticon Awards 2015 by the Plastindia Foundation.

Business segment – Speciality polymers

Ester has a portfolio of 25 products in these segment. It has launched two new products in these segment – Cationic Dyeable Master Batch (MB-16) and Deep Dyeable Master Batch (MB -07) which are having applications for carpet Industry in USA. Its existing product portfolio consists of Polyethylene Terephthalate (PET), Polybutylene Terephthalate(PBT), Polyethylene Naphthalate (PEN), Master batches.

SPECIALTY POLYMERS

Specialty polymers meet the growing demand of industries that require these high performance materials for bonding, encapsulation, coating, additives, compounding for suitable applications across various sectors such as textile, packaging, carpet, food and beverages, aerospace, automotive, and electronics.

Ester has a portfolio of 25 products in these segment. It has launched two new products in these segment – Cationic Dyeable Master Batch (MB-16) and Deep Dyeable Master Batch (MB -07) which are having applications for carpet Industry in USA. Its existing product portfolio consists of Polyethylene Terephthalate (PET), Polybutylene Terephthalate(PBT), Polyethylene Naphthalate (PEN), Master batches.

Ester has developed more than a dozen proprietary products protected by strong patent portfolio across the world. Its polyester resins are customized based on customer’s requirement. 

Polyester carpet 

Encouraging progress made in the development of another new product for carpet industry in USA. Commercial sales have already started on a small scale. Polyester carpet is a big business in US.

Polyester carpet is very difficult to recycle. In another development, in US, most of the states like California impose huge tax on carpet recycle manufacturers. Thus, Ester industry hasan edge over its peers in US.

Initially, company is getting trial orders. Supply could be in the range of 10,000 to 40,000 tonne. 

In polyester carpet segment, the contribution margin is nearly Rs 100/kg and company could make profit of nearly Rs 100 crore from 10,000 tonne.

Manufacturing Facility

Ester’s specialty polyester business is engaged in manufacturing of polyester chips of normal and Masterbatch grades for several years. Company’s manufacturing plant located at Khatima, in the state of Uttarakhand, India has a production capacity of about 47,000 MTPA. Ester’s unique manufacturing set-up allows for numerous customization opportunities (in product and quantity terms) to meet the client needs. The set-up comprises of

• 3 Poly-melt batch lines and
• 3 SSP lines (2 more are being added)
• Pilot plant facility for new product development and quick R&D trials

Company caters to a wide range of markets such as

• FOOD PACKAGING
• FRESH FOODS
• PROCESSED FOOD
• SHELF STABLE
• FOOD ON THE GO
• READY TO EAT
• LIQUIDS
• BEVERAGES PACKAGING
• HOME & PERSONAL CARE
• INDUSTRIAL PACKAGING
• CONSTRUCTION SPACE
• IDENTIFICATION & SECURITY (Barcodes)
• AUTOMOTIVE
• ELECTRICAL & ELECTRONICS
• APPLIANCE such as White Goods as well as Brown Goods
• CONSUMER & INDUSTRIAL GOODS
• OPTICAL FIBER CABLE
• CARPET INDUSTRY
• TEXTILE

Capital Expansion

Approval of Capital expenditure – Capacity expansion for Speciality Polymer products. Board of Directors has approved Capital expenditure of Rs. 80 Crores for capacity expansion of certain grades of Speciality Polymer business. 

• Existing Capacity of these products 6000 MTPA
• Existing capacity utilization of these products More than 80% 
• Proposed capacity addition of these products 6000 MTPA 
• Period within which the proposed capacity is to be added 24 months 
• Investment required Rs. 80 Crores 
• Mode of financing Mix of internal accruals and debt 
• Rationale Growing demand of these products 

Company has taken significant amount of capex and post capex company expects following things in terms of revenue potential and return on that capital-: The turnover is expected to be in the range post utilization is achieved, to be in range of Rs.700 to Rs.750 crore with EBITDA margins of 23% to 25% and IRR (Project) would be about 17% to 18%. 

BOPET capacity utilizations are vey high almost at full capacity.

Rs.96 crore has already been invested and spent in the new company, and the balance which company needs to do is about Rs.80 crore which would be spent within the current Financial Year ’21-22 and some portion will be spent in the first half of ’22-23. 

Company expects to start benefiting from this capex in the second half of the next fiscal. Therefore the real benefits to the stock appreciation could be seen by the end of the next fiscal because that is when the additional sales and net profit could eye reflected in the balance sheet. 

Leverage

As regard to raising finances for the wholly owned subsidiary, company has taken advantage of benign interest rate environment globally and as such are raising certain amounts in Euro denominated term loan. 

Secondly, as specified in the past as well, while growth is a priority for the company, management has clearly indicated that they will not over leverage their balance sheets.

The debt reduction which company has undertaken in recent years is a clear reflection of that. The funding for the new project has been structured judiciously with the mix of Rupee and foreign-denominated currency. The blended cost of the debt is much lower than what it would have been if company had raised the debt entirely in local currency.

Average cost of debt last year was high at about including the bank charges, bank charges form a very significant portion of borrowing cost was about 11%, but at the current rate that the company is getting that is the average of the last year, current rate once the rating upgrades takes place would be about less than 9%. 

For the term loan there are two components-:

The term loan for the new project, one is the foreign currency which is at about less than 2% per annum. The Rupee debt would be less than 9% and weighted average cost including working capital Rupee term loan is less than 5.5%. 

Managements Comments

Company has been working and is on track to meet its guidance of increasing the share of value-added products to 30% or total volume. Share of value-added products as of FY ’21 stood at 18% . The combination of higher scale and better product mix over the coming years should help company maintain the recent business momentum.

Company saw a pickup in the specialty polymer business in the second half of FY ’21 and has recorded a turnover of Rs.25 crore in Q4 of FY ’21 and going forward this quarter also, company is expected to post same set of numbers for the whole year. It is expected that the turnover for the year could be around Rs 110 crores+ as compared to Rs 59 crores in Fy21
 

As for the new product which company has just started sampling and company is hoping to start volume sales in May and June, but the equipment could not still be commissioned because of the second wave of COVID, the engineers had to come from Austria and because of this COVID problem again they have postponed. Therefore it may be a while before company could start production of the new product.

On the specialty polymer business company has given guidance that the business could possible see margins in the range of 35% to 40% EBIT margins.

Further company has forecasted that it could in specialty polymer segment achieve turnover of Rs.400 crore for next year, however the same got delayed on account of covid as engineers from the Austria could not be able to come.

Financials

Consolidated June 2021, Q4 FY 22 Results

• Net Sales at Rs 318.92 crore in June 2021 up 69.14% from Rs. 188.55 crore in June 2020.
• Quarterly Net Profit at Rs. 36.93 crore in June 2021 up 25.71% from Rs. 29.38 crore in June 2020.
• EBITDA stands at Rs. 63.80 crore in June 2021 up 21.94% from Rs. 52.32 crore in June 2020.
• Ester Ind EPS has increased to Rs. 4.43 in June 2021 from Rs. 3.52 in June 2020.

Consolidated results for Q4 March 2021

Revenue from operations stood at Rs. 297 crore as against 254 crore reported during Q4 FY ’20, that is higher by 17% .

EBITDA for the quarter stood at Rs. 60 crore as against Rs. 53 crore generated during Q4 FY ’20 higher by 13%.

The depreciation for the quarter stood steady at Rs. 8.7 crore.

Profits for the quarter stood at Rs. 34 crore as against Rs. 37 crore generated during Q4 FY ’20.

For the year Ended March 2021

• On a yearly basis Revenue from operations stood at Rs. 992 crore as against 1039 crore lower by about 5%. The de growth on an annual basis was largely owing to significant drop in chip sales post fire in primary heater on March 19, 2020, and the COVID-19 related challenges that company had to face during the first half of the fiscal. 
• On a yearly basis  EBITDA stood at Rs. 244 crore as against Rs. 198 crore garnered during FY ’20 that is higher by 23%.
• As of March 31, 2021, company’s outstanding interest bearing term debt net of free cash stood at Rs. 114 crore while interest bearing working capital liabilities stood at Rs. 43 crore. Interest bearing debt net of free cash as a multiple of annual EBITDA has remained at a healthy level of 0.64x as of March 31, 2021. 
• The depreciation for the quarter stood steady at Rs. 8.7 crore 
• Profit for the year On annual basis same stood at Rs. 142 crore as against Rs.100 crore reported during FY ’20 that is higher by 43%.

Sectorial Outlook

• Globally, the total capacity for Polyester films is estimated at 5 million tonne and global demand is nearly 7% per annum. • Globally, the demand is primarily driven by China, India, Africa, etc
• The industry has been growing in the range of 12%-14% CAGR for last many years. 
• Flexible packaging industry has strong potential to grow as it is still underpenetrated as India’s per capita consumption of flexible packaging is one-tenth of advanced economy.

During COVID-19 crisis, packaging business was least impacted as people are more preferring packaged food in order to maintain hygiene and safety.  Management expects, domestic demand for polyester packaging to grow in between 12-14% going ahead, which could be a phenomenal demand growth.

The global polyester (PET) business comprising of Textile, Industrial yarn & Carpets, Rigid packaging and Flexible packaging is in excess of 67 million tons per year (MTPA). The Textile and Rigid packaging form the largest component of this total volume standing at 30 & 28 MTPA respectively. The total PET resin market is growing at an annual rate of ~7.5%. Moreover, there is a significant potential of unmet demand for performance PET polymers in all the above mentioned application areas.

Engineering Division

Strong auto demand following people’s preference to travel in personal vehicles and demand growth in other application industries coupled with pickup in optical fibre demand and work from home culture is gaining strong momentum have all contributed positively. Rising trend in polymer prices as well as shortage of base polymers have resulted in high sales realization at unprecedented margin expansion as can be seen from the financia 

All the businesses are well poised to embark on their next growth phase. Company expects specialty polymer business to rebound and perform well in FY ’22. Film and engineering plastic business as well should maintain their recent momentum and deliver growth over the coming years.

Note

In this same segment we have suggested other companies which to some extent are the peers of this company but due to Ester industries focusing more on Innovation and Customised Solutions they cannot be treated as direct competitors of Ester Industries.

Polyples Corporation and Essel Propack are the among the peer group companies which have been suggested on darkhorsestocks.

Ployplex corporation has been suggested on Sept 30, 2019 and April 22, 2019 when the stock was trading at 436 Rs and 551 Rs since then the company has delivered 239% and 168% returns since each suggestion.

Essel Propack has been suggested thrice on darkhorsestocks on Nov 18, 2019 , May 12 2020 and Jan 21 2021 when the stock was trading at 136, 174 and 270. Essel propack was later acquired by private equity firm Blackstone and has been renamed as EPL ltd. Users can explore this stock for long term.

Conclusion-: 

Ester Industries , engaged in manufacturing Polyester Films, Specialty Polymers and Engineering Plastic compounds has over the years grown steadily with sales increasing over 7% and 5% (cagr) over 3 and 5 year period. However Net profit has increased drastically over the same period with Net profit increasing 190% and 93% over the same period on account of significant increase in profit margins as well as reduction in overall debt levels with Cost of funding coming down simultaneously. Going forward management has undertaken significant capital expansion as current facilities are operating at full operational facilities. Also management has expressed to maintain the same EBITDA margins and keep debt steady by bringing overall cost of capital downwards. Due to Covid there has been significant delay in the Capex cycles as a result , it would be quite a while before the new operational facilities are functional and there could be any meaningful impact on the balance sheet. Thus it would be only in the second half of the next fiscal when the management expects to see  the new facilities operational and we are expecting the same to be reflected in financials by the end of the next fiscal that is by March 2023. Therefore users with risk appetite and longer time horizon should only explore this stock.