On the domestic front, Prima is planning to expand its reach in the northern and eastern parts of India by adding more distributors and retailers.
The Daman-headquartered company is doubling its moulding capacity to nearly 20,000 tonne in the next few months with an investment of about Rs 30-35 crore.
ET Intelligence Group: Prima Plastics, India's fourth-largest moulded plastic furniture company, is likely to reap rich dividends -thanks to its capacity expansion, improving cost efficiency and increasing reach in high-growth markets.
The Daman-headquartered company is doubling its moulding capacity to nearly 20,000 tonne in the next few months with an investment of about Rs 30-35 crore. Prima, whose substantial part of the incremental expansion is in the overseas market, is setting up a 1,500-tonne unit in Ongole in Andhra Pradesh, 3,000-tonne unit in Cameroon (Central Africa) and a 4,000-tonne unit in South America.
Currently , the company's total capacity at its Kochi and Daman plants stands at 10,000 tonne. The full benefit of all the expansion is expected to re flect on its balance sheet only from the next fiscal. Analysts expect the company's consolidated revenues to touch Rs 200 crore by the end of FY18, from Rs 129 crore in FY16.
On the domestic front, Prima is planning to expand its reach in the northern and eastern parts of India by adding more distributors and retailers. Currently, the company has 400 distributors and 5,000 dealers across India.
The company's standalone revenue has grown by 12% annually in the past five years, and it expects to maintain its historical revenue growth. It is also bidding for the government orders under the Swachh Bharat Abhiyaan. It recently secured an order worth Rs 7 crore from Hyderabad Municipal Corporation for supply of dustbins, and hopes to win orders from other regions as well.
Also, the implementation of the GST is expected to benefit the company as 40% of the moulded furniture market, worth Rs 2,800 crore, is unorganised.The company holds a mere 6-7% market share in the organised segment where it faces competition from companies such as Wimplast, Nilkamal, and Supreme Industries.
Besides, Prima has been continuously improving its operating margins. It shut down one of its lossmaking business, has been improving its product mix and is incorporating more cost-efficient manufacturing methods. This has led to an expansion in its operating margins by nearly 500 basis points. At the Daman plant, the company has started replacing its old machineries, which will help it reduce energy costs and improve productivity .
The company's stock is trading at 10 times its projected one-year forward earnings as compared with an industry average of 16 times. The valuation for the stock appears to be reasonable owing to the company's potential earnings growth and improving return ratio.
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