DARK HORSE

ESTER INDUSTRIES LTD (UPDATE)

27 AUG 2019
LEAD RATIONALE
Stock Data
CMP 34 Stellar Q1, driven by Speciality polymer & Film Business
Multibagger In the Speciality polymer side, Ester witnessed remarkable
M.Cap (` in cr) 283.56 Revenue growth of 101%, while EBIT grew exceptionally
Equity ( ` in cr) 41.70
well at 472%. This segment delivered majority of Revenue
& profitability. Attributable to this growth is the MB-03
52 wk H/L ` 47.80/22.65
(stain resistance master batch) that performed well and is get-
Face Value ` 5.00 ting positive response from customers. Sales of MB – 03 are ex-
Div. Yield 1.62 pected to be in the range of 1200 MT to 1400 MT during FY
NSE Code ESTER 2019-20 and 1600 MT to 2200 MT during FY 2020-21 in
BSE Code 500136
comparison to 437 MT during FY 2018-19.
For the remaining products too, a steady demand is seen.
Thereby, on back of visible demand, volumes are expected to
Valuation Data
grow ahead.
P/E 5.95
Polyester Films business too delivered good set of numbers.
P/BV 0.84
Revenue growth of 28% was driven by volumes and reali-
sation improvement, while EBIT grew 88% during Q1FY20.
Financial Data Manufactures and markets polyester films under the brand
EV 513.37 “UmaPET, Ester has Manufacturing capacity at 57,000 MTPA
Net Worth 338.14 for polyester films & 13,200 MTPA for metalized polyester
BV 40.54 films. Additional industry capacities coming on-stream ex-
pected to put some pressure on margins. Though, ester has
EPS(TTM) 5.71
been making efforts to improve the product mix by increasing
` In crores except EPS the share of high margin products, to help maintain realisa-
Index Detail tions.
Sensex 37641.27 This business is expected to perform well in medium to long
Nifty 11105.35 term. However, in short term volatility may persist due to
start up of 2 Film production lines during this fiscal.
Index -

Polyester
Specialty
Films
Polymers
` in Cr
` in Cr

www.rudrashares.com 1
 DARK HORSE

ESTER INDUSTRIES LTD (UPDATE)

Growth momentum to  Signed ‘Manufacture and Supply Agreement’ with a global

chemical leader for Manufacturing innovative Polybutylene
continue in FY20 as
Terephthalate (PBT). This being effective 1st April 19
well
wherein, agreement is renewable by mutual consent after two
years. Thought the agreement currently stands for nominal
quantity, but there is possibility of substantial upside. The In-
novative PBT find application across varied Industries and
products - automotive to consumer products, and from elec-
tronics to fibers.
 Cationic Dyeable Master Batch (MB-06) is approaching
final stages of product development phase. Good demand is ex-
pected for this product in the coming years.
 Deep Dyeable Master Batch (MB-07) has cleared qualifi-
cation steps at various customers in USA, EU, China and Ko-
rea. Commercial sales have begun albeit with very small vol-
umes at present. However, these are expected to gain traction
in coming years.

Remarkable Quarter show Revenue from operations jump 25%. Favorable operat-
ing environment for films helped in continued progressive per-
Q1 FY19
formance. Encouraging order flow for specialty polymer too
drives growth.

` in Cr
EBITDA recorded at 2x to Rs. 54 cr. Volume growth and
improved margin in Film on account of favorable market con-
Particulars Q1FY20 Q1FY19 ditions, improved performance in Specialty Polymers both in
volume & value terms resulted in improved operating profit
Revenue 284 227
metric
EBITDA 54 27 PAT growth ~3.25x to Rs. 24 cr. Improved operating per-
PAT 24 7 formance combined with debt rationalisation lead to strong
PAT growth.

www.rudrashares.com 2
 DARK HORSE

ESTER INDUSTRIES LTD (UPDATE)

Revenues & EBIT from different segments

REVENUES EBIT
Particulars Strong performance
Q1 FY20 Q1 FY19 % Q1 FY20 Q1 FY19 % in Speciality polymer
business, the highest
revenue & profit
Polyester Films 226.29 176.79 28 49.69 26.45 88 growth in overall.
Engineering plastics
witness margin pres-
Speciality Polymers 15.65 7.79 101 6.00 1.05 472
sure amid challeng-
ing business environ-
Engineering Plas- ment.
42.14 42.16 (0.10) 1.18 2.71 (56.30)
tics

Ester has been significantly working to reduce the repayment

Repayment obligation to obligation. For FY19, the repayment obligation for the com-
reduce less than ` 23cr , pany stood at ` 44 crores. Thus, with less planned capex for
bodes well for the com- the years ahead & remarkable performance from its business
pany segments, combined with efforts to reduce the cost, ester re-
payment obligation to reduce significantly to less than ` 23
cr per annum from FY 2019-20 onwards.
Key points on debt reduction
Repayment Schedule Having an outstanding interest bearing external term debt of `
73 cr as on 30th June 2019 including ` 3 cr disbursed out of a
FY20 `16cr (from July 2019 fresh sanctioned TL of ` 16 cr., balance ` 13 cr will be dis-
to March 2020) bursed by 31st March 2020.
FY21 `23cr Interest bearing working capital liabilities stood at ` 129 cr as
FY22 `21cr at 30th June 2019 as compared to ` 166 crores as at 31st
FY23 `21cr March 2019.
FY24 ` 4cr Interest bearing debt as multiple of annualized EBITDA at
FY25 ` 1cr healthy level of 0.95 as at 30th June 2019 as compared to 2.13
as on March 2019.
Total Outside Liabilities (TOL) : Tangible Net Worth (TNW) ra-
tio stood at 0.93 as at 30th June 2019 as compared to 1.05 as at
31st March 2019. TOL : TNW ratio to remain at prudent levels
going forward.
www.rudrashares.com 3
 DARK HORSE

ESTER INDUSTRIES LTD (UPDATE)

PATENT STATUS

Product Code Product description Status Product approval Application

Granted in USA and
Hot Fill PET by normal
ESTER HR-03 filed in Approved Packaging
ISBM
India, Europe
Granted in USA and
Masterbatch Sulfonated Stain Resistance in
ESPET MB-03 filed in Approved
PET Nylon Carpet
India, Europe, Korea
Granted in USA & EU Monolayer and Multi-
ESPBN Clear PBN Under Trials
and filed in India layer Containers
Granted in USA and
Monolayer contain-
ESPET HR-01 B3 Beer Keg PET filed in Under Trials
ers/Kegs
India, EU
Extrusion and ther-
ESPET MW‐01 Microwaveble PET Filed in India Under Trials
moforming
Flame retardant mas-
ter batch for PET
ESPET FR-10 Flame Retardent PET Filed in India Approved Polyester in textile
(PFY/PSF) & Film
application
ESPET MB-06 Filed in India, USA, MB-06 R3 - Under
R4 & Easy Dyeable & Cationic European Union, Trial Deep and Dark dye-
ESPET MB-07 Masterbatch China, Korea & Thai- MB-07 R7 - Ap- ablity in Textile
R8 land proved

Source: Company’s PPT

In the speciality polymer- Master batch for a Cationic Dyeable Yarn and Deep Dyeable
Yarn- Patent application filed in US, European Union, Korea, Thailand and China for a
Master Batch to produce specialized polyester yarn. Gaining strong potential in China
and Taiwan

www.rudrashares.com 4
 DARK HORSE

ESTER INDUSTRIES LTD (UPDATE)

COMPANY OVERVIEW
Incorporated in 1985, Ester Industries Limited (EIL) is engaged in the manufacture of
polyester films, specialty polymers, engineering plastics and polyester chips with manu-
facturing facilities located in Khatima (Uttarakhand). A globally recognized player Ester
manufactures and markets its polyester films under the brand ‘UmaPET’ and engineering
plastics as ‘Estoplast’. The Specialty Polymers business is driven by technology and inno-
vation and the Company presently has many patent applications pending for this busi-
ness. With state-of-the-art manufacturing plant, skillfully managed operations and a com-
mitted work force Ester continuously strives to meet commitments towards total cus-

VALUATION CONCLUSION

Ester has delivered remarkable Quarter with revenue growth of 25%, EBITDA growth at
around 2x and PAT growth at 3.25x. MB-03, being the much contributed product in the
speciality business, is expected to further gain traction with sales approx. to be in the
range of 1200 MT to 1400 MT during FY 2019-20 and 1600 MT to 2200 MT during FY
2020-21. Thereby, owing to increase in demand, the volumes in the business are
expected to surge ahead. Having a Product portfolio of 19 products in its basket, which
are at various stages of development. Amongst which patents have been filed in respect
of 7. Being High entry barriers protected by Intellectual Property rights, ester could en-
joy less competition.
Also, management is striving efforts towards the debt repayment obligation. As the re-
payment schedule is lined up from this year, this is expected to reduce significantly to
less than ` 23 cr per annum from FY 2019-20 onwards.
Moreover, has started a project for Automation of Business Processes which would im-
proved efficiency and cost reduction by ` 4 – 6 crores per annum.
Thus, we suggest “add more” to the stock at current levels for 2-3 years tenure.

www.rudrashares.com 5
 DARK HORSE

ESTER INDUSTRIES LTD (UPDATE)

Disclosures :

Business Activity :
Rudra Shares & Stock Brokers Limited is engaged in the business of providing broking services & distribu-
tion of various financial products. RUDRA is also registered as a Research Analyst under SEBI(Research
Analyst) Regulations, 2014. SEBI Reg. No. INH100002524.

Disciplinary History :
There has been no instance of any Disciplinary action, penalty etc. levied/passed by any regula-
tion/administrative agencies against RUDRA and its Directo` Pursuant to SEBI inspection of books and re-
cords of Rudra, as a Stock Broker, SEBI has not issued any Administrative warning to Rudra.

Terms & Conditions of issuance of Research Report:

The Research report is issued to the registered clients. The Research Report is based on the facts, figures
and information that are considered true, correct and reliable. The information is obtained from publicly
available media or other sources believed to be reliable. The report is prepared solely for informational pur-
pose and does not constitute an offer document or solicitation to buy or sell or subscribe for securities or
other financial instruments for clients.

Disclosures with regard to ownership and material conflicts of interest :

Rudra or its research analysts, or his/her relative or associate has any direct or
Indirect financial interest in the subject company. NO
Rudra or its research analysts, or his/her relative or associate has any other
material conflict of interest at time of publication of the research report. NO
Rudra or its research analysts, or his/her relative or associates have actual
ownership of one per cent or more securities of the subject company. NO

Disclosures with regard to receipt of compensation :

Rudra or its associates have received any compensation from the subject
company in the past twelve months. NO
Rudra or its associates have managed or co-managed public offering of
securities for the subject in the past twelve months. NO
Rudra or its associates have received any compensation or other benefits
from the subject company or third party in connection with the
research report . NO

www.rudrashares.com 6
 DARK HORSE

ESTER INDUSTRIES LTD (UPDATE)

Other Disclosures:
The research analyst has served as an officer,director,employee of the
subject company. NO
Rudra or its research analyst has been engaged in market making activity
for the subject company. NO
Rudra or its or associates have received any compensation from the
subject company in the past twelve months. NO

Disclaimers:

This Research Report (hereinafter called report) has been prepared and presented by RUDRA SHARES & STOCK
BROKERS LIMITED, which does not constitute any offer or advice to sell or does solicitation to buy any securities.
The information presented in this report, are for the intended recipients only. Further, the intended recipients are ad-
vised to exercise restraint in placing any dependence on this report, as the sender, Rudra Shares & Stock Brokers
Limited, neither guarantees the accuracy of any information contained herein nor assumes any responsibility in rela-
tion to losses arising from the errors of fact, opinion or the dependence placed on the same.
Despite the information in this document has been previewed on the basis of publicly available information, internal
data , personal views of the research analyst(s)and other reliable sources, believed to be true, we do not represent it as
accurate, complete or exhaustive. It should not be relied on as such, as this document is for general guidance only.
Besides this, the research analyst(s) are bound by stringent internal regulations and legal and statutory requirements
of the Securities and Exchange Board of India( SEBI) and the analysts' compensation was, is, or will be not directly
or indirectly related with the other companies and/or entities of Rudra Shares & Stock Brokers Ltd and have no bear-
ing whatsoever on any recommendation, that they have given in the research report. Rudra Shares & Stock Brokers
Ltd or any of its affiliates/group companies shall not be in any way responsible for any such loss or damage that may
arise to any person from any inadvertent error in the information contained in this report. Rudra Shares & Stock Bro-
kers Ltd has not independently verified all the information, which has been obtained by the company for analysis
purpose, from publicly available media or other sources believed to be reliable. Accordingly, we neither testify nor
make any representation or warranty, express or implied, of the accuracy, contents or data contained within this
document. Rudra Share & Stock Brokers Ltd and its affiliates are engaged in investment advisory, stock broking,
retail & HNI and other financial services. Details of affiliates are available on our website i.e. www.rudrashares.com.
We hereby declare, that the information herein may change any time due to the volatile market conditions, therefore,
it is advised to use own discretion and judgment while entering into any transactions, whatsoever.
Individuals employed as research analyst by Rudra Shares & Stock Brokers Ltd or their associates are not allowed to
deal or trade in securities, within thirty days before and five days after the publication of a research report as pre-
scribed under SEBI Research Analyst Regulations.
Subject to the restrictions mentioned in above paragraph, we and our affiliates, officers, directors, employees and
their relative may: (a) from time to time, have long or short positions acting as a principal in, and buy or sell the secu-
rities or derivatives thereof, of Company mentioned herein or (b) be engaged in any other transaction involving such
securities and earn brokerage or profits.

www.rudrashares.com 7