Manjushree Technopack

Company Background

Founded in 1977 by technocrats, Manjushree started as a small umbrella manufacturing unit in Guwahati, Assam. In 1984 it forayed into manufacturing of Plastic Flexible packaging and came up with its IPO in 1995 to diversify into PET bottles manufacturing with a unit in Bangalore.

Today it has carved out its own niche in the PET bottling industry. It boasts of a marquee client list the likes of Coca Cola, Pepsico, Bisleri, P&G, GSK, Nestle, Cadbury and Unilever and has emerged as the supplier of choice. With two manufacturing units in Bangalore, installed capacity in FY10 is ~30,000 metric tonnes.

Main product lines include PET jars and bottles, PET preforms, PP and Multilayer containers.

Growth Snapshot

We can’t just look at a series of past growth rates and assume that they will predict the future – if investing were that easy, money managers would be paid much less, and this stock analysis would be much shorter. It’s critical to investigate the Sources of a company’s growth.
Variable FY06 FY07 FY08 FY09 FY10
Sales Turnover (Rs. Cr.) 65.32 79.97 85.18 118.79 160.05
Sales Growth Year on Year 25.55 4.80 43.21 41.13
3yr Average Sales Growth 24.52 29.71
3yr Sales CAGR 14.71 22.51 42.16
5yr Average Sales growth 28.67
5yr Sales CAGR 27.70
Profit After Tax (PAT) (Rs. Cr.) 1.37 2.83 4.40 7.49 10.57
Adjusted EPS 1.01 2.09 3.25 5.53 7.80
EPS Growth Year on Year 106.57 55.48 70.23 41.12
3yr Average EPS growth 77.42 55.61
3yr EPS CAGR 79.21 62.69 54.99
5yr Average EPS growth 68.35
5yr EPS CAGR 66.66

Manjushree Technopack has made steady progress over last 5 years. Sales have grown at ~25 percent CAGR while EPS on an adjusted basis has grown at over 60 percent CAGR.

Sources of Growth

1. Carbonated Soft Drinks (CSD) market is growing at over 30 percent CAGR. For Coke and Pepsi India has emerged as the fastest growing market in FY09 with both announcing huge investment plans. Coca Cola says its $250 Mn India investment plan is on track while Pepsico India had announced a Rs 1,000-crore investment for 2009.

2. Product Mix has shifted in favour of PET Pre-forms which bring in enormous efficiencies in storage and transportation (1/5x fully blown shapes) and benefit both the packaging company and the beverage manufacturer. All major beverage manufacturers have installed Pre-form blowing machines at their bottling plants.

Manjushree was early to spot this trend and has now emerged as the largest organised player in PET Pre-forms. Huge capacity expansion from ~9000 MT in FY2008 to ~21000 MT in FY09 to ~30000 MT in FY10. For a company of its size, this is pretty aggressive expansion but seems to have paid off, as it has quietly become a dominant player in its niche, becoming Coke’s largest PET supplier.

Profitability Snapshot

Profitability is the second, and in many ways, the most crucial, part of our Analysis framework. How much profit is the company generating relative to the amount of money invested in the business – the returns? This is the real key to separating a great company from average ones -the higher that return, the more attractive that business. Net profit Margins and comparing cash flow from operations to reported earnings per share are good ways to get a rough idea of the company’s profitability (because cash flow from Operations represents real profits!). But neither account for the amount of capital that’s tied up in the business, and that’s something we cant ignore. We need to know how much economic profit the company is able to generate per dollar/rupee of capital employed because it will have more excess profits to re-invest which will give it an advantage over less-efficient competitors.
Variable FY06 FY07 FY08 FY09 FY10
Operating Profit Margin 12.28 12.48 16.08 16.43 18.94
Net Profit Margin 2.44 4.02 5.97 7.09 7.09
Fixed Asset Turnover 3.10 3.43 2.33 1.82 1.62
Asset Turnover 1.71 2.29 1.10 1.19 1.07
Return on Assets 4.19 9.20 6.59 8.43 7.58
Financial Leverage 2.82 2.21 1.25 1.49 2.04
Return on Equity 11.82 20.30 8.22 12.60 15.44
Return on Capital Employed 10.89 19.79 13.11 14.51 13.60
Debtor Days 57.58 48.50 69.79 54.82 65.93
Inventory Days 58.21 45.63 80.58 76.77 64.42
Cash from Operating Activities (Rs. Cr.)
Operating Cash Flow to Sales
Capital Expenditure 5.19 14.46 31.22 43.83
Free Cash Flow
Free Cash Flow to Sales
Equity Dividend (Rs. Cr.) 0.48 0.48 0.49 1.35 1.36
Dividend per share 1.14 1.14 0.36 1.00 1.00
Adjusted DPS 0.35 0.35 0.36 1.00 1.00
Dividend Growth Year on Year 0.00 2.08 175.51 0.74
3yr DPS CAGR 1.04 67.71 66.60
5yr DPS CAGR 29.74
Dividend Payout 35.04 16.96 11.14 18.02 12.87


Over the last few years Manjushree has shown steady improvements on Net Margin front going upto over 7 percent in FY09. Operating margins have similarly climbed upto over 16 percent. These are pretty decent numbers for the highly competitive Plastics Packaging industry.

The record on Return on Equity and Return on Capital Employed at ~13 percent and 15 percent may seem nothing to write home about. But compare these over the industry and one can see these are again industry-beating returns and margins.

The company’s performance on Debtor days and Inventory days over the years has shown a gradual improvement and speaks well of management focus on operational efficiency.

Manjushree has a good track record on Dividend payment. It has been regularly paying dividends and current Dividend Payout ratio stands at ~21 percent. The company has been increasing dividends in tune with profitability and 5 year dividend CAGR is at a healthy ~35 percent.

Overall Manjushree appears to be a well-run company in a highly competitive industry.


Common size P&L Statement

Can we dig deeper to see what else we can understand about how this company makes money? A good way is to look at the common size profit and loss statement. Common size statements are great tools for evaluating companies because they put every line item in context by looking at each of them as a percentage of Sales.
Variable FY06 FY07 FY08 FY09 FY10
Common Size Sales 100.00 100.00 100.00 100.00 100.00
Common Size Raw Material 54.34 57.76 54.31 53.93 54.84
Common Size Power & Fuel 6.66 5.26 5.83 5.73 8.10
Common Size Employee Cost 3.96 4.43 6.08 5.86 5.60
Common Size COGS 77.09 77.08 72.92 72.89 76.37
Gross Profit Margin 22.91 22.92 27.08 27.11 23.63
Common Size Depreciation 6.03 3.91 4.56 4.68 6.54
Common Size Interest Cost 2.55 2.46 2.70 1.36 2.27
Common Size SG&A 11.42 9.68 13.52 11.43 11.02
Operating Profit Margin 12.28 12.48 16.08 16.43 18.94

While on most parameters there is gradual improvement, Cost of Goods Sold (COGS) shows good improvement coming down to to about 74 percent from 77 percent in FY05. Operating margins are sustaining at over 16 percent for last 2 years showing a big uptick from ~12 percent levels 3 years back.

Manjushree Technopack seems to be getting better at managing its operations as it scales up.

Financial Health Snapshot

Once we have figured out how fast (and why) a company has grown and how profitable it is, we need to look at its financial health. Even the most beautiful home needs a solid foundation, after all.
Variable FY06 FY07 FY08 FY09 FY10
Financial Leverage 2.82 2.21 1.25 1.49 2.04
Debt to Assets 0.65 0.55 0.20 0.33 0.51
Debt to Equity 1.82 1.21 0.25 0.49 1.04
Interest Coverage 2.49 3.52 4.40 8.96 5.59
Interest Cost to Total Debt 6.78 10.28 15.02 4.89 4.78
Current Ratio 4.29 1.84 5.60 4.80 3.68
Quick Ratio 2.82 1.36 4.07 2.89 2.63
Cash to Assets 1.96 8.71 13.86 0.50 5.69

In its bid for growth Manjushree seems to have used Financial Leverage judiciously to its advantage, in the last 5 years or so. From a relatively high financial leverage (Assets/Equity) of 2.79 in FY05, Manjushree has brought this down to more conservative levels of 1.49 in FY09. It is when we see financial leverage ratios of 4, 5, or more that companies start to get really risky.

Manjushree has maintained comfortable levels of Interest Coverage. FY09 figure stands at a comfortable ~9x Interest expense. In fact Interest Coverage figures have grown 3 times in the last 5 years, steadily climbing year on year from about 2.5x levels in FY05. This points to a steadily improving financial health condition. Debt to Equity at 0.49 in FY09, is also at comfortable levels after hovering on the higher side in FY05 and FY06.

Manjushree has been maintaining healthy liquidity levels more or less consistently. FY09 Current Ratio at 4.8x and Quick Ratio at ~3x, indicate that Manjushree can always raise enough cash, if it had to say, pay off its liabilities all at once. However such high levels of Current Ratio might also suggest Manjushree Management is retaining too much cash on hand and is not perhaps putting that to the best use.