Uflex outlines Rs1,700cr investment in UP towards capacity expansion and in-house power generation

The company will use Rs500cr for enhancing capacity and Rs1,200cr for solar power generation

Feb 20, 2018 10:02 IST India Infoline News Service

Uflex Limited (Uflex), India’s largest flexible packaging materials company announced investment to the tune of Rs1,700cr in Uttar Pradesh (UP). The investment will be made for two purposes – (i) for enhancing flexible packaging capacity and (ii) for setting up solar power project for in-house power generation.

The investment towards manufacturing capacity enhancement will be for procuring machinery and capital equipment such as flexo printing machines, different types of lamination machines, inspection machines, rewinding machines and utilities such as boilers, heating systems, chillers, generators, etc. The total capital commitment for this project will be Rs500cr in a phased manner, on 75 acres of land and will employ 500 people.

Secondly, the company plans to invest Rs1,200cr on a solar project for captive power consumption. This is expected to result in power cost savings. The project will be on 300 acres of land and will employ 250 people.

Our Take

As on September 30, 2017, Uflex had consolidated D/E ratio of 0.45x and cash and liquid investments of Rs325cr on its books. Hence, it is clear that the current capex of Rs1,700cr would require the company to raise some debt. Given the comfortable D/E position, this should not be difficult. Setting up of solar power project will help reduce power and fuel costs for the company, which were 4.9% of consolidated revenues in Q3FY18. Hence, we view the investment announcement positively.

Uflex is involved in manufacturing of end-to-end flexible packaging solutions. The company has a capacity of 3,37,000TPA and 1,00,000TPA for packaging films and packaging products respectively. The products of the company are BOPET films, BOPP films, CPP films, flexible packages, holograms, etc. Domestic plants are located in Noida, Jammu and Sanand, while overseas plants are located in Egypt, Poland, USA and Mexico.

Q3FY18 results of Uflex showed some effect of high input costs, leading to 242bps yoy drop in EBITDA margins. Volume growth was healthy at 18.5% yoy for packaging segment and 11% yoy for polymeric films segment. Interest (up 20% yoy) and depreciation (up 16% yoy) expenses were elevated due to costs related to commissioning of aseptic liquid packaging material manufacturing plant at Sanand (Gujarat). This plant has annual production capacity of 7bn packs / cartons. Uflex expects to reach 60% capacity utilization in Sanand in FY19 and 80% in subsequent years, post which it may go in for further capacity expansion.

Uflex Ltd is currently trading at Rs374 down by Rs0.65 or 0.17% from its previous closing of Rs374.65 on the BSE.

The scrip opened at Rs375.75 and has touched a high and low of Rs376.65 and Rs370 respectively. So far 72,996(NSE+BSE) shares were traded on the counter. The current market cap of the company is Rs2,705.35cr.

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