Why Polyplex Corporation Share Price is Falling

Editor's note: Shares of Polyplex Corporation have continued their downtrend, falling 11% in the past one month.

When a stock's performance is not up to expectations, investors tend to sell their stake in the company.

The underperformance can be because or various reasons including disappointing results, etc. In case of Polyplex, it appears the stock is facing multiple headwinds at the moment.

In October 2022, we wrote about why Polyplex shares were facing the heat and what lies ahead for the company.

Continue reading...

Why Polyplex Share Price is Falling

Once a tiny smallcap company, Polyplex Corporation has transformed itself into an industry leader over the past five years.

Polyplex is an Indian multinational company which manufactures polyester films for packaging, electrical and other industrial applications.

The company began with a single polyethylene terephthalate (PET) thin film line of 4,000 tons a year. It now has the seventh-largest manufacturing capacity in the world.

The company was on an expansion mode for the past three years, and sure enough, the market rewarded shareholders with multibagger gains.

However, the situation is different now and the company's stock price has come under pressure in recent months.

In the past one month, the stock has fallen 13%. Its 6-month performance also shows a 24% decline.

That brings us to the question - Is Polyplex's dream run over? Why has the share price come under pressure of late?

Let's find out...

Why is Polyplex Corporation share price falling?

The latest shareholding pattern of Polyplex Corporation reveals that mutual funds have turned bearish on the company.

They have sold stake in Polyplex for the past eight consecutive quarters.

Mutual Fund on a Selling Spree

Quarter Ending	20-Sep	20-Dec	21-Mar	21-Jun	21-Sep	21-Dec	22-Mar	22-Jun
Mutual Fund Holding (%)	4.59	4.47	4.31	4.25	3.78	3.27	3.09	2.24

Source: Equitymaster

We don't know why mutual funds have sold their holdings in small chunk over a long period. But a possible factor could be its near-term expectations already priced in.

Polyplex Corporation operates in a cyclical industry. It manufactures polyester films and the group's business is also diversified in terms of manufacturing capacities. For cyclical companies, their growth and operations are linked to economic growth.

At present, Polyplex Corporation's revenues are near its peak. The company reported its highest ever revenues in financial year 2021-22.

Financial Snapshot of Polyplex

Rs m, consolidated	FY18	FY19	FY20	FY21	FY22
Revenues	35,723	45,699	44,871	49,183	66,244
Growth (%)	12%	28%	-2%	10%	35%
Operating Profit	5,383	8,949	8,421	12,759	14,359
OPM (%)	15%	20%	19%	26%	22%
Net Profit	1,595	3,300	2,820	5,118.07	5,688
NPM (%)	4%	7%	6%	10%	9%
Total debt	8,627	7,857	7,580	6,907	9,396
Debt to Equity (x)	0.34	0.28	0.25	0.23	0.28

Data Source: Ace Equity

As can be seen from the table above, the company's operating margins were already at a high in 2021 and the company reported double digit numbers this year too.

Owing to high raw material prices, companies have been facing pressure in their operating margins in the first two quarters of financial year 2022-23. For Polyplex Corporation, raw materials costs account for about 67% of the total expenditure.

The company will need some trigger for the next cycle to kick in. So this could be one reason why the stock is under pressure.

Even on the quarterly results comparison, the company delivered one of the best every quarters in June 2022.

Quarterly Performance of Polyplex

Rs m, consolidated	Jun-21	Sep-21	Dec-21	Mar-22	Jun-22
Revenues	14,399	15,476	17,510	18,859	20,326
Operating Profit	2,814	2,766	4,377	4,402	4,347
OPM (%)	20%	18%	25%	23%	21%
Net Profit	1,115	960	1,755	1,858	1,871
NPM (%)	8%	6%	10%	10%	9%

Data Source: Ace Equity

One more possible reason why the stock has come under pressure could be its global presence.

The company derives a large chunk of its revenue from US, Thailand, and Europe. The ongoing geopolitical tensions may raise concerns on the company's sales for this year.

Region-wise Breakup of Sales

Some positives...

While mutual funds have been on a selling spree, foreign investors (FIIs) have found a liking for Polyplex Corp. They have consecutively increased stake in the past 4 quarters.

FIIs on a Buying Spree

Quarter Ending	20-Sep	20-Dec	21-Mar	21-Jun	21-Sep	21-Dec	22-Mar	22-Jun
FII Holding (%)	7.08	7.51	8.38	7.71	8.64	9.29	10.23	12.78

Source: Equitymaster

Another positive aspect for Polyplex is it's a fundamentally strong company. The company has a low debt to equity ratio of 0.28 as of 2022. It has registered double digit return ratios since 2017.

Adding to that is its track record for paying consistent dividends. It's one of the companies with over 7% in dividend yields.

For 2022, the company made a payout of Rs 104 per share in dividends. It has a good track record of paying dividends at a growth rate.

How the stock has performed in 2022

So far in 2022, the stock has a muted performance to show, having gained just 1%.

In the past one month, the stock has fallen 13%. Its 6-month performance also shows a 24% decline.

Polyplex Corp has a 52-week high quote of Rs 2,870 touched on 11 April 2022 and a 52-week low quote of Rs 1,636 touched on 25 October 2021.

Take a look at the table below which shows the comparative analysis of Polyplex Corp.

Comparative Analysis

Company	Polyplex	Supreme Ind	Jindal Poly	Finolex Ind	Astral
ROE (%)	30.3	21.8	27	29.8	30.3
ROCE (%)	29.1	29.4	38.9	37.1	29.1
Latest EPS (Rs)	205.3	79.7	292.2	16.2	24.8
TTM PE (x)	9.2	26.0	3.1	8.9	90.7
TTM Price to book (x)	1.6	6.6	1.0	2.2	18.6
Dividend yield (%)	5.5	1.2	0.6	2.8	0.1
Industry PE (x)	20.8
Industry PB (x)	3.6

Data Source: Equitymaster, Ace Equity

For more details, check out Polyplex Corp's financial factsheet and its latest quarterly results.

You can also compare Polyplex with its peers using our comparison tool.

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Polyplex Corp vs Astral

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...