I typically look at 1-2 companies every week in some detail, to figure out whether they are attractive enough for further analysis. As I have said in the past – rejection is easy for me. It takes me 10-15 min or sometimes lesser than that to reject a company.

Investing into a company is like marrying or atleast a medium term relationship for me (unlike a one night stand) and as a result all the stars have to align themselves for me to commit my money to an idea.

WIM plast is one of those companies which has passed the initial filter phase and I am doing a little more detailed work on it.

WIM plast is in the business of plastic moulded furniture (brand – cello) and into extruded cello bubble guard sheets which have multiple applications such as false ceiling, signage etc.

The company has been in this business for the last 20+ years and is part of the cello group.

The company has had an erratic performance in the past. Most of the analysis you will find on the web and in broker reports talks about the great performance since 2007. These reports breathlessly report the doubling of the sales in the last 3 years and a 60% per annum growth in profits during the same time. This is a perfectly idiotic way of analyzing a company

One has to look at a much longer time period to analyze the performance of the company. I typically look at the last 10 years of performance (nothing sacred about that). A long term performance shows how the company has done during past slowdowns and gives a much better idea of the sustainability of the current performance.

The 10 year performance of WIM plast shows a very different view. The topline -sales dropped from 80 odd crores in 2000 to around 56 Crs by 2006.  The profit also dropped during this period from 11 crs to around 2 Crs in the same period. I have not been able to find why the topline dropped over the span of 6 years. Most likely it looks like a combination of increasing competition in moulded furniture and slowing demand.

The company has since then been able to increase sales to almost 140 Crs in 2010 and had a net profit of around 16 Crs. During the current year, the company is likely to clock a topline of around 150-160 Crs and net profits of around 14-15 Crs (profits likely to stagnate due to rise in raw materials which depend on petroleum prices)

The company came up with a new product – Cello bubble guard in 2004-2005 and completed the plant by 2006. The product seems to have started selling well from 2008 onwards. Again the company does not disclose the product splits, so I am guessing that this is the reason for the growth during the 2006-2010 period.

The positives
The company managed its balance sheet well during the down years. The company has been able to keep debt low (below 0.5 times equity) and is now debt free. In addition, the company has an above average ROE of 20%+, has been able to keep inventory and debtor levels low and improve the net margin during the 2006-2010 time period

The company has had a very good dividend policy and has kept the payout high even during the down years. The company has now started increasing the payout (dividend yield is around 2.5%) as its performance has improved.

The company is also investing around 100 Crs in its baddi plant for cello bubble guard to expand capacity and thus increase the turnover (see here)

Finally the company sells at a low valuation of around 6-7 times earnings

The questions
As I said earlier – I am still in the dating phase :). I have not made up my mind. There are still a lot questions in my mind

–        Why did the performance drop from 2000-2006?
–        How is cello bubble guard doing? What is the competitive situation for the product, its margins and what are the substitutes for this product?

If you or anyone has looked at this company or used its products or know someone who uses the products (cello bubble guard), please leave me a comment or email me on rohitc99@indiatimes.com

I need to do further research on the company. The key to the success of this idea is the future performance of the cello bubble guard product. If this product does well and can get a good margin, then the net profit will increase and the stock price will improve too.

disclosure: no position in the stock as of today

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