Hindustan Adhesives Ltd: – Zorba Wealth

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Mis-priced bet with growth visibility?

Company Brief

  • Established by Mr. Madhusudan Bagla, a first generation entrepreneur, pioneered self-adhesive water based Carton Sealing Tape manufacturing in India when he set up Hindustan Adhesives Limited in 1988. Currently his son, Nakul Bagla(CFO) is the driving force behind the company.

  • Company operate 3 plants in UP, Uttarakhand and Gujarat respectively and employs around 300 employees
  • Promoter & family owns around 70% stake in the company
  • Company is manufacturer of Acrylic Packaging Tapes which is suitable for all type of Carton Sealing applications. Product range includes various tapes like heavy duty tape, tear tape, low noise tape, printed tape, coloured tapes, jumbo tapes, freezer tapes etc.
    It also manufactures Polyolefin Shrink Film which is fully recyclable way of packing FMCG goods
  • It is catering big brands like Unilever, PepsiCo, Coca Cola, P&G, Reckitt Benckiser, Cadbury, Nestle, ITC, Amway, Colgate, Dabur etc. since a decade
    Co. has over 500 total customers

Industry Analysis

  • BOPP Tape market size in India is estimated around Rs.100 crore/Month. This market is divided primarily into two parts – Organized sector and unorganized sector.
  • The organized sector contributes around 40% of the demand while the remaining demand is fulfilled by Un-organized sector.

Growth Visibility

  • Company operated via 2 legacy manufacturing units in U.P and Uttarakhand each with combined capacity of 62 Million square meter and catered to domestic market
  • In 2017 co. planned on expanding its adhesive tapes manufacturing capacity substantially by adding 216 Million square meter plant, taking total capacity to 278 Million square meter at total cost of 35 Crores, increasing the capacity by 4x
  • By April’18 the new plant(imported from Italy) was commissioned near Special Economic Zone (SEZ), Mundra (Gujarat). It is an Export Oriented Unit (EOU) and management aims to cater the export market via it
  • The plant was setup near port to mainly cater export markets as there was demand visibility and higher volume offtake in export business compared to smaller order size in domestic markets which it caters through older plants
  • Mundra plant is also vertically integrated as it manufactures Adhesive solution which gives stickiness to the tapes and corrugated boxes wherein the finished products are packed and shipped. The older plants were not vertically integrated
  • Co. also setup one marketing unit in the US with branches in various parts of Europe under the name Bagla Films LLC for catering to foreign units of its Indian customers and subsequently new clients in foreign geographies
  • Co’s Realizations are around Rs.13-14/ square meter. At optimum utilizations (85%), Co. has potential to achieve top-line of around 300 Crore of topline without incremental investment vs the FY19 Sales of 140 Crores  & 75 Crores in FY18. So topline can still double from current trajectory without incremental capital spending


  • Annual revenue was around 75 Crores until FY18 which was constituted- 50 Cr sales of adhesive tapes and 25 Crores sales from POF shrink films
  • FY19 Could see clear growth in numbers wherein the top-line increased to 140 Crores due to commencement of the Mundra plant.
  • FY19 export sales stand at 77 crores vs 10 crores in FY18. Exports also fetch export incentive of around 3 crores in FY19
  • Currently debt stands at 53 Crores. The overall gearing remained stable to 1.29x as on March 31, 2019 as compared with 1.30x as on March 31, 2018
  • The operating cycle of the company improved to 59 days in FY19 vs 100 days.
    The improvement in operating cycle is on account of improvement in collection period to 50 days in FY19 from 72 days in FY18 due to increase in export revenue. The improved collection period and more export demand led to improved inventory holding period to 58 days in FY19 as exports require lower working capital. Trend in working capital is expected to continue as Mundra plant is ramped up
  • Despite almost double top-line YoY, the OPM largely suffered mainly due to commencement of new plant at Mundra, Gujarat and FY19 being the first year of operations.
  • Volatility in EBITDA % suggests that company’s margins depends on the volatility in the RM prices- crude derived which needs to be monitored and also change in realization if any.
  • Cumulatively past 10 year PAT is 23 Crore vs cumulative cashflows of 65 Crores which signifies that the reported profits is converted into cash and working capital is extremely well managed despite being in a commodity business.
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  • Co. operates under single brand- Bagla group wherein they also operate their private entity- Bagla Polifilms Ltd(FY17 sales of 48 Cr and PAT of 2 Cr) which is involved in POFF Shrink film manufacturing.
    However, their product profile is different from Hindustan Adhesives Ltd because proportion of POFF shrink film to Hindustan Adhesive’s top-line is around 18% in FY19. Hence, apparently no direct conflict of interest.
  • Raw-material susceptibility: As the core raw material are crude derive, any fluctuations in the crude affects the realizations of the co and impacts the profitability and EBITDA %.
  • Lower OPM: Despite Mundra plant being highly sophisticated in technology and imported plant from Europe, the margins have dropped in FY19. Ideally OPM is expected to improve due to economies of scale. Any increase in margins would be a key monitorable and trigger for rerating.


  • Currently the stock is trading at lucrative forward valuations of roughly 3x EV/EBITDA, assuming 30 Cr EBITDA at optimum utilisation
  • If co. successfully ramps up the production from Mundra plant at optimum utilization, it could generate EBITDA of 30 Crores (300 Crores Topline * 10% OPM) whereas current market-cap is only 35 Crores
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Financial Statement

Source –

New Plant Pictures

Sources: AGM, Website, Credit Reports.

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Aashav Patel

Aashav Patel

Aashav is an Equity market enthusiast who strives to learn daily.
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