Since my last post on Max Ventures & Industries Limited (MVIL), there has been a major development in the company. Also, the market cap of the company has risen from Rs. 379 Cr. to Rs. 662 Cr. In fact it went as high as Rs. 824 Cr. in the interim. So much so for the feel good factor. Lets move ahead.
They have got in a very capable joint venture partner in Toppan. Investment in MVIL by Toppan as compared to its enormous size is like a drop in the pond but given that they have chosen MVIL as a partner as opposed to any other Indian company (there are bigger players than MVIL in the market), says a lot about the man at helm, Mr. Analjit Singh. Why I like the deal. The dilution took place at a price much higher than the prevailing market price, thereby reducing the impact of dilution (in my view). Though most interesting part is that Toppan would act as a customer for MVIL. With Toppan now having a substantial stake in the speciality films business of MVIL, they have every reason to make sure that MVIL succeeds. Power of incentives at play. Thirdly, which is directly linked to the second point, MVIL speciality films business is under expansion which will lead to an increase in production capacity by about 60% in the next two years. Of course, if no one else will, Toppan is ready to buy it all from MVIL (what MVIL produces is a raw material for Toppan). I agree, that is an extreme case. I am sure MVIL will add other customers as well, both domestic and otherwise. There is a big per capita packaging material consumption gap between India and other developed countries as on date. This gap has to be filled in the next decade or so.
Considering the peak annual sales of Rs. 772 Cr., post expansion the expected sales would be around Rs. 1,235 Cr. Further, given that I expect net profit margins of around 5% (given that the management expects EBITDA margins to be around 12-13%) after full capacity post this expansion is in use, I arrive at an expected profit of Rs. 62 Cr. Considering a PE of 15, I expect the market capitalization to be around Rs. 930 Cr. in the next two years. That is about 18.50% CAGR in two years. I have not yet considered how other businesses would shape up during this time.
Some would argue that the computation seems to be too simplistic. Sure. It is. Sorry to disappoint 😉
Fundamental concern with MVIL is is the “key man risk”. Some things will always remain an unknown. Adequate diversification can guard against that.