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SPEL: A small cap packing a heavy punch

Name: Synthetic Products Enterprises Ltd (SPEL)

Market Capitalization: PKR 3.84 Billion

Price: PKR 43.45 (July 7, 2020)

52 Week Range: 13.70 - 53.88

P/E: 13.45

Div. Yield: 1.4%




Company Profile


SPEL is one of the leading manufacturers of technology intensive engineering and plastic products in Pakistan. SPEL is a manufacturing company and has B2B (Business to Business) relations with most of its customers. It is principally engaged in the manufacturing and sale of plastic parts for the automotive industry, plastic packaging for Food & FMCG industry, and moulds & dies.


Strengths

  • Cost-plus pricing with most customers: ability to pass on fluctuations in raw material pricing and currency to customers as per agreed timelines (Note: This has yet to be reflected in 2019 Financials as revenues increases YoY however margins/income declined

  • Expansion in DG Khan through construction of a new manufacturing facility. Additionally, the company is looking for expansion in Karachi to support JIT deliveries to customers. As long as production capacity is maximized, this expansion should assist with greater fixed cost absorption and increasing margins over time.

  • As of fall 2019, company had a Market Capitalization of PKR 1.4 Billion vs Book Value of PKR 2.5 Billion

  • Strategic (sometimes sole) supplier to blue chip clients

  • Diversified client base across FMCG industry & Auto manufacturers

  • Leading manufacturer in plastic packaging & auto parts (for Big 3)


Risks

  • Auto manufacturing sector has been hard hit in current recession. Low demand for auto parts will result in further margin deterioration. Capital expenditures associated with bringing on new capacity will pressure financials

  • Increasing competition in packaging business will pressure revenues

  • Performance of company is highly co-related to performance of manufacturing sector in Pakistan and overall economy.

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