Shareholding Pattern as on 30 th June,2011

Transcription

1 PAPER PRODUCTS LTD (PPL) 9 th September, 2011 Stock details BSE Group B BSE Code CMP (Rs.) Market Capitalization (Rs. In Cr) 504 Face Value (Rs.) 2.00 Book Value (Rs.) Wk High (BSE) (3 rd August 2011) 52 Wk Low (BSE) (9 th December 2010) Shareholding Pattern as on 30 th June, % 1.73% 29.54% 63.88% Promoter FII DII Others Shareholding Pattern of More than 1 % as on 30 th June, 2011 Sl. No. Name of the Shareholder No. of Shares Shares as % of Total No. of Shares 1 India Optima Fund 751, Shree Capital Services Ltd 896, HDFC Trustee Company Ltd - 2,688, HDFC Total 4,335,

2 Company Overview: PPL was incorporated in 1950 & is India s leading manufacturer of primary consumer packaging. Since 1999, PPL is majority owned by global packaging major, Huhtamaki Oyj, Finland (one of the world s top ten consumer packaging multinationals), which holds about 60.8% of the equity capital (increased from 58.9% recently). PPL was originally founded by Sardari Lal Talwar & started as a partnership concern at Lahore (now in Pakistan) in 1935 and was shifted to Delhi in Later in 1950 it went public. In order to scale up its value chain, the company became a part of a global flexible packaging giant Huhtamaki in 1999, which acquired 51% stake in PPL & subsequently raised it to 58.9%. Recently, after Talwar group sold off its remaining 1.9% stake in PPL, Huhtamaki s stake has increased to 60.8%. The Gupta family holds 3% stake in PPL. PPL has an employee strength of ~ 1500 employees & is a pioneer and technology and market leader in flexible packaging in India with manufacturing facilities at Thane, Silvassa, Hyderabad and Rudrapur (Silvassa is the largest facility, which accounted for around 30% of PPL s total turnover in CY10). The company meets the packaging needs of almost the entire range of FMCG segments including personal products, personal wash, laundry, foods, sauces, beverages, bakery products, spices, chocolates and confectionery, dairy and also for seeds, specialized chemicals, automotive lubes, electronics, healthcare and many other specific specialized uses including anti-spurious packaging. The Package Protection and Decoration products range includes latest leading edge technologies (labelling) - shrink sleeves, wrap-rounds, heat transfers, pressure sensitive and metallised paper labels. Manufacturing of specialized cartons and cartooning systems, manufacture of poly films, specialized barrier metalizing and high-end application extrusion coating are also part of PPL s product offerings. The company s packaging machines division offers complete packaging solutions to customers. Further PPL is amongst select few companies worldwide having expertise in holographic images in packaging medium. This makes the packaging look attractive, thus enhancing the product visibility for premium positioning. Holograms are also popular as a deterrent against counterfeits for product protection. Flexible Packaging & Labelling is done at all facilities of PPL, while Cartons are produced only at Hyderabad facility & Tube Laminates are produced only at Silvassa.

3 Installed Capacity, Capacity Utilization & Production in CY 10: PPL s parent profile: Huhtamaki Oyj is a one of the top 10 consumer packaging companies in the world. Being a market leader in several product categories, the company has a turnover of Euro 2.1 bn with operations across the globe (in 31 countries). Huhtamaki has 53 manufacturing units & employs over people. The company has a large presence in Europe Its business is categorized into 5 segments viz; Flexible Packaging (Strong market position in Tube Laminates & pet food worldwide, Biscuits & Confectionery in India, Coffee in Thailand & Vietnam, Chocolate in Europe), Films (Global leader in Release films, North America (shaped containers for frozen desserts, premium branded tableware), Food Service E-A-O [Europe-Asia-Oceania] (Cups and lids to quick service, vending and catering) & Moulded Fibre (Recycled fibre packaging - egg packaging, fruit trays). Paper Cups & Containers, Flexible Packaging & Films and Moulded Fibre based products account for 85% of net sales of Huhtamaki (Flexible Packaging accounts for 27%). Top 5 customers of Huhtamaki account for 18% of sales, while top 10 contribute 26%. Top 5 customers include Costco, Kraft, McDonald s, Nestle and Unilever. Citing strong growth opportunities in the Asian markets, particularly in India, Vietnam & Thailand, the company is in the process of expanding its capacities over there in CY11. Key Clients: PPL derives almost 98% of its revenues from the FMCG industry. The company mainly caters to the premium segment of packaging and its major clients include Britannia, Cadbury, Castrol, Coca Cola, Dabur, Emami, Eveready, GSK, Godrej, Hindustan Unilever, ITC, Marico, Nestle, Pepsi, Perfetti, P&G, Tata Tea, TTK-LIG, Wipro etc. The top ten clients of PPL account for ~60% of the company s revenues. Product-wise, Laminates and Converted, Coated / Uncoated Paper and Films= category accounts for a major portion of PPL s total revenues i.e. 94.4%. Cartons contribute 5.4%, while Others category contributes a mere 0.2%. PPL derives around 85% of its revenues from the domestic market, while exports account for the balance 15%. Consolidating its position as India's most prominent packaging institution, PPL expanded its business into promising overseas markets with a view to benchmark itself with the global competition. Overseas, PPL has presence across 4 continents (Middle East, Africa, Europe & America) & provides service to over 50 customers worldwide.

4 Products: FLEXIBLE PACKAGING: PPL produces a wide range of custom designed film, foil and paper based laminate structures, printed in up to 10 colours high quality process, for primary packaging of products in solid, powder or liquid form, in consumer pack sizes. Labelling Technologies: The company provides a range of labelling options to support its clients the right package that constantly advertises their products.

5 SPECIALISED CARTONS: PPL manufactures lined cartons and systems for primary packaging of powders and solids in a variety of consumer pack sizes. PACKAGING MACHINE DIVISION: The company focuses on designing equipment solutions and material solutions both optimally suited to one another. This division plays an active role in providing systems solutions in order to reduce infrastructure costs and improve logistics.

6 HOLOGRAPHIC OPTIONS: Holograms meaning "whole images" are visual reproduction of images in 3D by providing depth to the design. Embossing of Holograms onto thermo-plastic surfaces is the preferred route for commercial production for packaging and labelling applications. Raw Material Analysis: RAW MATERIALS AND PACKING MATERIALS CONSUMED For The Year ended For The Year ended Tonnes Value Tonnes Value (Mn ) (Mn) (Mn ) (Mn) Paper Paper Board Films Inks, Adhesives and Solvents Polyethylene Granules Others * BOPP plays an important role in Flexible Packaging In 2009 the average price of BOPP Films was around Rs.125/- per kg whereas in 2010 the prices increased to Rs. 137/- per kg

7 Consumption of Polypropylene (BOPP) Films in Flexible Packaging: 3.00% 29.00% 17.00% 51.00% Packaging Electrical/Electronic Imaging Other Industrial Price Trend of BOPP Films in International Market: There has been a falling price trend of BOPP Films in global market which is a positive sign for packaging players like PPL. As the price trend of BOPP Films in India is quite similar to the international scenario BOPP Films was around Rs. 137/- kg in 2010 which has declined to Rs. 105/- kg in Q2 CY 11

8 Industry Prospects: The global Packaging Industry is worth US$ 424 billion. The domestic packaging industry is estimated at Rs 160 billion. The flexible packaging industry in India is currently estimated to be US$ 1 billion and is growing at a high growth rate of approximately 20%. The packaging sector has been growing at 20% CAGR, mainly driven by growth in the FMCG sector. The FMCG packaging demand growth can be attributed to increasing emphasis on hygiene and quality products, a sharp preference for branded commodities and shift from conventional packaging. Growth in consumption of western-style snack products, confectionery, baked goods combined with increasing hygiene consciousness amongst the population will result in even traditional food manufacturers using flexible packaging. However, the consumption per capita of packaging in India is extremely low at US$ 5 as compared to certain developed economies like Brazil, Mexico & China the per capita consumption is low. World demand for converted flexible packaging is likely to grow at more than 4% per year going forward. World s emerging markets, including Eastern Asia, Eastern Europe, Africa and Middle East will be the key drivers. It is observed that a mere 20% of the population in India consumes 80% of the packaged production whereas the remaining 80% of the population have an access to only 20% of the packaged production.

9 Growth Triggers (Investment Rationale): Market leader: PPL is a market leader in the high-end flexible packaging industry and commands a market share of around 65%. It has a strong backing from its parent Huhtamaki Innovative Player: PPL has come out with its innovation initiative NASP (New Application, Structure and Products) which had contributed to 27.2% of total 2010 sales would get added thrust in the current year and years to come. Organisational measures to further accelerate the NASP efforts are in place with the CEO directly overseeing the company s innovation programs and strategy. In the long run, moving more business to value added segments, Innovation and new products, exploring new markets are seen as critical to profitable growth. Growth Strategy: Company is planning to grow Organically as well as Inorganically Company is looking forward to focus more on techniques to expand them into innovative and value added products The Parent company has identified Rs crore business of flexible packaging globally and India has been identified a significant growth area for the company s prospects. This is important because as compared to the West, consumer packaging largely drives growth of the Indian packaging sector, where packaging for food services is at a very nascent stage. Foods sector accounts for majority of the parent's revenues. We expect this to be a long-term growth driver for PPL. Currently, a mere 2% of India s food production is being processed, and there are plans in place to increase the food processing level to 10% over a period of ten years thereby increasing the demand for packaging material manifold. With flexible and convenience packaging replacing the traditional packaging, new product development is critical to sustain growth.

10 Opportunities from Food Processing Industries: The Ministry of Food Processing Industries, Government of India has set a Vision-2015 which opens lot of opportunities for packaging industries like PPL 1. Become the Food Factory of the World 2. Triple the growth of the Food Processing Industry 3. Increase the value addition from 20% to 35%. 4. Increase contribution to world agriculture business from 1.5% to 3%. Hi-tech agriculture, horticulture, organic farming, contract farming and agri retailing are already seen to be receiving a push at various levels. Staples like wheat, maize and pulses are getting a special thrust. Capacity expansion to drive the revenues: PPL is the process of expanding its Laminates & Converted, Coated / Uncoated films & paper facilities at Rudrapur & Hyderabad. At Rudrapur, the company is likely to add one more full conversion line that includes printing, lamination, slitting & cylinder making. At its Hyderabad plant, it is in the process of adding a printer, augmenting the overall print capacity. The total CAPEX for this expansion plan is estimated to be Rs mn, which is likely to be funded through internal accruals. Both these facilities are expected to be fully operational by the end of Q3CY11. Post the ramp up, PPL s total capacity of Laminates & Converted, Coated / Uncoated films & paper is likely to increase by 5000 TPA from TPA to TPA. This would enable PPL to meet the increasing demand from the user industries & drive its revenues going forward.

11 Risks and Concerns: Inflation particularly food inflation -- touched all segments of the economy. Selectively increasing unit prices of packs, reducing pack sizes etc can work up to a point in an elastic market. Fuel inflation is worrying and industry faces higher input costs. Prices of a few other key raw materials especially dyes and pigments, crude based solvents, waxes and some speciality grades. PPL s exports currently account for 15% of its total net sales and the company has plans to strengthen its overseas presence further going forward. This exposes the company to forex fluctuations. The Rudrapur facility, which accounts for ~23% of PPL s total output, is entitled to 100% tax benefits till CY12 and thereafter, the benefit would be partially withdrawn to 30%. This is likely to increase PPL s effective tax rate from current 23.7% (in Q1CY11) to 27-28% going forward. This could put pressure on growth in PPL s net profits.

12 Quarterly Financial Performance: (Rs. mn except EPS) Particulars 3 months ended 3 months ended Q2 Q2 VAR (%) Q1 VAR CY11 CY10 CY11 (%) 1. Net Sales Income from Operations Other Operating Income Total Income Expenditure a.(increase)/decrease in stock trade & WIP b. Consumption of Raw & Packing Materials d. Employees cost e. Depreciation & Amortisation g. Other Expenditure h. Total Foreign Exchange (Loss)/Gain Profit from operations before Other Income, interest & exceptional Items Other Income Profit before Interest & Exceptional Items 6. Interest Profit after Interest but before Exceptional Items 8. Exceptional Income/(Expense) Profit from ordinary activities before Tax 10. Tax expense Net Profit from ordinary activities after Tax 12. Paid-up Equity Share Capital (Face value of 2/ each) 13. Earnings Per Share (EPS)

13 Profit & Loss A/c (Rs. mn except EPS) Particulars CY 09 CY 10 CY 11E CY 12E 1. Net Sales Income from Operations Other Operating Income Total Income Expenditure a.(increase)/decrease in stock trade & wip b. Consumption of Raw & Packing Materials d. Employees cost e. Depreciation & Amortisation g. Other Expenditure h. Total Foreign Exchange (Loss)/Gain Profit from operations before Other Income, interest & exceptional Items Other Income Profit before Interest & Exceptional Items 6. Interest Profit after Interest but before Exceptional Items 8. Exceptional Income/(Expense) Profit from ordinary activities before Tax 10. Tax Expense # # 11. Net profit from ordinary activities after Tax 12. Extraordinary Income/(Expense) Net Profit for the Period Paid-up Equity Share Capital (Face value of 2/ each) 15. Earnings Per Share (EPS) # Effective Tax rate is expected to go upto ~ 27%

14 Balance Sheet: (Rs. mn) Particulars CY 09 CY 10 CY 11E CY 12E SHAREHOLDERS FUND (a) Capital (b) Reserves and Surplus LOAN FUNDS DEFERRED TAX LIABILITY Total FIXED ASSET INVESTMENT CURRENT ASSETS, LOANS AND ADVANCES (a) Inventories (b) Sundry Debtors (c) Cash and Bank balances (d) Loans and Advances (e) Other Current Assets Sub Total Less: Current Liabilities and Provisions (a) Liabilities (b) Provisions Sub Total Net Current Assets Total

15 Financial Ratios: Ratios CY 2009 CY 2010 CY 2011E CY 2012E EPS P/E Ratio(x) Book Value Price/Book value(x) ROCE (%) ROE (%) Debt/Equity(x) Asset Turnover Ratio Current Ratio Price to Sales Ratio(x) Dividend per share(rs) Dividend payout Ratio EBITDA margin (%) EBITA margin (%) PAT margin (%) Net Sales Growth (%) Receivable Days Payable Days Debtors turnover ratio Creditors turnover ratio EV/EBITDA Market cap/sales

16 Valuation: PPL s Q2CY11 results were impressive, which was driven by increasing demand for packaging from the main user industry FMCG. This seems to be in line with our full year CY11 net sales estimates. We expect the demand for packaging to remain robust as we expect the FMCG industry to do well. At a current market price of Rs , the stock is trading at P/E of 9.88x CY11 (E) EPS of Rs & at PE of 8.12x CY12 (E) EPS of Rs In our view the stock is grossly undervalued & deserves a fair valuation of P/E 12.42x CY12 (E) EPS of Rs We recommend accumulation of the stock between Rs for a potential upside of Rs.123 within next months.

17 For Any Queries please feel free to contact our Institutional Team Names Designation Id. Contact Nagji Rita CMD - - Sales Ravinder Kasliwal Head Institutional Sales ravinder.kasliwal@inveturegrowth.com /66 Dealing Shiv Damani Institutional Dealer shiv.damani@inventuregrowth.com Vinit Rita Institutional Dealer vinit.rita@inventuregrowth.com /66 Rashda Ainapore Research Institutional Dealer rashda.ainapore@inventuregrowth.com /66 Mitesh.shah Research Analyst mitesh.shah@inventuregrowth.com * 562 Divya Kant Research Analyst divya.kant@inventuregrowth.com Akbar Shah Research Analyst akbar.shah@inventuregrowth.com Sheetal Nirmal Research Analyst sheetal.nirmal@inventuregrowth.com Sanjeev Haria Research Analyst sanjeev.haria@inventuregrowth.com Sibayan Banerjee Technical Analyst sibayan.banerjee@inventuregrowth.com Ashok Patel Technical Analyst ashok.patel@inventuregrowth.com Madhu Patel Technical Analyst madhu.patel@inventuregrowth.com Disclaimer Inventure Growth & Securities Ltd has prepared this Document. The information, analysis and estimates contained herein are based on Inventure s assessment and have been obtained from sources believed to be reliable. Neither Inventure Growth & Securities Ltd nor any of its employees or associates accepts any liability whatsoever direct or indirect that may arise from the use of information herein and shall not be responsible for its completeness and accuracy. It is not an offer to sell or a solicitation to buy securities. This document is for circulation only Visit us at Please send your Feed Back to igslresearch@inventuregrowth.com Inventure Growth & Securities Ltd Corporate Office: - Viraj Tower, 2 nd Floor, Near Landmark, Western Express Highway, Andheri East, Mumbai Tel.: , Fax: