Paper Products Ltd (Rs 59) (A Mnc Packaging Company)
(BSE Code- 509820, NSE Code- PAPERPROD)
(P/E - 8, Equity - Rs12.54 cr, Market Cap - Rs370 cr)
Paper Products Limited (PPL) is India’s leading manufacturer of primary consumer packaging and labeling materials. The company has a history of over seven decades in the packaging field and its product folio includes flexible packaging, labelling technologies and specialized cartons. PPL has four fully integrated manufacturing units at Thane, Silvassa, Hyderabad and Rudrapur. PPL commands a 65% market share in the high end flexible packaging in India and its clientele includes some of the heavyweights of Indian FMCG players like HLL, Colgate, Nestle etc. Exports constitute around 22% of total revenues and the company's international division services large multinationals like Nestle, Unilever, Cadbury and Colgate Palmolive across 4 continents. In 1999, the company became a subsidiary of Huhtamaki, a global leader in consumer packaging, which holds a 59% stake. Huhtamaki is headquartered in Finland and is one of the top 10 consumer packaging companies in the world
Packaging being crucial to FMCG products, innovations and improved product development are necessary. The packaging industry being highly fragmented and competitive, differentiation is the only mode of survival. PPL has over the years realized the needs of the clients and has come out with new products. Its strong in-house research and development initiatives coupled with Huhtamaki (this Finland based company is PPL’s largest shareholder as well as one of the largest consumer packaging companies globally) have enabled PPL to continue its product development program. It has come out with its innovation initiative NASP (New Application, Structure and Products). This initiative includes new applications for existing products, new products for existing applications and new products for new applications.
Going forward, the FMCG sector is set to sustain the healthy growth. The growth in the packaging industry is directly linked to the growth in the FMCG industry. Apart from this, the growth in the food processing sector will also act as a positive trigger for the packaging industry. The government is increasing its focus on the food processing sector to reduce wastage in the agricultural sector. The growth in retail is already shifting consumer habit to sophisticated and attractive packed goods and articles. PPL meets the packaging needs of almost the entire range of the FMCG segment including personal products, personal wash, laundry, foods, sauces, beverages, bakery products, spices, chocolates and confectionery and dairy; and also for seeds, specialised chemicals, electronics and many other specific uses including anti-spurious packaging.
For the nine months ended Sept. 2009, PPL reported net profit of Rs 30 cr.(up 72%) on net sales of Rs 476 cr.(down 5%). Operating (EBITDA) margins for the company increased by 2% during nine months to stand at 13.6%. The increase in margins is attributed to a more favourable product mix and better cost efficiency margins. Net profit margins improved by 3% during nine months to stand at 6.7%. For the year ended December 2008, PPL’s net sales stood at Rs 620.7 cr..(up 8.7%) and net profit at Rs 21.29 cr.(down 25% due to forex losses). The EPS on a equity of 12.54 cr. on a Rs 2 paid up share stood at Rs 3.4 and the dividend declared was 90%(Rs 1.80 per share). PPL is the largest organized player with a market share of around 65% of the consumer packaging and labeling segment. It must be noted that PPL is not easily dispensable by FMCG players, as packaging plays an important role in not only creating a consumer appeal but is also important for retaining the quality of the product. Further, the company seems to have capitalised on NASP, the innovation strategy, whereby new products contribute to around 29% of total revenues. At the current market price of Rs 59, the stock trades at 9.5 times CY 2009E earnings(Rs 6.2)and at 7.8 times CY10E earnings(Rs 7.5), which is low for an MNC associate and an industry leader set for a decent growth in future.
Going forward, PPL's entrenched position in the premium segment of the flexible packaging industry, its emphasis on innovation and product quality, and increase in focus towards smaller FMCG companies augurs well for its revenue growth. PPL’s performance depends on the growth of the FMCG sector. PPL is a derived play on the FMCG industry. Paper Products is a play on India's long-term GDP growth and the performance of the FMCG sector. Given its focus on innovations and a strong product portfolio coupled with a healthy demand for packaging by the FMCG and retail sector, the company is set for better times going forward. Investors can start accumulating the stock at current levels and add more on declines for decent returns of 40%-45% over the next 6-8 months.
(BSE Code- 509820, NSE Code- PAPERPROD)
(P/E - 8, Equity - Rs12.54 cr, Market Cap - Rs370 cr)
Paper Products Limited (PPL) is India’s leading manufacturer of primary consumer packaging and labeling materials. The company has a history of over seven decades in the packaging field and its product folio includes flexible packaging, labelling technologies and specialized cartons. PPL has four fully integrated manufacturing units at Thane, Silvassa, Hyderabad and Rudrapur. PPL commands a 65% market share in the high end flexible packaging in India and its clientele includes some of the heavyweights of Indian FMCG players like HLL, Colgate, Nestle etc. Exports constitute around 22% of total revenues and the company's international division services large multinationals like Nestle, Unilever, Cadbury and Colgate Palmolive across 4 continents. In 1999, the company became a subsidiary of Huhtamaki, a global leader in consumer packaging, which holds a 59% stake. Huhtamaki is headquartered in Finland and is one of the top 10 consumer packaging companies in the world
Packaging being crucial to FMCG products, innovations and improved product development are necessary. The packaging industry being highly fragmented and competitive, differentiation is the only mode of survival. PPL has over the years realized the needs of the clients and has come out with new products. Its strong in-house research and development initiatives coupled with Huhtamaki (this Finland based company is PPL’s largest shareholder as well as one of the largest consumer packaging companies globally) have enabled PPL to continue its product development program. It has come out with its innovation initiative NASP (New Application, Structure and Products). This initiative includes new applications for existing products, new products for existing applications and new products for new applications.
Going forward, the FMCG sector is set to sustain the healthy growth. The growth in the packaging industry is directly linked to the growth in the FMCG industry. Apart from this, the growth in the food processing sector will also act as a positive trigger for the packaging industry. The government is increasing its focus on the food processing sector to reduce wastage in the agricultural sector. The growth in retail is already shifting consumer habit to sophisticated and attractive packed goods and articles. PPL meets the packaging needs of almost the entire range of the FMCG segment including personal products, personal wash, laundry, foods, sauces, beverages, bakery products, spices, chocolates and confectionery and dairy; and also for seeds, specialised chemicals, electronics and many other specific uses including anti-spurious packaging.
For the nine months ended Sept. 2009, PPL reported net profit of Rs 30 cr.(up 72%) on net sales of Rs 476 cr.(down 5%). Operating (EBITDA) margins for the company increased by 2% during nine months to stand at 13.6%. The increase in margins is attributed to a more favourable product mix and better cost efficiency margins. Net profit margins improved by 3% during nine months to stand at 6.7%. For the year ended December 2008, PPL’s net sales stood at Rs 620.7 cr..(up 8.7%) and net profit at Rs 21.29 cr.(down 25% due to forex losses). The EPS on a equity of 12.54 cr. on a Rs 2 paid up share stood at Rs 3.4 and the dividend declared was 90%(Rs 1.80 per share). PPL is the largest organized player with a market share of around 65% of the consumer packaging and labeling segment. It must be noted that PPL is not easily dispensable by FMCG players, as packaging plays an important role in not only creating a consumer appeal but is also important for retaining the quality of the product. Further, the company seems to have capitalised on NASP, the innovation strategy, whereby new products contribute to around 29% of total revenues. At the current market price of Rs 59, the stock trades at 9.5 times CY 2009E earnings(Rs 6.2)and at 7.8 times CY10E earnings(Rs 7.5), which is low for an MNC associate and an industry leader set for a decent growth in future.
Going forward, PPL's entrenched position in the premium segment of the flexible packaging industry, its emphasis on innovation and product quality, and increase in focus towards smaller FMCG companies augurs well for its revenue growth. PPL’s performance depends on the growth of the FMCG sector. PPL is a derived play on the FMCG industry. Paper Products is a play on India's long-term GDP growth and the performance of the FMCG sector. Given its focus on innovations and a strong product portfolio coupled with a healthy demand for packaging by the FMCG and retail sector, the company is set for better times going forward. Investors can start accumulating the stock at current levels and add more on declines for decent returns of 40%-45% over the next 6-8 months.
Source: Internet (Valuenotes by Sanjay Chhabria)
