India currently consumes 8.50 million tonnes of paper; this is expected to go up to 10 million tonnes by 2010 and 15 million tonnes by 2015, a growth driven by increased spending on education, higher literacy levels, improved standards of living, an expanding retail sector and increase in packaging and advertise-ment expenditure. Paper manufacturing is, however, a very capital-intensive business with a long gestation period. This gives the already established units an upper hand when the economy emerges from a slowdown.SIL has a capacity to manufacture 60,000 tonnes of writing & printing paper at its two facilities, Shreyans Papers and Shree Rishabh Paper. It also manufactures soda ash but has only a small capacity for this.
SIL is basically an agro-based company. Its main raw material is straw/grass. Its financial performance has been improving consistently over the past three years. In FY08, it produced a total of 61,122 tonnes of paper as against 58,954 tonnes manufactured in the preceding year. Its turnover was up 11% at Rs238.64 crore as against Rs214.33 crore during the preceding year. Better realisations in paper as well as soda ash have improved its margins and profitability. It reported a 7% rise in its operating profit during FY08. A marginal increase in depreciation and 7% saving in interest cost enabled it to record 51% increase in its profit before tax. Despite a one-time provision of Rs5.80 crore (amount paid to banks for debt restructuring), net profit was up 82%. The company has commissioned a 3.5MW co-generation plant at one of its plants last fiscal. Its earning per share for FY08 was Rs10.88 and, since it carries forward its previous losses, its tax provision is limited to only the deferred taxes that it has to pay. The result was Rs23.90 crore of cash profits translating into cash EPS (earning per share) of Rs21.60.
Now look at its recent performance. For the first nine months of the current year, its sales were up 11% compared with the corresponding year-ago period while its profit before tax shot up 41% to Rs21.32 crore. Its profit after tax was up 52% to Rs13.22 crore from Rs8.67 crore during the corresponding period last year. In fact, its nine-month profit for the current fiscal has already surpassed its full-year profit for the last year.
The company is setting up another 5MW co-generation power plant (estimated cost: Rs25 crore) at its second factory. This plant, likely to be commissioned by April 2009, is expected to bring about significant energy savings. Its power plant is also entitled to carbon credits. It has recently issued 6.90 lakh warrants to promoters and 20.60 lakh warrants to non-promoters which will be converted into equity shares @ Rs32.50 in FY10.
What can you expect from this company? For FY09, Shreyans is likely to achieve a turnover of Rs270 crore and earn a net profit of Rs18.50 crore translating into an EPS of Rs16.70. The June quarter is expected to be even better as it would save on its power costs significantly when its second co-generation plant gets commissioned and the resultant carbon credits that it would begin to earn by then.
Market Cap 35.38
EPS (TTM) 16.36
P/E 1.95
P/C 1.42
* Book Value 42.47
Price/Book 0.75
Div(%) 0.00 Div Yield(%) -
Market Lot 1.00
Face Value 10.00
Industry P/E 6.28
According to our estimates, the company could register a 20% growth in profit in FY10. Currently trading at Rs18, the stock is priced at just 1.50 times its FY09(E) EPS making it extremely attractive even under the present market conditions. Its market-cap currently stands at Rs20.04 crore – a level which is less than its annual cash profit! This means that the stock is currently trading at less than one time its FY09 cash EPS. An excellent low-priced stock to buy for decent appreciation in the medium term.
Source: MoneyLife
