An Excellent Pick.
ABC Papers Ltd. (Rs. 77/-):
Rationale for Recommendation: This low profile scrip is being recommended as it is one of the most cost efficient producer of paper in India. ABC has reported good nos. even when paper industry was not doing so well. Most notable is consistency in its performance:
2007 – 082006 - 07
Sales185.70167.44
PAT12.2811.51
Now, Company is poised for a sharp jump in its operations due to installation of Chemical Recovery Plant, Cogen Power Plant and doubling of paper capacity. Hence, the recommendation.
Paper Industry/Co. Background:
The global paper market is dominated by North America, Europe and Asia.. Asia's principal markets are China, Japan, India, Malaysia, Singapore and Thailand. Broadly, the industry is classified into two segments - paper and paperboard (writing & printing, tissue/specialty and packaging) and newsprint. The writing & printing paper market is further divided into coated and uncoated segments, each with their own market characteristics. ABC Paper operates for the present only in the writing & printing paper segment with installed capacity of 50,000 TPA. ABC uses agro waste/straw etc. as Raw Material.
Financial Performance: Rs. In Crs.
QUARTER ENDED YEAR ENDED
30.06.200930. 06.200831. 03. 2009
Net Sales50.0046.00197.00
PBT8.792.8221.00
PAT7.31 2.0513.76
Equity8.738.738.73
EPS Rs. 8.372.3515.76
Reserves 46.99
Cash EPS Rs. 31.45
Promoter Stake74.54% 74.54%
ABC Paper is perhaps the most consistent/steady performer in entire paper industry, despite being a small player. Its PAT has been 11.51 cr.., 12.28 cr. and 13.76 crs. for last 3 years. For Year Ended 31st March 2009, Company has reported EPS of Rs. 15.76. Cash EPS is much higher at 31.45. Stock is trading at 4.48 x FY09 EPS and only 2.22 x FY09 Cash EPS. Company has declared 25% dividend and CMP is cum-dividend.
Future Prospects: Rs. In Crs.
ABC has reported fabulous results for Quarter Ended June '09 wherein, its PAT has jumped by 294% to 7.31 crs.. Q1 EPS is Rs. 8.37.
FUTURE OUTLOOK
09-10 E10-11 E
Net Sales230.00340.00
PAT26.7538.00
Equity8.738.73
EPS Rs.30.7543.50
P.E. Ratio2.541.77
Last Year, ABC planned capex for setting up Chemical Recovery Plant, 10MW Cogen and doubling of paper capacity to 1.05 lakh tonnes. For this purpose, bank loan of 112 crs. was sanctioned. Due to bad market conditions, Company could not raise Equity part and hence promoters injected funds as unsecured loan. This capex will lead to higher value addition both in terms of production of Maplitho grade paper and inputs costs optimizations.
Chemical Recovery Plant enables to significantly reduce chemical costs (caustic soda). This Plant has already been commissioned in October 2008.
ABC has spent Rs. 34 crs. to set up 10MW Cogen Power Plant. Same has been commissioned in May 2009. It will lead to significant cost savings for the Company. At present, around 5MW Power is generated. Once Paper expansion to 1.05 lakh tonnes is complete, Cogen will operate at 10MW and meet entire energy requirement of increased capacity.
ABC is spending around Rs. 85 crs. to enhance its capacity to 1.05 lakh tonnes. Trial runs for enhanced capacity have already begun and, commercial production will start from October '09. Impact of same will be felt from Q4 onwards and full impact 10-11 onwards.
Valuations:
Book Value of ABC as on 31 March 2009 is Rs. 80/-. Promoters hold 74.54% stake. Stock is available at:
1) 2.54 x FY10E EPS.
2) 1.77 x FY11E EPS.
Clearly, ABC Paper is grossly undervalued due to negligible visibility of the promoters. Our price target:
A) Rs.. 110/- by Feb. 2010.
B) Rs. 175/- by Oct. 2010.
Almost risk free. A great buy.
By - Hemant K. Gupta
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Other articles of Hemant K Gupta ........
Fifty Fifty
1) Chandrayaan has failed/disappeared 14 months earlier than scheduled time. Instead of circling the moon for 24 months, it has disappeared after 10 months. However, ISRO claims that mission is almost complete. If mission could be completed in 10 months, how it was scheduled for 24 months? Clearly ISRO refuses to accept the failure. Bureaucrats in India will never accept the blame/failure and will dish out untenable defense.
2) In last 1 month, there were 2 incidences at Mumbai airport when 2 aircrafts came within colliding distance. However, ATC blames the pilots. Again, a case of passing the buck.
3) Austral Coke: Those who bought the shares recently must be suffering heavily. Earlier, we had warned investors about Cals Ltd. which since then has already fallen by 45%. Investors should stay away from scrips where there are strong doubts.
4) Vishal Info (Re. 1/- F.V.): Promoters managed to trap the investors by declaring bonus issue. Since then (ex-bonus) scrip is going down. Promoter's stake has come down and public holding has gone up from 48% to 72%. In Q1, Company has not made any provision for Income tax. Sell even now. Don't hesitate from booking loss.
5) Vikas WSP (Re. 1/- F.V.): This is another Company which had been the center of so many controversies and even frauds. Last year, it has shown sales of 365 crs. with PBT of 130 crs. Income tax less than 9 crs. Company is having more than 35% profit margin. It is too good to be true. In today's globalized world, which manufacturing business has such steep margins? If, it were so, by now, hundreds of new ventures would have come in this field. If, income tax deptt. does thorough investigation, cupboard will be full of skeletons.
6) Suntek Realty (Rs. 2500/-): Market Cap of the Company is 2800 crs. although sales are just Rs. 20 crs. In 08-09, Company is showing other income of 11 crs. but no details about nature of this income. Company is in Real Estate Business but has paid MAT and not full income tax. Now, has declared stock split which is routine action of every operator. One of the most overpriced stocks.
7) Radhe Developers (Re. 1/- F.V.): Sales for June Quarter is nil but market cap is 70 crs. It appears that, Company wants to raise money. Sell.
8) Kadambari Constructions (Rs. 165/-): Profit for 08-09 was just Rs. 3 lakhs. Equity 5 crs. Market Cap more than 80 crs. It depicts that, operators can really do wonders for cheating the investors.
9) You have to know when to strike (buy) and when to retreat (sell).
10) You have to learn the rules of the game (investment). And then you have to play better than anyone else.
11) Rainbow Denim Ltd.: In last 3 months, Denim prices have gone up. Hence, Rainbow can report better results in coming quarters. A riskfree buy which can double in next 6 months.
12) Bambino Agro Ltd. Bse Code No. 519295: This Hyderabad based Company is in food products with strong brand 'Bambino'. Current market cap is just Rs. 16 crs. Recently, Company has completed CDR and performance of coming year will be significantly better. Company has big surplus land at its Gurgaon factory. Long term investors can buy big quantity as share price can be Rs. 60-80 in less than a year.
13) Mcnally Bharat (Rs. 180/-): Although June Quarter results are reasonable but fundamentally scrip is overpriced. Promoters are not investor friendly. Share price has been pushed up by some big brokers so that Company can make its Rights issue successful. Don't buy.
14) Rasandik Engineering (Rs. 45/-): Due to big rise in OEM production, Rasandik should be a big beneficiary. This auto-ancillary has small Equity of 4.73 crs. Q1 PAT is 1.58 crs. EPS for 09-10 should be Rs. 15/-. Investors can expect 50% appreciation in less than 6 months. One of the best picks in auto-ancillary segment.
15) ANU's Lab (Re.. 1/- F.V.): Majority of the investors are not aware of its Face Value. Scrip is grossly overpriced at P.E. Ratio of 24. Sell.
Hemant K. Gupta
Breaking News.
This Mumbai based Textile Company promoted by Goenka Family, is engaged in the production of Synthetic and Cotton Textiles. Some significant developments have taken place. Due to same, investment in KSL may provide multibagger appreciation. Now, Company is emerging in a new avatar having business interests in manufacturing, fabric retailing, garment manufacturing and garment retailing with substantial Equity stake of Kishore Biyani (Pantaloon fame).
QTR ENDEDQTR ENDEDYEAR ENDED
30/06/09 30/06/08 31/03/09
Net Sales20.5510.7082.48
PAT0.410.010.74
Equity3.003.003.00
Reserves 12.16
1) Group Company of KSL had been selling fabrics under brand name of 'True Value' where profit margins are better. This unlisted group company has been merged in KSL.
2) Stripes Apparels Ltd.: This Company is having one of the most modern garments manufacturing facility and owned by Kishore Biyani Group (Family/Unlisted Entities). Anil Biyani and Sunil Biyani (brothers of Kishore Biyani who are also Directors in Future group companies) are Directors of SAL. SAL has been supplying garments to Pantaloon, Park Avenue and many other leading Indian brands. Post Merger, Equity of KSL will go up from 3 crs. to 5.99 crs. Thus, SAL has recently been merged with KSL. THUS, BIYANI FAMILY/PANTALOON GROUP WILL HOLD APPROX. 36% STAKE IN KSL.
3) Garment Retailing: KSL has been opening Garment Retail Showrooms under the Brand 'Bangkok Fashion' wherein customers can walk in to choose fabric of his liking and get his suits tailor made within 48 hours as per his specifications. Around 12 retail stores are already operational.
4) Fabric Retailing: Pantaloon Group has fabric retail showrooms in Big Bazaars. These showrooms are being acquired by KSL from Pantaloon.
With above developments, KSL is available dirt cheap considering:
A) Equity Stake of Pantaloon/Future Group.
B) Garment Manufacturing.
C) Fabric Manufacturing.
D) Fabric Retailing.
E) Garment Retailing.
Association with Future Group can lead to huge benefits to KSL in coming years as KSL will be able to bid for big garment orders/tenders of corporate/industrial houses. KSL will continue to supply garments to Future group. Recently, KSL has allotted 3.25 lakh warrants to Tritoma Hotels Pvt. Ltd. (A Company owned by Kishore Biyani).
KSL should achieve topline of Rs. 90-110 crs. in 09-10. PAT should be in the range of 3.00 - 3.50 crs. For 10-11, KSL sales can touch Rs. 150 crs. with significant rise in profits.
Our price target:
1) Rs. 75/- in less than 6 months.
2) Rs. 150/- in less than 24 months.
Current market cap of KSL (on expanded Equity) is just Rs. 18 crs. (less than 20% of 09-10E sales) which looks peanuts for a Company with diversified business interests. Do not be surprised if market cap of KSL exceeds Rs. 100 crs. in 2012.
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