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Hold Paper Products - Way2Wealth
Posted On : 2012-11-03 19:41:36( TIMEZONE : IST )
Paper Products Ltd. reported its Q3CY12 results recently. Net sales rose by 13.7% while operating margins shrank on account of rise in raw material prices.
- Net sales increased by13. 7 % YOY to Rs.221 crs. in Q3. Volumes growth for the quarter was at 8%. Exports which constitute 20% of the topline continued to grow at 11.5%+. 9M sales grew at 12.8% to Rs.665.6 crs. Topline growth was impacted due to inventory correction at client base on account of standardization norms deadline & and slowdown in rural markets. PPL's topline growth strategy is two pronged - growing business from existing clients as while as adding new clients. The company is witnessing strong demand growth for packaging coming in from beverages, food processing & personal care manufacturers. The topline growth was supported by healthy demand from clients as well as the phased expansion coming on stream from the end of Q1CY12.
- Operating profit was down from Rs.18.3 crs. to Rs.17.7 crs. EBIDTA margins were under pressure. Margins contracted by 140 bps YOY & 220 bps QOQ at 10.1%. . Polymer prices which had started rising at the end of Q2 reflected in raw material prices going up. The company wasn't able to immediately pass on raw material cost & fuel cost increases this quarter. Inks, solvents and adhesives price increases coupled with rupee depreciation led to cost increases. With new capacities kicking in fixed cost rose leading to higher other expenditure & employee cost. 9M PBIDT de-grew by 3.3% to Rs.65.9 crs with margins contracting by 170bps to 9.9%.
- Adj. net profit for the quarter was lower by 12.9% YOY at Rs.8.8crs. PAT margin contracted on higher depreciation by 120 bps YOY to 3.9%. 9MCY12 PAT was lower by 11.8% to Rs.35.1 crs vs. Rs.39.8 crs. Margins contracted by 150 bps to 5.2%.
Valuation:
We believe PPL's business model provides a steady growth & business visibility for investment in such times. At the CMP of Rs.68.25/- the stock trades at 9.5x & 7.3x its estimated EPS of Rs.7.2 & Rs.9.4 for CY12E & CY13E respectively. With overall GDP growth for the economy slowing down, we believe PPL to be a good value buy in such times and hence recommend investors to HOLD the stock. A high cash generating business will enable the company to fund its future growth plans.
