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Seshasayee Paper and Boards (SPB) is engaged in the manufacture of printing and writing papers. The Company is also engaged in the manufacture of paper boards at its unit at Erode and Tirunelveli.
SPB produces a range of products, such as packing and wrapping papers, and specialty papers. SPB also has branded products, including SPrint, Colour Sprint, Index, SprintPlus and Success.
September 2018 quarter results
In September 2018 quarter, it registered 46% rise in sales to Rs 331.22 crore. OPM improved 360 basis points to 24.8% which saw OP rise 71% to Rs 82.06 crore. Other income grew 121% to Rs 4.55 crore and interest went up 10% to Rs 3.56 crore. After providing for depreciation (up 8% to Rs 9.00 crore), PBT went up 93% to Rs 74.05 crore.
Tax grew 94% to Rs 23.70 crore (tax incidence went up from 31.7% to 32.0%), after which PAT went up 92% to Rs 50.35 crore.
Six months results
For the six months, it registered 30% rise in sales to Rs 606.05 crore. OPM improved 250 basis points to 21.3% which saw OP rise 47% to Rs 129.39 crore. PBT went up 66% to Rs 111.62 crore.
PAT went up 61% to Rs 77.22 crore.
FY 2018 was impacted by loss of production and maintenance shut down
In FY 2018 sales had stagnated at Rs 1104.65 crore, and PBT had grown 1% to Rs 170.35 crore.
In FY 2018, production at Erode was 121594 tonnes, as compared to 125662 tonnes, in the previous year. Tirunelveli produced 66609 tonnes of Paper during the year, as compared to 69751 tonnes,.
The overall production for the company was 188203 tonnes of Paper and Paper Boards for the year, as compared to 195413 tonnes.
Production was affected in both the Units due to shortage of water faced during the summer season due to continuous failure of monsoon and planned shut downs availed for installing key equipment under Mill Development / Expansion Plans.
Host of other issues too impacted FY 2018
June 2017 witnessed huge drop in orders on account of the upcoming introduction of GST from July 01, 2017. Lack of clarity on overall GST provisions and rules as well reluctance on the part of small traders to migrate to GST regime, resulting in poor order flow and accumulation of unsold stock with Mills.
Simultaneously, the market was flooded with imports of Copier and Maplitho grades from ASEAN countries taking advantage of the Zero Import Duty concession, at highly competitive prices, forcing domestic manufacturers to effect price reduction in these grades.
Q2 and Q3 saw failure of Indentors / Dealers to lift their assigned quota. Consequently unsold stock with Mills swelled.
Stability has returned from December 2017 quarter onwards
In Q4 of FY 2018 welcome breakthrough came in the form of huge hike in international pulp prices, forcing overseas manufacturers to put up paper prices and cut-down their export volume to Indian market. Softening trend of Indian Rupees vis-à-vis US$, further raised the cost of imported paper; customers came back to domestic mills to meet their demand. Market became thus stable in Q4 of FY 2018. This enabled SPB to liquidate accumulated stocks and achieve the customary Zero Stock at the end of the Financial Year for the 20th time in the last 24 years.
Writing and printing Paper (WPP) prices are on an uptrend
Due to problems at the largest paper manufacturer and favourable demand scenario, paper prices are on an uptrend. For SPB this means double advantage of better realizations as well as higher production.
Reduced threats from import
In FY 2018 the reduction of import duties (10% to Nil) on paper and paperboard from ASEAN countries posed a challenge to India paper industry.
However, due to recovery in global demand and rupee depreciation, paper imports in to India has reduced in the current year, which has led to better demand for domestic paper. Moreover rise in pulp prices has led to rise in paper prices globally. This has helped push paper prices in India also.
Outlook
The per capita consumption of paper in India is ~10 Kg as opposed to a global average of 56 kg. The management believes India is in the early stages of the demand cycle and expects continued growth in all paper segments. For the Indian paper industry, strong economic growth has been accompanied by equally robust demand for paper from education, publications, e-commerce, increased economic activity and consumerism.
As per the industry estimates, Printing and Writing segment demand is expected to grow at a CAGR of 4%, Paperboard at a CAGR of 9% and speciality paper at 8%.
Valuation
The stock trades at Rs 1190.
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