This presentation was delivered on Jan 04, 2014 to Equity Pune group. In this presentation I discussed about an undervalued stock: the Paper Products.

1. 04 January 2014
The Paper Products
The power of flexible packaging
The power of undervalued stock
A presentation by: Niteen S Dharmawat
at Equity Pune gathering…
Blog: http://dharmawat.blogspot.com/
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2. Recap…
& some updates…
Discussed it in one of the last meetings… and we are dot on….
What was said:
 Election year performance:
 Mar 2013 when the market was @18500
 Predicted that market does not give negative returns
during election year
Result:
 Broader market delivered 13.5% in last 10 months
Going forward:
 Need to be extremely cautious
 For broader market, I am not very optimistic going
forward… Reasons…
Blog: http://dharmawat.blogspot.com/
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3. “Someone is sitting in the shade today because
someone planted a tree a long time ago.”
Warren Buffett
Blog: http://dharmawat.blogspot.com/
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4. About Paper Products
Background…

Established in 1935

Today India's leading Consumer Packaging company

Offers total packaging solutions: Flexible Packaging, Labelling
Technologies and Specialised Cartons.

A proxy to FMCG industry

Presence in all the four regions of Indian market

Fully integrated, state of the art manufacturing facilities at Thane,
Silvassa, Hyderabad and Rudrapur

Highly skilled and experienced staff

Capable of working from product inception to the super market
and with complete control and confidentiality.
Blog: http://dharmawat.blogspot.com/
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5. Strong case to invest in Paper Products
Key points…
 Growing Indian flexible packaging market
 Assocham: India's packaged food industry likely to
double to $30 billion by 2015 on the back of arrival of
MNCs in the sector and modern retail trade
 Favorable shift in demographics
 Growing demands for consumer goods.
 The new Food Safety and Standards regulations
 Thrust on food processing and food safety
 Growth in rural demand
 Organic & inorganic growth in the Indian market
Blog: http://dharmawat.blogspot.com/
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6. * adjusted for any split/bonus
** Includes One Time Dividend of Rs1
Paper Products…
Financial @a glance…
 Revenue grew from 532Cr to 960Cr in last 5 years
 Only one drop in revenue in 2009 else healthy growth
 Book value of 56 (Dec 2012). A buying price close to 65 will be
good for the stock.
 PE: 9.40. Dividend yield 3.57
 Consistent paying dividend for last several years.
 ROE in double digit except in 2008
Year
ROE(%)
Dec 2012
Dec 2011 Dec 2010 Dec 2009
Dec 2008
Dec 2007
13.28
17.05
12.97
14.89
8.89
12.44
Revenue (Cr)
2.6
961
2.4
793
2.2
704
3.0**
577
1.8
612
1.8
532
NP (Cr)
45
53
48
37
21
28
Free cash flow (Cr)
105
140
78
107
102
97
Dividend Per share (INR)*
Blog: http://dharmawat.blogspot.com/
6

7. Paper Products…
Financial @a glance…
 Very strong financials:
 Low debt company . Total debt less than INR 50Cr.
V/S
 Investments in Mutual fund about INR 60Cr & Cash
and Bank Balances about INR 15Cr
 Market Cap 457Cr v/s Revenue of 960Cr & NP of 45Cr
 Promoters and key public shareholders consistently
increasing their stake (see subsequent slide)
Blog: http://dharmawat.blogspot.com/
7

8. Paper Products…
Net Profit (NP) V/S Operating Cash Flow (OCF)…
In INR Crores.
Parameter
Dec 2012
Dec 2011
Dec 2010
Dec 2009
Dec 2008
Dec 2007
Net profit
45
53
48
37
21
28
OCF
64
85
45
67
65
31
Signal
Remember Opto Circuit & Arshiya Int., we predicted the death of these companies.
Opto Circuit: from 140 to now 25
Parameter
Mar 2012
Mar 2011
Mar 2010
Mar 2009
Mar 2008
Net profit
573
368
260
209
131
CFO
126
130
178
115
40
Signal (Red)
Arshiya International: from 130 to now 17
Parameter
Mar 2012
Mar 2011
Mar 2010
Mar 2009
Mar 2008
Mar 2007
Net profit
47.51
24.93
15.40
18.49
12.36
3.98
OCF
119.48
-28.05
-9.38
13.83
-10.19
-15.50
Signal
Blog: http://dharmawat.blogspot.com/
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9. Paper Products…
Shareholding Pattern (SHP)…
Parameter
Promoters’ SHP
Signal
Parameter
Trend of Public
SHP > 1%
Signal
Sep 2013
Jun 2013
Mar 2013
Dec 2012
Sep 2012
Jun 2012
63.78
63.70
63.70
63.70
63.70
63.70
• Healthy promoters’ holding
• Bought 50,100 shares between Jun-Sep2013 by Chairman & MD @avg price of Rs60.45
• No pledging…
Sep 2013
Jun 2013
Mar 2013
Dec 2012
Sep 2012
Jun 2012
8.21
8.19
8.13
8.13
7.98
6.17
• ‘Strong’ investors with deep pockets moving into the stock: bought abut 12.78 Lac stocks in 15
months
• Three public investors with more than 1% holding include: HDFC Trustee Company, Shree
Capital Services Ltd and Dolly Khanna.
Opto Circuit: from 140 to now 25
Parameter
Sep 2012
Jun 2012
Mar 2012
Dec 2011
Sep 2011
Jun 2011
SHP Unpledged
12.46
19.36
17.87
25.26
25.73
32.19
32.13
23.87
25.36
17.97
17.47
11.01
SHP Pledged
Signal
Blog: http://dharmawat.blogspot.com/
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10. Product groups servicing include:
A proxy to FMCG

Soaps and Detergents

Shampoos

Noodles

Biscuits

Coffee, Tea, Milk powder

Baby Foods

Chocolates

Juices
Blog: http://dharmawat.blogspot.com/
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11. Product categories
A proxy to FMCG
Blog: http://dharmawat.blogspot.com/
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12. Product categories
A proxy to FMCG
Blog: http://dharmawat.blogspot.com/
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13. Some customers include…
A proxy to FMCG
Blog: http://dharmawat.blogspot.com/
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14. Paper Products is a part of an MNC
Parent Company: Huhtamaki
“You only have to do a very few things right in your
life so long as you don't do too many things wrong.”
Warren Buffett
Blog: http://dharmawat.blogspot.com/
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15. Paper Products is a part of Huhtamaki
Huhtamaki…
 Huhtamaki headquartered in
Finland
 Revenue Euro 2.4 billion
 14,200 employees
 60 manufacturing units
 One of the top 10 consumer
packaging companies in the world
 A market leader in several product
categories.
Blog: http://dharmawat.blogspot.com/
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16. Huhtamaki businesses in brief
Huhtamaki…
Blog: http://dharmawat.blogspot.com/
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17. Huhtamaki Key Customers
Huhtamaki…
Blog: http://dharmawat.blogspot.com/
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18. Huhtamaki Key Customers
Huhtamaki…
Blog: http://dharmawat.blogspot.com/
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19. For Paper Products: Cross selling opportunities…
Huhtamaki…
Blog: http://dharmawat.blogspot.com/
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20. For Paper Products: Advantage ‘Huhtamaki’
Huhtamaki…
 Huhtamaki’s 60% of net sales to emerging markets when
taking exports into account
 2012-2020: global population expected to grow by 750
million

94% of this growth in developing countries
 2012-2020: global consumer expenditure to grow by USD
23 trillion

74% of this growth in developing countries
Blog: http://dharmawat.blogspot.com/
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21. “I never attempt to make money on the stock
market. I buy on the assumption that they
could close the market the next day and not
reopen it for several years.”
Warren Buffett
Blog: http://dharmawat.blogspot.com/
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22. * adjusted for any split/bonus
Stock price movement
Price is the closing price at the end of the year
A stagnant stock…
More than 6 times in
5 years.
Stagnant during
last 7 years
Parameter
Dec 2012
Dec 2011
Dec 2010
Dec 2009
Dec 2008
Dec 2007
Revenue (Cr)
45
961
53
793
48
704
37
577
21
612
28
532
Stock Price (INR)
72
60
57
60
31
73
Net profit (Cr)
Blog: http://dharmawat.blogspot.com/
Stock price: www.bseindia.com
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23. “Price is what you pay. Value is what you get.”
Warren Buffett
Blog: http://dharmawat.blogspot.com/
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24. Competitive advantages: Paper Products
Paper Products…
 Global presence
 High focus on NPD and continuous innovation
 Strong technical knowhow
 Product portfolio - depth & width
 Management team
 Focus on both organic and inorganic growth: last year
took majority stake in WebTech Labels, a leader in the Indian
high-end pressure sensitive label sector. Annual sales:75Cr.
Blog: http://dharmawat.blogspot.com/
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25. What to expect in 2014: Paper Products
Paper Products…
As per Huhtamaki’s latest announcements:
1. Drive global sourcing initiatives
2. Improve utilization of Asian
base for exports
Translates into
Huge business
opportunity for
Paper Products
Why a strong case in favor of ‘India’ compared to other ‘Asian countries’:
 Making constant investments in expanding capacities
 Depreciation of INR and appreciation of Chinese Yuan against international
currencies
 Started manufacturing facility at fourth location in India
 Acquired majority stake in WebTech Labels recently
Blog: http://dharmawat.blogspot.com/
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26. Recent news: Paper Products
Is it an indication of future events?
 30th-Nov-2013

Change of Registered Office: from Nariman Point to BKC
 31st-Dec-2013

Sale of Office premises: Sold a small office property in Nariman Point,
Mumbai at a consideration of Rs. 723 Lacs.
Holding about 7acres of prime land in Thane.
Conservatively valued at INR 500Cr+.
Blog: http://dharmawat.blogspot.com/
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27. Risks and Mitigations…
Risk => Rewards?
1.
2.
3.
Imports => INR 137Cr (raw material),
 Exports => 169Cr provides cushion to currency risk
Volatility in price of Raw Materials, fuel cost and transport cost and supply of
uninterrupted power
FMCG companies shifting suppliers purely on price considerations
 Investments in emerging technologies and capacities to exploit the
opportunities and mitigate risks.
 Continuous improvements in operations, safety and hygiene standards,
supply chain and working capital management.
 Flagship programs like NASP (New Applications, Structures, Products and
Processes) to counter competitive pressures. This focuses on growth
through innovation and value engineering.
 Working on numerous projects with customers with a global footprint with
active help and support from the Global NPD team of Huhtamaki Flexibles.
Blog: http://dharmawat.blogspot.com/
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28. About the presenter:
Niteen is an MBA and cleared CFA Level 2, CFA
Institute USA. A firm believer in long-term financial
planning, and a 20 years veteran of the stock market,
he likes to analyse the economy, and individual stocks.
He also conducts investor education sessions.
He likes reading books/magazines/news papers on the
topics as diverse as general management, technology,
investment, fiction, marketing and the Gita.
He is a person who believes in "Everything else can
stop but learning".
Blog: http://dharmawat.blogspot.com/
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29. IMPORTANT DISCLAIMER:
Investment in equity shares has its own risks. Sincere efforts
have been made to present the right investment perspective.
The information contained herein is based on analysis and up
on sources that I consider reliable. I, however, do not vouch
for the accuracy or the completeness thereof. This material is
for personal information and I am not responsible for any
loss incurred based upon it & take no responsibility
whatsoever for any financial profits or loss which may arise
from the recommendations above. I sincerely request you to
do your homework before you take any position whatsoever.
I, my relatives or friends may have/have positions in the
stocks discussed here.
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30. Thank you
Email: niteen.dharmawat@gmail.com
Mobile: 9850571857
Blog: http://dharmawat.blogspot.com/
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