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Friday, September 11, 2009

ABC Paper Ltd:Best buy in the paper sector

Scripscan:ABC Paper Ltd

Story:ABC has reported good nos. even when paper industry was not doing so well. Most notable is consistency in its performance.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.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/speciality 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.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. x FY09 EPS and only 2.x FY09 Cash EPS.Company has declared 25% dividend and CMP is cum-dividend.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.Book Value of ABC as on 31March 2009 is Rs. 80/-.Promoters hold 74.54% stake.Stock is available at just 1 odd times itse expected fy11 earnings.A great buy.

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