Rama Papers Ltd - Rs.37.00

Incorporated in 1985, Rama Paper Mills Ltd (RPML) manufactures three different products for different segments viz. newsprint for the newspaper industry and publishers, writing and printing paper for government as well as for printing of text books and note books and duplex board for industrial purpose used in packaging of articles. Apart from supplying to Government agencies, RPML has a very wide client base such as Hindustan Times, Jan Satta, Indian Express, Amar Ujjala, Daink Jagran, Gujarat Samachar, Dainik Bhaskar etc. Other clientele include Wimco, Godfrey Philips, Metal Box, Janakpur Cigarette Factory of Nepal, etc.

RPML’s manufacturing facility is spread across 12 acres of land at Kiratpur in Dist. Bijnor in Uttar Pradesh with 3 units having a total installed capacity of 39,500 TPA. To fulfill the rising demand, the company is going for capacity expansion by adding 18,000 TPA of production facilities for high value paper and intends to set up a 6 MW captive power plant. Apart from this, RPML is also planning to foray into the business of power generation and deal in sugar and other allied products, which can be conveniently combined with its existing line of business. A few months back, RPML was been deregistered from the purview of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) and is no longer a sick unit now.

To fund its expansion plans, RPML recently issued 25-lakh share warrants on preferential basis to be converted into shares @ Rs.35 per share. In future, it may come out with more such allotments or right issues for which the company has increased its authorized share capital from Rs.12 cr. to Rs.22 cr. although its current paid-up equity stands at Rs.7.50 cr. only. On the other hand, the company is aggressively reducing its debt and wants to become debt free by next year. For FY05, its Net Sales grew by 15% to Rs.70 cr. where as its NP zoomed by 170% to Rs.4.50 cr. registering an EPS of Rs.9 on its equity of Rs.5.08 cr. Considering the robust demand and higher paper prices, RPML is expected to improve its performance in FY06 coupled with higher capacity utilization and likely to report Net Sales of Rs.85 cr. and NP of Rs.6 cr. This works out to an EPS of Rs.8 on its current equity of Rs.7.50 cr. Investors are strongly recommended to buy this share with a price target of Rs.50 (40% appreciation) in 12 months.