Seshasayee Paper - 130.00 Rs
Incorporated in 1960, Seshasayee Paper and Boards Limited (SPBL), is the flagship company of the well known "Esvin Group", a group that consists of Ponni Sugars (Erode), High Energy Batteries, Esvin Advanced Technologies etc. SPBL operates an integrated pulp, paper and paper board Mill at Pallipalayam, Erode in the state of Tamilnadu. It produces a wide range of products such as printing and writing papers, packing and wrapping papers and speciality papers. It also has branded products namely, ‘Sprint’, ‘Colour Sprint’, ‘Index’, ‘SprintPlus’, ‘Success’ etc which are quite popular in the southern market. In addition to catering to domestic market, company has been exporting 10-20% of the total production to around 15 countries across the world.. It has been accredited with various certifications such as ISO 9001, ISO 14001 and OHSAS 18001 by M/s Det Norske Veritas, Netherlands for its quality, environment and occupational health and safety management systems.
Presently, SPBL’s manufacturing plant has the pulping capacity of 230 TPD and paper manufacturing capacity of 115,000 TPA. Against this it made an all time high production of 123,468 tonnes of paper for FY07 leading to capacity utilization of more than 107%. At the same, it achieved ‘Zero Stock’ of finished goods inventory, as at the end of the FY07, for the 10th time in the last 13 years which proves the management quality and integrity. To enhance its environmental performance and to sustain compliance under CREP, SPBL is implementing Mill Development Plan at estimated cost of 350 cr which will also make the company self sufficient in wood pulp requirements. This project involves the replacement of the existing three decade old wood pulp Mill with a 350 tonnes per day second hand pulp Mill from USA which has advanced technological features, like RDH Pulping, Oxygen De-lignification, ECF Bleaching for wood pulp etc. The mill has already been dismantled, shipped from USA and arrived at the company’s mill site as per unconfirmed reports. Besides this, a new modern chemical recovery Boiler (in the place of existing two chemical recovery Boilers), a black liquor Evaporation plant, a lime re-burning Kiln and a turbo Alternator set will also be installed. This whole capex is funded thru a mix of 270 cr term loan and 80 cr of internal accrual and is estimated to complete by December 2007. On the other hand, to de-risk its dependence on government and other agencies, SPBL has entered into agreements with farmers holding over 3000 acres of land and planted Eucalyptus Hybrid/ Casuarina varieties to develop its own source of plantations.
To summarize, post up-gradation SPBL’s profit margin are estimated to improve substantially in FY09 due to lesser dependence on imported pulp, reduction in power and fuel cost, increased capacity, greater raw material yield on account of less manufacturing wastage etc. For FY07 it can report sales of 450 cr and PBT of 32 cr. As company has reversed the earlier deferred tax provision, the NP may be around 30 cr. This works out to an EPS of 27 Rs on equity of 11.25 cr. For the current fiscal it is expected to clock a turnover of more than 500 cr and net profit of 34 cr ie EPS of 30 Rs. However, the full benefit of the ongoing capex will be visible only in FY09. Despite its debt-equity ratio being high, scrip has the potential to give reasonable return of 25% in a years time. But buy at declines only.
Presently, SPBL’s manufacturing plant has the pulping capacity of 230 TPD and paper manufacturing capacity of 115,000 TPA. Against this it made an all time high production of 123,468 tonnes of paper for FY07 leading to capacity utilization of more than 107%. At the same, it achieved ‘Zero Stock’ of finished goods inventory, as at the end of the FY07, for the 10th time in the last 13 years which proves the management quality and integrity. To enhance its environmental performance and to sustain compliance under CREP, SPBL is implementing Mill Development Plan at estimated cost of 350 cr which will also make the company self sufficient in wood pulp requirements. This project involves the replacement of the existing three decade old wood pulp Mill with a 350 tonnes per day second hand pulp Mill from USA which has advanced technological features, like RDH Pulping, Oxygen De-lignification, ECF Bleaching for wood pulp etc. The mill has already been dismantled, shipped from USA and arrived at the company’s mill site as per unconfirmed reports. Besides this, a new modern chemical recovery Boiler (in the place of existing two chemical recovery Boilers), a black liquor Evaporation plant, a lime re-burning Kiln and a turbo Alternator set will also be installed. This whole capex is funded thru a mix of 270 cr term loan and 80 cr of internal accrual and is estimated to complete by December 2007. On the other hand, to de-risk its dependence on government and other agencies, SPBL has entered into agreements with farmers holding over 3000 acres of land and planted Eucalyptus Hybrid/ Casuarina varieties to develop its own source of plantations.
To summarize, post up-gradation SPBL’s profit margin are estimated to improve substantially in FY09 due to lesser dependence on imported pulp, reduction in power and fuel cost, increased capacity, greater raw material yield on account of less manufacturing wastage etc. For FY07 it can report sales of 450 cr and PBT of 32 cr. As company has reversed the earlier deferred tax provision, the NP may be around 30 cr. This works out to an EPS of 27 Rs on equity of 11.25 cr. For the current fiscal it is expected to clock a turnover of more than 500 cr and net profit of 34 cr ie EPS of 30 Rs. However, the full benefit of the ongoing capex will be visible only in FY09. Despite its debt-equity ratio being high, scrip has the potential to give reasonable return of 25% in a years time. But buy at declines only.
