Quick take
Ruchira Papers Ltd.
BUY
CMP
`188
Creating value through paper
Target Price
`244
Ruchira Papers Limited (RPL) manufactures writing paper, printing paper and Kraft
Investment Period
12 Months
paper. The company's white writing and printing paper is used in making notebooks
and writing material, while the colored paper is used in the fabrication of spiral
Stock Info
notebooks, wedding cards, shade cards, children's coloring books, etc. Its Kraft paper
Sector
Food Processing
is utilised in the packaging industry for making corrugated boxes/cartons and for other
Market Cap (` cr)
421
packaging requirements. The company’s writing and printing paper and Kraft paper is
Net Debt (` cr)
63
manufactured by using agricultural residues like wheat straw, bagasse, sarkanda and
Beta
1.2
other materials.
52 Week High / Low
207/ 100
A vg. Daily Volume
30,145
Healthy demand in paper segment to drive growth: Indian paper industry is estimated
Face Value (`)
10
to grow at a CAGR of 7.6% over the next couple of years, in-line with India’s GDP
BSE Sensex
33,247
growth. Further, Kraft paper segment is also growing at a faster rate due to strong
Nifty
10,252
demand from packaging industry (owing to increasing e-commerce and FMCG
Reuters Code
RCHR.BO
demand). We believe that the company has diversified product portfolio in both the
Bloomberg Code
RUCP.IN
segments, which would assist in capturing growing demand.
Ban in China to boost paper prices: The Chinese Government has banned the import
Shareholding Pattern (%)
of waste paper, which is the primary raw material for finished paper. Thus, the
Promoters
61.1
production of finished paper would be impacted in China. This in turn would lead to
MF / Banks / Indian Fls
0.0
an increase in the prices of finished paper. Eventually, the paper manufacturing
FII / NRIs / OCBs
1.2
companies like RPL would witness volume growth and also benefit due to the increase
Indian Public / Others
37.7
paper prices.
Upgradation of existing units to improve production efficiency: Company has planned
a capex of `42cr (funded by term loan of `27cr and balance through internal accruals)
Abs. (%)
3m 1yr
3yr
for upgradation and modernization of existing units. This will facilitate RPL to introduce
Sensex
3.1
25.0
21.7
new range of value added products in its Kraft paper unit coupled with an increase in
RPL
9.0
82.0
580.0
Paper Machine speed from 640 meters/minute to 700 meters/minute in writing and
printing paper unit. This modernization plan will be implemented in January 2018 and
company will start reaping its benefits from 1QFY2019 onwards. Further, RPL has
plans to setup a green field project in the state of Punjab.
Outlook and Valuation: We forecast RPL to report healthy top-line of ~13% CAGR over
3 year daily price chart
FY17-20E on the back of healthy demand growth in printing & writing paper and Kraft
250
paper. On the bottom-line front, we estimate
~16% CAGR owing to strong
improvement in operating performance. Further, improvement in manufacturing
200
efficiency and benefits from increasing global finished paper prices (ban in China)
150
would aid margins. We initiate coverage on the RPL with a Buy recommendation and
target price of `244 (11x FY2020E EPS), indicating an upside of ~30% from the
100
current levels.
50
Key financials
0
Y/E March (` cr)
FY2016
FY2017
FY2018E
FY2019E FY2020E
Net Sales
363
416
470
532
603
% chg
4.6
14.8
12.9
13.3
13.3
Source: Company, Angel Research
Net Profit
19
32
37
42
50
% chg
51.0
64.9
15.2
15.0
17.0
OPM (%)
13.1
15.2
15.6
15.6
15.6
Amarjeet S Maurya
EPS (Rs)
8.7
14.3
16.5
19.0
22.2
022-39357800 Ext: 6831
P/E (x)
21.7
13.1
11.4
9.9
8.5
P/BV (x)
3.5
2.8
2.3
1.9
1.6
RoE (%)
16.1
21.0
20.0
19.2
18.7
RoCE (%)
19.6
23.6
22.7
22.8
23.0
EV/Sales (x)
1.4
1.2
1.1
0.9
0.8
EV/EBITDA (x)
10.4
7.7
6.8
5.9
5.1
Source: Company, Angel Research, Note: CMP as of December 14, 2017
Please refer to important disclosures at the end of this report
1
Quick take
Ruchira Papers
Investment Rational
Robust demand in paper segment to drive growth
Indian paper industry is estimated to grow at a CAGR of 7.6% over the next couple
of years, in-line with India’s GDP growth. Further, Kraft paper segment is also
growing at a faster rate due to strong demand from packaging industry (owing to
increasing e-commerce and FMCG demand). We believe that the company has
diversified product portfolio in both the segments, which would assist in capturing
growing demand.
Ban in China to boost paper prices
The Chinese Government has banned the import of waste paper, which is the
primary raw material for finished paper. Thus, the production of finished paper
would be impacted in China. This in turn would lead to an increase in the prices of
finished paper. Eventually, the paper manufacturing companies like RPL would
witness volume growth and also benefit due to the increase paper prices.
Upgradation of existing units to improve production efficiency
Company has planned a capex of `42cr (funded by term loan of `27cr and
balance through internal accruals) for upgradation and modernization of
existing units. This will facilitate RPL to introduce new range of value added
products in its Kraft paper unit coupled with an increase in Paper Machine
speed from 640 meters/minute to 700 meters/minute in writing and printing
paper unit. This modernization plan will be implemented in January 2018 and
company will start reaping its benefits from 1QFY2019 onwards. Further, RPL
has plans to setup a green field project in the state of Punjab.
December 15, 2017
2
Quick take
Ruchira Papers
Company Background
Ruchira Papers Limited (RPL) is an India based company, which manufactures
paper and paper products. The company is engaged in the process of
manufacturing writing and printing paper and Kraft paper. RPL’s white writing
and printing paper is used to make notebooks and writing material, while the
colored paper is used in the fabrication of spiral notebooks, wedding cards,
shade cards, children's coloring books, colored copier paper and bill books. Its
Kraft paper is utilized in the packaging industry for making corrugated
boxes/cartons and for other packaging requirements. The company’s writing
and printing paper is manufactured by using agricultural residues like wheat
straw, bagasse, sarkanda and other materials. Its semi Kraft paper is
manufactured by using agriculture residues like bagasse, wheat straw, rice
straw, sarkanda and indigenous materials, etc. The company offers its
products to customers in India and overseas.
Exhibit 1: Revenue break-up for RPL (FY2017)
37.81%
62.19%
Writing & Printing Paper
Kraft Paper
Source: Company, Angel Research
December 15, 2017
3
Quick take
Ruchira Papers
Outlook and Valuation
We forecast RPL to report healthy top-line of ~13% CAGR over FY17-20E on
the back of healthy demand growth in printing & writing paper and Kraft
paper. On the bottom-line front, we estimate ~16% CAGR owing to strong
improvement in operating performance. Further, improvement in
manufacturing efficiency and benefits from increasing global finished paper
prices (ban in China) would aid margins. We initiate coverage on the RPL with
a Buy recommendation and target price of
`244
(11x FY2020E EPS),
indicating an upside of ~30% from the current levels.
Exhibit 1: One year forward PE chart
250.00
200.00
150.00
100.00
50.00
0.00
Share Price
3.0 X
5.0 X
7.0 X
9.0 X
11.0 X
Source: Company, Angel Research
Risks to our estimates
1) An increase supply of paper would create a surplus in the market, which would
lead to high competition, affecting the overall pricing of paper and hence impact
the company’s profitability
2) Increase in raw material prices (bagasse, wheat straw, rice straw, sarkanda,
etc.) could impact the company’s profitability
December 15, 2017
4
Quick take
Ruchira Papers
Profit & Loss Statement
Y/E March (` cr)
FY2016
FY2017
FY2018E
FY2019E
FY2020E
Total operating income
363
416
470
532
603
% chg
4.6
14.8
12.9
13.3
13.3
Total Expenditure
315
353
397
449
509
Raw Material
233
265
298
338
382
Personnel
30
34
39
44
49
Others Expenses
53
54
60
68
77
EBITDA
47
63
73
83
94
% chg
21.4
33.3
15.9
13.3
13.3
(% of Net Sales)
13.1
15.2
15.6
15.6
15.6
Depreciation& Amortisation
10
11
12
13
13
EBIT
38
53
61
70
81
% chg
28.6
38.7
16.0
14.6
15.2
(% of Net Sales)
10.5
12.7
13.0
13.1
13.4
Interest & other Charges
7
8
8
9
9
Other Income
1
1
1
1
1
(% of PBT)
3.8
2.2
1.8
1.6
1.4
Share in profit of Associates
-
-
-
-
-
Recurring PBT
32
46
54
62
73
% chg
55.4
44.0
18.7
15.0
17.0
Tax
12
14
17
20
23
(% of PBT)
38.7
30.0
32.0
32.0
32.0
PAT (reported)
19
32
37
42
50
Minority Interest (after tax)
-
-
-
-
-
Profit/Loss of Associate Company
-
-
-
-
-
Extraordinary Items
0
(0)
-
-
-
ADJ. PAT
19
32
37
42
50
% chg
51.0
64.9
15.2
15.0
17.0
(% of Net Sales)
5.4
7.7
7.9
8.0
8.2
Basic EPS (`)
8.7
14.3
16.5
19.0
22.2
Fully Diluted EPS (`)
8.7
14.3
16.5
19.0
22.2
% chg
51.0
64.9
15.2
15.0
17.0
December 15, 2017
5
Quick take
Ruchira Papers
Balance Sheet
Y/E March (` cr)
FY2016
FY2017
FY2018E
FY2019E FY2020E
SOURCES OF FUNDS
Equity Share Capital
22
22
22
22
22
Reserves& Surplus
98
130
162
199
243
Shareholders Funds
121
153
185
222
266
Minority Interest
-
-
-
-
-
Total Loans
73
70
85
85
85
Deferred Tax Liability
27
29
29
29
29
Total Liabilities
221
252
298
335
379
APPLICATION OF FUNDS
Gross Block
274
290
320
332
342
Less: Acc. Depreciation
101
112
124
137
151
Net Block
173
178
196
195
192
Capital Work-in-Progress
-
3
3
3
3
Investments
-
-
-
-
-
Current Assets
94
123
157
193
244
Inventories
41
55
66
77
91
Sundry Debtors
34
44
55
66
78
Cash
2
2
5
13
30
Loans & Advances
17
22
31
37
45
Other Assets
0
0
0
1
1
Current liabilities
47
54
59
58
61
Net Current Assets
47
69
98
136
183
Deferred Tax Asset
1
1
1
1
1
Mis. Exp. not written off
-
-
-
-
-
Total Assets
221
252
298
335
379
December 15, 2017
6
Quick take
Ruchira Papers
Cashflow Statement
Y/E March (` cr)
FY2016
FY2017
FY2018E FY2019E FY2020E
Profit before tax
32
46
54
62
73
Depreciation
10
11
12
13
13
Change in Working Capital
2
(18)
(26)
(30)
(30)
Interest / Dividend (Net)
6
7
0
0
0
Direct taxes paid
(8)
(11)
(17)
(20)
(23)
Others
(0)
0
0
0
0
Cash Flow from Operations
40
33
23
26
33
(Inc.)/ Dec. in Fixed Assets
(33)
(20)
(30)
(12)
(10)
(Inc.)/ Dec. in Investments
1
1
0
0
0
Cash Flow from Investing
(32)
(19)
(30)
(12)
(10)
Issue of Equity
0
0
0
0
0
Inc./(Dec.) in loans
2
(3)
15
0
0
Dividend Paid (Incl. Tax)
(3)
(3)
(5)
(6)
(6)
Interest / Dividend (Net)
(7)
(8)
0
0
0
Cash Flow from Financing
(9)
(14)
10
(6)
(6)
Inc./(Dec.) in Cash
(0)
0
3
8
17
Opening Cash balances
2
2
2
5
13
Closing Cash balances
2
2
5
13
30
December 15, 2017
7
Quick take
Ruchira Papers
Exhibit 2: Key Ratios
Y/E March
FY2016
FY2017
FY2018E
FY2019E
FY2020E
Valuation Ratio (x)
P/E (on FDEPS)
21.7
13.1
11.4
9.9
8.5
P/CEPS
14.5
9.9
8.6
7.6
6.7
P/BV
3.5
2.8
2.3
1.9
1.6
Dividend yield (%)
0.7
0.8
1.2
1.3
1.3
EV/Sales
1.4
1.2
1.1
0.9
0.8
EV/EBITDA
10.4
7.7
6.8
5.9
5.1
EV / Total Assets
2.2
1.9
1.7
1.5
1.3
Per Share Data (`)
EPS (Basic)
8.7
14.3
16.5
19.0
22.2
EPS (fully diluted)
8.7
14.3
16.5
19.0
22.2
Cash EPS
12.9
19.0
21.9
24.8
28.2
DPS
1.3
1.5
2.3
2.5
2.5
Book Value
53.8
68.1
82.4
98.8
118.5
Returns (%)
ROCE
19.6
23.6
22.7
22.8
23.0
Angel ROIC (Pre-tax)
19.8
23.8
23.0
23.8
25.1
ROE
16.1
21.0
20.0
19.2
18.7
Turnover ratios (x)
Asset Turnover (Gross Block)
1.3
1.4
1.5
1.6
1.8
Inventory / Sales (days)
41
49
51
53
55
Receivables (days)
35
38
43
45
47
Payables (days)
15
17
15
14
14
Working capital cycle (ex-cash) (days)
61
70
79
84
88
Source: Company, Angel Research
December 15, 2017
8
Quick take
Ruchira Papers
Research Team Tel: 022 - 39357800
DISCLAIMER
Angel Broking Private Limited (hereinafter referred to as “Angel”) is a registered Member of National Stock Exchange of India Limited,
Bombay Stock Exchange Limited and MCX Stock Exchange Limited. It is also registered as a Depository Participant with CDSL and
Portfolio Manager with SEBI. It also has registration with AMFI as a Mutual Fund Distributor. Angel Broking Private Limited is a
registered entity with SEBI for Research Analyst in terms of SEBI (Research Analyst) Regulations, 2014 vide registration number
INH000000164. Angel or its associates has not been debarred/ suspended by SEBI or any other regulatory authority for accessing
/dealing in securities Market. Angel or its associates including its relatives/analyst do not hold any financial interest/beneficial
ownership of more than 1% in the company covered by Analyst. Angel or its associates/analyst has not received any compensation /
managed or co-managed public offering of securities of the company covered by Analyst during the past twelve months. Angel/analyst
has not served as an officer, director or employee of company covered by Analyst and has not been engaged in market making activity
of the company covered by Analyst.
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment
decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should
make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the
companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine
the merits and risks of such an investment.
Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and
trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's
fundamentals.
The information in this document has been printed on the basis of publicly available information, internal data and other reliable
sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this
document is for general guidance only. Angel Broking Pvt. Limited or any of its affiliates/ group companies shall not be in any way
responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report.
Angel Broking Pvt. Limited has not independently verified all the information contained within this document. Accordingly, we cannot
testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document.
While Angel Broking Pvt. Limited endeavors to update on a reasonable basis the information discussed in this material, there may be
regulatory, compliance, or other reasons that prevent us from doing so.
This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced,
redistributed or passed on, directly or indirectly.
Neither Angel Broking Pvt. Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from
or in connection with the use of this information.
Note: Please refer to the important ‘Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the
latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Pvt. Limited and its affiliates may
have investment positions in the stocks recommended in this report.
Disclosure of Interest Statement
Ruchira Papers
1. Analyst ownership of the stock
No
2. Angel and its Group companies ownership of the stock
No
3. Angel and its Group companies' Directors ownership of the stock
No
4. Broking relationship with company covered
No
Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors
Ratings (Based on expected returns
Buy (> 15%)
Accumulate (5% to 15%)
Neutral (-5 to 5%)
over 12 months investment period):
Reduce (-5% to -15%)
Sell (< -15)
December 15, 2017
9
