HUHTAMAKI PPL LTD: POWER PACK STOCK !!!

Scrip Code: 509820 / PAPERPROD

CMP:  Rs. 240.30; Market Cap: Rs. 1,747.26 Cr; 52 Week High/Low: Rs. 326.45 / Rs. 176.00

Total Shares: 7,27,11,934 shares; Promoters : 3,99,79,253 shares – 63.78 %; Total Public holding : 2,27,07,937 shares – 36.22 %; Book Value: Rs. 84.71; Face Value: Rs. 2.00; EPS: Rs. 12.36; Dividend: 140.00 % ; P/E: 19.44 times; Ind. P/E: 22.66; EV/EBITDA: 7.77.

Total Debt: Rs. 528.64 Cr; Enterprise Value: Rs. 2,136.06 Cr.

HUHTAMAKI PPL Ltd: Huhtamaki Paper Products Limited was founded in 1935 and is headquartered in Thane, India. The company was formerly known as The Paper Products Limited and changed its name to Huhtamaki PPL Limited in May 2014. Huhtamaki PPL Limited is a subsidiary of Huhtavefa B.V. from Netherlands. The company have given bonuses in two tranches the first was in September 1987 in the ratio of 1:4 and second in September 1993 in the ratio of 1:2, Company also declared splits in the face value of its shares from Rs. 10 to Rs. 2 in January 2007. Huhtamaki PPL Limited provides packaging solutions in India. Its packaging solutions include flexible packaging products, including film, foil, and paper based laminate structures; labelling technologies, which include shrink sleeves, heat transfer, pressure sensitive, metalized paper, and wrap-around; and specialized cartons for packaging of powders and solids. The company also offers packaging machines comprising sleeve application machinery and shrink tunnels, heat transfer applicators, and support on labelling equipment for wrap around and self-adhesive labels; holographic options; metalized films; co-extruded blown films; extrusion coated materials; gravure cylinders; and polyethylene films. It serves various product groups, such as soaps and detergents, shampoos, noodles, biscuits, baby foods, chocolates, coffee, tea, milk powder, and juices. HPPL also exports its products to 5 continents. In 1999, PPL became a member of the Huhtamaki Packaging Worldwide, a global leader in consumer packaging. Huhtavefa BV is the holding company of Huhtamaki Netherlands BV, Netherlands. Huhtamaki is a global consumer & Speciality packaging company with a wide range of packaging products & other paper forming technology. In February 2014, Huhtamaki group increased its stake from 60.77 % to 63.78 % by acquiring 1,88,48,087 shares or 3.01 % stake from Mr. Suresh Gupta, Chairman of HPPL, at a total consideration of Rs. 169.63 Cr or Rs. 90 per share. Further, 1,00,24,744 equity shares were allotted to Huhtamaki group at Rs. 134.08 on 20th August 2014 totalling to Rs. 134.41 Cr, thereby increasing Huhtamaki’s stake from 63.78 % to 68.8 %. PPL has three state of the art & fully integrated manufacturing facilities at Thane, Silvassa and Hyderabad with highly skilled and experienced staff. HPPL is capable of working with the customer from product inception to the super market and with complete control and confidentiality. HPPL has an impressive client list that includes, Levers, Nestle, Cadbury, Britannia, Glaxo Smithkline, Coca Cola, Perfetti, Dabur, Marico, P&G. HPPL has presence across 4 continents: South Asia, Africa, Middle East, Europe and Central America & provides service to over 50 customers worldwide. As of March 31, 2014, HPPL has 51 % stake in its subsidiary based in India named Webtech Labels Pvt. Ltd, which was acquired in Nov 2012 for a consideration of Rs. 37.70 Cr, in an all cash deal. Webtech Labels is specialized in manufacturing high-end pressure sensitive labels, especially to pharmaceutical customers. Huhtamaki PPL can be locally compared with Uflex Ltd, Glory Polyfilms Ltd, Xpro India Ltd, Essel Propack Ltd (Packaging India Pvt. Ltd. - part of Essel Propack group), Shree Rama Multi Tech Ltd, Cosmos Films Ltd, Nahar Poly Films Ltd & from some unlisted players like Uma Polymers, Umax Packaging & Parikh Packaging and globally compared with Avery Dennison Corporation of USA, Ball Corporation of USA, Berry Plastics Group Inc of USA, Crown Holdings Inc of USA, Packaging Corporation of America of USA, Seal Air Corporation of USA, British Polythene Industries PLC of UK, Huhtamaki Oyji of Finland, Smurfit Kappa Group Plc of Ireland, Vetropack Holding AG of Switzerland, Polyplex (Thailand) Public Company Ltd of Thailand, The Pack Corporation of Japan, Lock & Lock Co., Ltd of South Korea, Greatview Aseptic Packaging Company Ltd of China, CPMC Holding Ltd of Hong Kong, Mpact Ltd of South Africa, Nampak Ltd of South Africa.

Investment Rationale:

Huhtamaki PPL Ltd. (HPPL) earlier known as The Paper Products Ltd. is India’s leading manufacturer of primary consumer packaging. HPPL supplies packaging materials for many of the top brands in India and commands about 60 % of market share in premium flexible packaging business. HPPL is India's leading Consumer Packaging Company offering a wide range of packaging solutions like Flexible Packaging, Labelling Technologies and Specialised Cartons and all this is supported by the Packaging Machine Division. HPPL provides the customer with Total packaging solutions. HPPL has very long and eminent clients list which includes all major players in FMCG sector. The company mainly caters to the premium segment of packaging and enjoys 60 % of market shares in premium segment. Its major clients include Britannia, Hector Beverages (Paper Boat), Cadbury, Castrol, Coca Cola, Dabur, Emami, Eveready, GSK, Godrej, Hindustan Unilever, ITC, Marico, Nestle, Pepsi, Perfetti, P&G, Tata Tea, TTK-LIG, Wipro etc. The top ten clients only accounts for 60 % of the HPPL’s revenues. Product-wise, Laminates and Converted, Coated & Uncoated Paper and Films category accounts for a major portion of HPPL’s total revenues. HPPL derives around 80 % of its revenues from the domestic market, while exports account for the balance 20 %. HPPL is like a one stop shop for FMCG companies for their packaging needs. HPPL is specialised in flexible packaging and with a growing trend of processed food market and with the penetration of untapped rural markets by personal care companies, there will be the increase in use of flexible packaging. HPPL is amongst selected few companies worldwide having expertise in holographic images in packaging medium. This makes the packaging look attractive, thus enhancing the product visibility for premium positioning. Holograms are also popular as a deterrent against counterfeits for product protection. The packaging industry in India is expected to reach $ 73 billion in 2020 from $ 33 billion in FY 16. In the coming years, Indian packaging industry is anticipated to register 18 % annual growth rate, with the flexible packaging and rigid packaging expected to grow annually at 25 % and 15 %, respectively. The Indian packaging industry constitutes about 4 % of the global packaging industry. The per capita packaging consumption in India is quite low at 4.3 kgs, compared to countries like Germany where it is 42 kgs and Taiwan where it is 19 kgs. However, organised retail and boom in e-commerce, which offer huge potential for future growth of retailing, is giving a boost to the packaging sector. Today, plastics are the material of choice in packaging for the sectors such as FMCG, food and beverages, pharmaceuticals etc. Globally, plastics comprise of 42 % of packaging with the combination of rigid and flexible plastics in packaging. Plastics are used heavily for packaging due to innovative visual appeal for customer attraction and convenience. Additionally, they improve the hygiene quotient and shelf-life of the products especially in food and beverages segment. As plastics possess versatile properties it can help us do more with less. One such property is light weight. As plastics are light in weight, they have a high product to package ratio which results in lighter weighed end product. For example, only 1.5 pounds of flexible plastics can deliver approximately 60 pounds of beverage; compared to three pounds of aluminium or 50 pounds of glass. Thus, plastic packaging enables in shipping more products with less packaging material. And also brings down the fuel consumption and the overall transportation cost. Huhtamaki PPL Ltd is setting up a new Flexible Packaging manufacturing unit in Assam which is likely to be commissioned during the first half of 2017, to better service its customers based in North East India. The Company's subsidiary, Webtech Labels Private Limited, is setting up a new label manufacturing unit in Sikkim, to service its customers based in North East India and likely to be commissioned during the first half of 2017. Further, the main Label manufacturing unit of Webtech Labels, located at Mahape, Navi Mumbai, primarily catering to Pharma companies will be relocated to a new state of the art facility in the Greater Mumbai Region by the end of 2017. The combined value of these investments/modernisation is expected to be appx. Rs. 65 crores. As the industry grows and matures, there is expected to be a trend towards consolidation as supply side companies merge and acquire smaller companies to increase scale, reduce competition, and improve bargaining power with customers. The main problems faced by MSMEs are: lack of available sources of credit, high cost of packaging materials, lack of skilled labour, irregular power supply, and an underdeveloped sense of how to market, brand, and distribute. Today, flexible packaging is the fastest-growing sector of India’s packaging industry. The shift from traditional rigid packaging to flexible packaging on account of its attractiveness, cost effectiveness, and strength is largely aided by increasing consumer demand for processed food. The future of the Indian packaging industry is very good, if investment materializes. The growth of the domestic market will be good and export potential is substantial, too, if it’s properly addressed. If organized retail takes off as expected, growth opportunities are substantial, and enormous potential exists in converting wasted food into valuable product.

Outlook and Valuation: 

Huhtamaki PPL Limited (HPPL) is a part of Huhtamaki Oyj, Finland and is known for packaging since the company was founded in 1935. Today, HPPL offers a wide portfolio of packaging solutions that include Flexible Packaging, including a variety of Pouching Solutions, Labelling Technologies, Shrink Sleeve solutions, Specialised Cartons, Cylinder Engraving and Specialised Films for high barrier. And all this supported by Packaging Machine Expertise, to provide you with Total packaging solutions. Today HPPL is like One Stop Shop in a true sense. HPPL has a thriving International business, an area of high focus across its technology groups. With 13 state of the art, fully integrated manufacturing facilities at Thane, Silvassa, Hyderabad, Rudrapur, Navi Mumbai, Parwanoo, Khopoli, Taloja, Ambernath, Banglore; a highly skilled and experienced team, HPPL is capable of working with you from product inception to the super market and with complete control and confidentiality. Through close collaborations with customers in developing innovative packaging solutions, HPPL delivers truly meaningful brand experiences for consumers. HPPL’s technical excellence and superior quality standards help its customers in improving aesthetics, increasing shelf life & handling transportation of their products. HPPL is a pioneer and the market leader in flexible packaging in India and has a market share of 60 % in premium flexible packaging business and about 9 % overall in the organized market, which is of about $2 billion by size. It has currently, installed capacity of for paper & films is about 52,000 MT and company’s capacity utilization rate is 75 % to 80 %. HPPL successfully meets the packaging needs of almost entire range of FMCG segments including personal products, personal wash, laundry, foods, sauces, beverages, bakery products, spices, chocolates and confectionery, dairy and also for seeds, specialized chemicals, electronics, healthcare and many other specific specialized uses including anti-spurious packaging. HPPL thus enjoys Competitive advantage due to use of its superior technology & capability. HPPL has an MNC Tag and with diverse products & Strategic acquisition of competitor, adds to its competitive advantage. India is a growing market for plastics and consumes about 12.8 million metric tonnes (MMT) of plastics annually against global consumption of 285 MMT per year. The plastics and polymer consumption is growing at an average rate of 10 %. About 30,000 processing units with 113,000 processing machines have created manufacturing capacity of 30 MMT per annum in India. This has been achieved with a 13 % CAGR of processing capacity during last 5 years. The industry has invested $5 billion in the machinery and it is expected to invest $ 10 billion more for increasing the capacity during the next 5 years. The per capita consumption of polymers in India during 2014-15 was just 10.5 kg as compared to 109 kg in USA, 45 kg in China and 32 kg in Brazil. India is expected to be among the top ten packaging consumers in the world by 2016. The low level of per capita plastics consumption in India is indicative of the massive growth potential of the plastic industry. Give n the rising consumerism and modern lifestyles, it is expected that per capita consumption will be doubled in the next five years. On financial side the company’s net profit stood at Rs. 16.79 Cr as against Rs. 15.97 Cr in the corresponding quarter ending of previous year, an increase of 5.13 %. Revenue for the quarter rose by 6.76 % to Rs. 557.47 Cr from Rs. 522.19 Cr, when compared with the prior year period. During the quarter, company reported EBIDTA of Rs. 59.94 Cr as against Rs. 55.33 Cr in the corresponding period of the previous year, up by 8.33 %. During Q3 CY16, Profit before tax up by 38.26 % to Rs. 29.09 Cr from Rs. 21.04 Cr in Q3 CY15. EPS of the company stood at Rs. 2.31 a share during the quarter, as against Rs. 2.20 over previous year period. During 9M CY16, Net sales up by 9.66 % to Rs. 1,655.26 Cr from Rs. 1,509.39 Cr in 9M CY15. During the nine months ended 2016, net profit was increased by 23 % to Rs. 69.33 Cr from Rs. 56.37 Cr over the nine months ended 2015. Net Sales PAT of the company are expected to grow at a CAGR of 23 % and 17 % over 2014 to 2017E, respectively. Huhtamaki PPL Ltd is setting up a new Flexible Packaging manufacturing unit in Assam which is likely to be commissioned during the first half of 2017. Huhtamaki PPL Ltd. is one of the most prestigious flexible packaging companies in India and is continuously taking up new initiatives to expand its presence overseas to tap the vast potential in the global markets. With the recent acquisition of Positive Packaging Ltd., the manufacturing capabilities of HPPL are expected to increase considerably which in turn will increase the revenues for the Company. The Company is a market leader in the flexible packaging industry in India and has reputed clients like HLL, Colgate, Nestle, etc. It is expected that the projected growth rate of 15 % in the flexible packaging industry will positively impact HPPL in the future. At the current market price of Rs. 240.30, the stock is trading at a PE of 19.66 x FY16E and 16.50 x FY17E respectively. The company can post Earnings per share (EPS) of Rs. 12.22 in FY16E and Rs. 14.56 in FY17E. It is expected that the company’s surplus scenario is likely to continue for the next three years keeping its growth story in the coming quarters also.

KEY FINANCIALS	FY14	FY15	FY16E	FY17E
SALES (₹ Crs)	1,225.34	2,037.38	2,229.45	2,474.69
NET PROFIT (₹ Cr)	66.60	76.93	88.85	105.89
EPS (₹)	9.16	10.58	12.22	14.56
PE (x)	25.56	22.13	19.16	16.08
P/BV (x)	3.01	2.76	2.42	2.10
EV/EBITDA (x)	12.00	7.77	7.13	6.36
ROE (%)	11.02	12.78	13.12	13.44
ROCE (%)	28.69	32.07	32.00	32.42

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This is a personal blog and presents entirely personal views on stock market. Any statement made in this blog is merely an expression of my personal opinion. These informations are sourced from publicly available data. By using/reading this blog you agree to (i) not to take any investment decision or any other important decisions based on any information, opinion, suggestion, expressions or experience mentioned or presented in this blog (ii) Any investment decisions taken if any would be his/hers sole responsibility. (iii) the author of this blog is not responsible. 

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