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

As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % on every purchase. (Why Strict stop loss of 8 % ?) -  Click Here

*Read my previous posts on HPPL CLICK

*As the author of this blog I disclose that I do not hold  HUHTAMAKI PAPER PRODUCTS LTD in my any of the portfolios.

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Disclaimer: 

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. 

As a Disclosures I Confirm that : 
I confirm that I shall not deal or trade in securities mentioned in this article within thirty days before and five days after the publication of this article. I also confirm that I will not deal or trade directly or indirectly in securities mentioned in this article in a manner contrary to the ideas put forth in the article. I have not received any financial compensation for writing this article. 

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COSMO FILMS LTD : FULL PACKAGE !!!

Scrip Code: 508814 / COSMOFILMS

CMP:  Rs. 382.70; Market Cap: Rs. 743.97 Cr; 52 Week High/Low: Rs. 411.40 / Rs. 176.85

Total Shares: 1,94.40,076 shares; Promoters : 84,58,439 shares – 43.51 %; Total Public holding : 1,07,05,241 shares – 55.07 %; Book Value: Rs. 234.01; Face Value: Rs. 10.00; EPS: Rs. 49.61; Dividend: 100.00 % ; P/E: 7.71 times; Ind. P/E: 6.95; EV/EBITDA: 11.67 times. Total Debt: Rs. 422.39 Cr; Enterprise Value: Rs. 1,141.57 Cr.

   

COSMO FILMS LTD: The Company was incorporated on October 7, 1976 and based in New Delhi. Cosmo Films Limited is a manufacturer of semi-finished products of plastics. The Company is engaged in the manufacturing of bi-axially oriented polypropylene films (BOPP) and thermal films. The company came with an IPO in 1980 with an offer of 4,41,000 equity shares of Rs. 10 each at par. The company gave bonus in March 2003 in ratio of 1:1, and has not given any Split in face value of its shares. COSMO FILMS operates through two segments: Packaging Films and Others (Equipments and Parts). Their geographic segments include India and outside India. Its product portfolio consists of packaging films, including print and pouching films, barrier films and overwrap films; lamination films, including dry (thermal) lamination films and wet (print) lamination films; label films, including pressure sensitive label stock films, direct thermal printable films and wrap around label films, and industrial films, including synthetic paper, and tape and textile films. The Company has manufacturing facilities spread across India, the United States and Korea. It has a manufacturing capacity of over 136,000 metric ton per annum of BOPP films, approximately 40,000 metric ton per annum of thermal lamination films. COSMO FILMS Ltd is locally compared with Xpro India Ltd, Uflex Ltd, Fenoplast Ltd, Caprihans India Ltd, Glory Films Ltd, Essel Propack Ltd, Huhtamaki PPL Ltd, Jhaveri Flexo Industries. 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:

Cosmo Films Ltd, established in 1981, today is one of the global leaders and manufacturers of Biaxially Oriented Polypropylene (BOPP) films used for packaging, labels and lamination applications. The company is the largest exporter of BOPP films from India and is also the largest producer of thermal lamination films in the world with plant cum distribution centres in India, Japan, Korea & the U.S along with global channel partners in more than fifty countries. Cosmo Films, being a professionally managed Public Limited Company has a strong presence in flexible packaging films. In speciality films segment beside thermal films, wet lamination, synthetic paper, high barrier films, coated films are key products. Cosmo is the largest producer of thermal lamination films in the world. In commodity, Cosmo manufactures tape and textile films as well as packaging films. Within the packaging segment, company manufactures films such as heat sealable, plain, metallized, opaque films as well as speciality films such as stable slip film, low SIT films, high hot tack films, low COF films and extrusion coat able metallized films. In labels Cosmo has almost a complete range of films for wrap-around, in-mould and self-adhesive applications in transparent, metallized and opaque which can work with almost all kinds of printing inks. Company’s products are popular in domestic and overseas markets. Cosmo is the only company acting as a one-stop shop for laminating solutions i.e. the films and the laminating equipments. In India with economic growth and rising personal disposable income which are the growth drivers for the consumer goods sector, in turn improves the demand for packaging. The Packaging industry is expected to grow around 10-12 % CAGR in the medium term. With Growing rural demand, retail push, planned investments by large MNCs in the FMCG business and with the strong fundamentals of the Indian economy, will boost the growth in FMCG and this will consequently boost the growth for packaging. As per Indian Brand Equity Federation (IBEF), FMCG industry in India is expected to grow at a CAGR of 14.7 % between 2012 and 2020, which will also help the growth of the packaging industry. With the increasing penetration in the rural and semi-urban areas along with the Government initiatives to boost the rural infrastructure is likely to improve the demand for FMCG products, thus in turn would indirectly will benefit the specialized flexible packaging players like Cosmo Films, who offers value addition in the form of both product specific like high speeds on product filling lines, insulation from heat & moisture, high strength for supporting long distance transportation, holographic images etc. & custom designed packaging solutions like brand image protection, protection from counterfeit and cost effectiveness. The management has indicated that certain trends like - use of plastic tubes instead of metal tubes and PET bottles instead of glass bottles would drive its addressable markets. Recent trend of using pouches instead of rigid packs for hair/edible oils would expand its market size further. There is expected to be a strong growth in packaged food industry, change in pack format from rigid packaging to flexible packaging, balanced demand-supply scenario will keep pricing power stable over the medium term. Cosmo’s capacity expansion and product mix strategy will yield better operating performance and superior earnings growth in the industry over the next few years. Cosmo Films is one of the lowest cost BOPP manufacturer and is the fifth largest player in the world. The company manufactures packaging films, lamination films, label films and industrial films for various packaging applications. Cosmo Films has a business model based on business to business (B2B) with strong presence in global and domestic market. The company caters to clients in more than 100 countries with a major presence in USA, Europe, Japan and India. With a diversified client base and complete solution to packaging sector, Cosmo has positioned uniquely to tap increased opportunities in the BOPP films industry. The company sources polypropylene (a key raw material) from domestic oil & gas companies like RIL, IOC, HPCL and imports from Middle East (10 per cent). Raw material cost is 64 % of operating revenues and the company doesn’t get benefit of lower input cost in the P&L due to cost plus operating model. Sustainable improvement in EBITDA margin is largely dependent upon product mix strategy, better capacity utilization and efficiency in operation (like savings in power cost and automation reducing man hours etc.). Cosmo Films enjoys significant entry barriers in specialty films segment. The company has built unique small size production lines for specialty films to offer customized and innovative product for premium consumer products. Notably, specialized films are selling 2.5x premium to traditional BOPP films, a key profitability driver over the long term. The company is one of the lowest cost manufacturer of BOPP films in the world. The difference between manufacturing BOPP films in India and China is very minimal. Moreover, import duty of 7.5 % along with freight cost attached to imported films makes import an unattractive option for domestic BOPP end-user industries. Hence, BOPP films imported from China will not adversely impact pricing power and supply scenario in domestic market. COSMO FILMS being one of the leader in the industry has very strong footing and has strong cash flow which thrusts the growth for the company, and strong financials with sustained cashflow makes it attractive for long term investment.

Outlook and Valuation:

Cosmo Flims is a leading manufacturer of BOPP films and specialty films with 20 % market share. The company offers cost-effective innovative packaging solutions to leading FMCG and global brands. Over the years, the company expanded product portfolio to improve profitability and growth. Its products include newer products like thermal, coating and metalizing films besides the traditional BOPP films. The company has three manufacturing facilities in India and one each in Korea and USA. It caters to clients in more than 100 countries with major presence in USA, Europe, Japan and India. The company derives 50 % sales from export market and balance 50 % from domestic market. Out of export sales, 70 % is value-added high margin specialty films. The Global BOPP demand is estimated to be 72 lakh MT growing at 5-6 % annually with balanced demand-supply situation. Domestic BOPP Films industry has grown 12 % CAGR aided by strong growth in flexible packaging industry over the last five years. During FY12-13, the industry saw sharp decline in profitability due to intense pricing pressure and significant over-capacity leading to lower utilization. Cosmo Films and other players in the industry also witnessed steep decline in gross profit margin and EBITDA margin during the same period. Now, pricing, profitability and demand-supply trends have reversed in FY15-FY16. At present India’s BOPP production is estimated at approx. 5 lakh MT per annum. Domestic BOPP consumption is approx. 3.5 lakh MT per annum and export from India is about 1.1 lakh MT per annum. The Indian BOPP Industry has been growing at almost double of India’s GDP growth rate. Current demand-supply scenario coupled with capacity utilization shows reasonable stable trend on pricing power front. In order to benefit from attractive industry outlook, Jindal Poly and Cosmo Films are expanding BOPP capacity over the next two years by 30000 MT and 60000 MT respectively. There is a strong growth in packaged food industry, change in pack format from rigid packaging to flexible packaging, balanced demand-supply scenario will keep pricing power stable over the medium term. Cosmo’s capacity expansion and product mix strategy will yield better operating performance and superior earnings growth in the industry. Cosmo Films is also working towards operational efficiency by cost-containment measures. The company will save power cost around Rs. 15 crore and Rs. 25 crore in FY16 and FY17 respectively due to change in power procurement from State grid to long-term power purchase agreement (PPA) from private players and lower power consumption. Upgradation of manufacturing facilities will increase automation in plant operation and reduce power consumption per unit of production. We believe that power cost-saving / automation measures along with efficient raw material procurement make Cosmo Films the lowest cost BOPP film manufacture in the world. Moreover, refinancing of existing loans at lower rates will reduce interest cost in coming years. The company has net debt of Rs. 390 crs, of which Rs. 220 crore are foreign currency loans with natural hedge in the form of exports revenues and financial hedge. Its major competitors are Jindal Poly (210000 MT), Max Films (54000 MT), Nahar Poly (30000 MT), Taghleef UAE (410000 MT) and Terofan (132000 MT). We believe full-fledged BOPP films product portfolio, lowest cost of production and diversified client base are key strengths to sustain profitability and improve market share. Cosmo Films has a lean working capital across business cycles, reflecting underlying superior business operation. The company has improved core working capital as percentage of net sales from 14 % in FY14 to 11 % in FY15, aiding to operating cash flows. The company has announced a capacity expansion of 60,000 MT costing Rs.200 crore funded by internal accrual and debt. The company has already obtained financial closure on the project. Post the expansion, installed capacity is expected to increase to 1,96,000 MT by January 2017. It is expected that the free cash flows to increase driven by core operational performance. The company has healthy balance sheet with reasonable leverage like decline in net debt to equity from 1.4x in FY14 to 1.2x in FY15. The lean working capital cycle, reasonable balance sheet leverage and healthy free cash flows are a rare combination in a slow industrial growth environment and makes one of the reason of better investment candidate. At the current market price of Rs. 382.70, the stock is trading at a PE of 6.98 x FY17E and 6.10 x FY18E respectively. The company can post Earnings per share (EPS) of Rs. 54.82 in FY17E and Rs. 62.73 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	FY15	FY16	FY17E	FY18E
SALES (₹ Crs)	1,646.78	1,620.62	1,766.47	1,943.12
NET PROFIT (₹ Cr)	27.66	96.24	106.57	121.94
EPS (₹)	14.23	49.51	54.82	62.73
PE (x)	22.76	6.54	5.91	5.16
P/BV (x)	1.65	1.38	1.12	0.93
EV/EBITDA (x)	9.30	4.78	4.22	3.74
ROE (%)	7.27	21.09	18.93	18.01
ROCE (%)	18.15	29.06	28.72	28.31

As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % on every purchase. (Why Strict stop loss of 8 % ?) -  Click Here

*As the author of this blog I disclose that I do not hold  COSMO FILMS LTD in my of the portfolios.

**Dear Reader Friends, if you enjoyed this article then please do share it with your friends & colleagues through Facebook and Twitter, also do drop in your valubale thoughts in comment box...
So, grab a fresh hot cup of coffee, turn on your net & browse on to www.bhavikkshah.blogspot.in & take out few minutes to get to know the most interesting world of investment... Till then HAPPY INVESTING, don't forget to Share !! 

-------------------------------------------------------------------------------------------

-------------------------------------------------------------------------------------------
Disclaimer: 

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. 

As a Disclosures I Confirm that : 
I confirm that I shall not deal or trade in securities mentioned in this article within thirty days before and five days after the publication of this article. I also confirm that I will not deal or trade directly or indirectly in securities mentioned in this article in a manner contrary to the ideas put forth in the article. I have not received any financial compensation for writing this article. 

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READ HERE TO KNOW MORE ON LONG TERM INVESTING - CLICK HERE

VIEW THE POWER POINT PRESENTATION ON

RETURN ON CAPITAL 

HUHTAMAKI PAPER PRODUCTS LTD: A MUST IN YOUR PACK !!!

Scrip Code: 509820 / PAPERPROD

CMP:  Rs. 269.95; Market Cap: Rs. 1,962.85 Cr; 52 Week High/Low: Rs. 331.95 / Rs. 167.05; Total Shares: 7,27,11,934 shares; Promoters : 5,00,03,997 shares – 68.77 %; Total Public holding : 2,27,07,937 shares – 31.23 %; Book Value: Rs. 77.11; Face Value: Rs. 2.00; EPS: Rs. 8.41; Dividend: 140.00 % ; P/E: 32.09 times; Ind. P/E: 23.01; EV/EBITDA: 15.23.

Total Debt: Rs. 19.21 Cr; Enterprise Value: Rs. 1,974.89 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 63.78 % by acquiring 3.01 % stake from Mr. Suresh Gupta, Chairman of HPPL, at a total consideration of Rs. 169.63 Cr. Further, 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 Ecoplast Ltd, Yashraj Containeurs Ltd, Gopala Polyplast Ltd, Perfectpac Ltd, Ocean Agro (India) Ltd, Xpro India Ltd, Kanpur Plastipack Ltd, Kuwer Industries Ltd, paramount Printpackaging 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. 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. HPPL derives almost 96 %-98 % of its revenues from the FMCG industry. Hence the company’s growth is largely linked to the growth of FMCG industry. Indian packaging industry is among the fastest growing sectors spanning across almost every industry segment and ranked 11th largest in the world. India has the second largest GDP among emerging economies based on purchasing power parity (PPP). The packaging industry in India is one of the fastest growing industries which have its influence on all industries, directly or indirectly. It is currently valued at USD 350 million and is expected to rise to USD 1.3 trillion by 2016. The development in the packaging industry in India is mainly driven by the food and the pharmaceutical packaging sectors. Growing Indian middle class coupled with the growth in organized retailing in the country are propelling growth in the packaging industry. Another factor, which has provided substantial stimulus to the packaging machinery industry, is the rapid growth of exports, which requires superior packaging standards for the international market. With this the need for adopting better packaging methods, materials and machinery to ensure quality has become very important for Indian businesses. One of the most vital factors has been declining inflation trend in the country translating into declining prices of the food and beverages (constituting ~49% of the WPI). The Indian packaging industry is growing continuously. The average annual growth rate is about 13 – 15 %. However, there is great growth potential since India’s per capita consumption of packaging is only 4.3 kgs whereas neighbouring Asian countries like China and Taiwan show about 6 kgs and 19 kgs, respectively. India’s per capita annual packaging expenditure was USD 20 in 2011, which is significantly lower than the top 20 market average of USD 347.6. The low per capita expenditure offers a huge business opportunity for packaging companies. The per-capita consumption of packaged beverages and food in India is still very low compared to other regions. However, expenditure on these products has doubled in the last five years. Within the next five years it will increase by another 14 % annually, as the demand for processed food is rising due to growing disposable incomes, urbanization, and a young population. This clearly indicates that there are many more commodities which need to be marketed in packaged condition and thus, a great business opportunity stands for the Indian packaging industry. Moreover, the Indian retail market is the 5th largest retail destination, globally and has been ranked the second most attractive emerging market for investment. India’s retail growth and increased consumption of consumer products is driving the demand for packaging in the country. Packaging has an annual global turnover of about $550 billion, and India’s share is about $16.5 billion per annum. According to a recent Mckinsey report, there will be a ten-fold increase in India’s middle class population by 2025, which will further trigger the consumption of packaging materials. This will bring another growth spurt to packaging, says the Mckinsey report, which also notes that the country needs more packaging professionals. According to the Packaging Industry Association of India (PIAI), packaging in India is one of the fastest growing sectors, partly because it spans almost every industry segment. Right from packaging of food and beverages, fruits and vegetables, drugs and medicines, to highly dangerous products, packaging has led to greater specialization and sophistication over a period of years. In the Indian packaging industry, processed food packaging represents 48 % of the total, personal care packaging is 27 %, pharma is 6 %, and the rest is 19 %, packaging in India is highly fragmented and has 22,000 firms, including raw material manufacturers, machinery suppliers, and providers of ancillary materials and services. Moreover, 85 % of these firms are Micro, Small & Medium Enterprises (MSMEs). 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:

Clients of the HPPL

HPPL established in 1935 as Paper Products Ltd is a pioneer and the market leader in flexible packaging in India and has a market share of 60 % + 6 % of PPL in premium flexible packaging business and about 9 % overall in the organized market, which is of about $2 billion by size. It has its manufacturing facilities at Thane, Silvassa, Hyderabad and Rudrapur. The current installed capacity of HPPL for paper & films is 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. HPPL has expanded its business into promising overseas markets with a view to benchmark itself with the global competition and has presence across 4 continents (South Asia, Africa, Middle East, Europe and Central America) & provides service to over 50 customers worldwide. HPPL has its International Business Division set up as a separate business group servicing large Multinational accounts across 4 continents and over 50 customers worldwide. In 2014, the company acquired 100 % stake in the Positive Packaging Industries Ltd for Rs. 794 Crore and completed the takeover deal in January 2015. Positive Packaging Industries has an annual turnover of approximately Rs. 1,000 crore and enjoys 6 % market share. It is a privately owned flexible packaging company with nine manufacturing facilities in India and the UAE as well as significant business in Africa and other export markets. With the completion of the acquisition, Huhtamaki is looking forward to improving its flexible packaging manufacturing capabilities into Middle East and expects to double its sales in Africa. The benefits are likely to be reflected in its CY15 numbers. The current installed capacity of HPPL is 52,000 MT with utilisation rate of 75 % to 80 %, whereas PPIL’s total installed capacity is at 45000 MT. After the completion of this acquisition, HPPL’s total manufacturing capabilities will stand at whopping 86 % increase at 97,000 MT, thereby increasing the utilisation rate of the company, henceforth impacting the revenues positively. It will also enable HPPL to gain further bargaining power with its customers, to achieve better economies of scale, to extend its customer network and would also help synergies in sourcing of inputs and up-gradation in technology. With the desired manufacturing capabilities, the company will gain hold of industrial and pharmaceutical product packaging thereby diversifying product coverage and strengthening its integrated capabilities. Going forward, PPL will be able to revive its products offerings and also take advantage of already established capabilities in order to widen its product portfolio in the domestic market as well. The HPPL creativity program, called NASP (New Applications, Structures and Products-Processes) is one of the major drivers of growth for the Company. The Company maps the sales of NASP products introduced into the market using a 3 year cycle, and calls these NASP sales. During CY14, the NASP sales contribution to the overall sales was around 29 %, helping to drive growth. The Company’s management in their NASP program has jointly worked with their customers to deliver cost savings using smart ideation and technology wherein a wide array of products like tea, coffee, shampoo, confectionery, pickle, etc. would be made available in packs at a price of one rupee. The NASP first objective is to create new business through finding new applications and markets for existing structures and technology processes. The second objective is to introduce new packaging products and structures and technology processes not only for new applications and markets, but also to offer new technically superior solutions or solutions which add value to the brand being packaged, or, importantly, solutions which offer cost advantage without compromising performance. Hence, the NASP exercise creates new business, but as importantly, it also protects or even improves existing business share from a customer by creating improved packaging solutions, or improving cost competitiveness. The packaging market in India is all set for the next level of growth. Strong favourable demographic factors such as increasing disposable income levels and rising consumer awareness and demand for processed food are boost for this sector. With the rise of the Indian middle class which is expected to go up from today’s 5 Cr to 58.3 Cr by 2025 the prospects of the industry looks good. Also important is that the world’s multinational giants are taking rapid strides in India’s food, beverage, health and beauty, and pharmaceuticals sectors. This will also drive growth in packaging. These factors are forcing both packaging suppliers and end users to shift from bulk packaging to retail, unit-level, small-sized packaging. In addition, exploding organized retail growth and newly relaxed investment norms in retail and other sectors augur well for the packaging market in India. HPPL has surpassed the FMCG and Pharma industry growth rate over last three years growing at an average rate of 16.3 % as compared to 14.8 % growth in the former and 11 % growth in the latter. The packaging industry growth is expected to propel from current 15 % annually to more than 20 %. HPPL being one of the largest players in India commanding 10 % of the total packaging market and close to 66 % of the flexible packaging market share is a key beneficiary of the changing dynamics in the packaging industry. HPPL has reported a moderate growth of 4.4 % YoY in its standalone revenue in Q1CY15 at Rs. 283 Crore. EBITDA for the same period stood at Rs. 36.3 Crore showing a growth of 31.3 % YoY mainly due to decrease in the stock pileup of the Company that declined by 44.7 % and fall in expenses on raw materials by 1.7 %. PAT was reported at Rs. 18.3 Crore in Q1CY15 showing an increase of 11.1 % on a YoY basis. The growth in the bottom-line in Q1CY15 was as a result of an increase in other income by 118 % on YoY basis offsetting the increase in depreciation, interest and tax expenses. At CMP, HPPL is trading at a significant premium to its nearest competitor Uflex. This is despite Uflex having a larger business size & higher operating margins. Even on Market Cap to Sales and Price to BV basis, HPPL is relatively expensive than Uflex. This is possibly due to the competitive advantage that HPPL enjoys over Uflex. 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. With the acquisition of PPIL the value for HPPIL stake in PPIL comes at Rs. 87.41 per share and stake in Webtech Labels Pvt. Ltd comes at Rs. 6.01 per share. At the current market price of Rs. 269.95, HUHTAMAKI PAPER PRODUCTS Ltd stock trades at P/E ratio of 22.00 x FY16E and 17.33 x FY17E respectively. Company can post Earning per share (EPS) of Rs. 12.27 for FY17E and Rs. 15.57. One can buy this stock with expectations 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)	1,225.33	2,175.00	2,436.00	2,728.32
NET PROFIT (₹ Cr)	60.33	76.49	89.23	113.22
EPS (₹)	9.09	10.52	12.27	15.57
PE (x)	19.90	23.80	20.40	16.10
P/BV (x)	2.30	2.90	2.70	2.40
EV/EBITDA (x)	9.20	9.00	7.90	7.10
ROE (%)	12.60	12.90	13.70	15.50
ROCE (%)	15.70	17.00	15.20	17.30

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*HPPL has given ABSOLUTE RETURN of 43.49% from last recommended CLICK

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