Paper Product

20 February 2014 Result Update Q3, FY 14 CMP- Rs. 79

Paper Product (PPL) reported quarterly and CY number. On quarterly basis top line grew by 23% (YoY) while EBIDTA grew by 14% while EBIDTA margin declined by 75bps. On full year basis PPL reported top line growth of 20% (cons.) while EBIDTA margin improved by 100 bps. ~ Standalone entity grew by 12% on full year basis while on quarterly basis standalone entity posted 18.9% (yoy) and 3% (qoq). ~ Gross margin of standalone entity declined to 27% from 31% in Q4,12 hence EBIDTA margin declined only 130 bps due to better product mix and cost efficiency. Volatility in currency is major culprit in fall of GP margin. ~ Management expects that GP margin has bottomed out at current level and expect reach to normal level in coming future. ~ Last year PPL had spent almost Rs. 31 cr. on capital expansion and for CY 14 PPL guided for Rs. 70 crore Capex. However We believe given a economic circumstance company will spent around Rs. 45 crore. ~ Subsidiary is almost 1/10 of size of PPL Standalone entity. We expect this company to grow faster than standalone entity because of low base. ~ Subsidiary posted healthy top line growth mainly because of low base. EBIDTA Margin of subsidiary company is also healthy around For Private Circulation Only

20%. Management also indicated that margin of this company will stabilized around 16% as scale of operation grow. ~ Management guided Rs. 20 cr. capex in CY 14 for this subsidiary. ~ CY 13 company generated healthy CFO of Rs. 51 crore. ~ Company expects despite slow down indias consumption story still intact and expect 5 years CAGR of 12-15%.

Reference Items Gross Margin % EBIDTA Margin % EBIT Margin % EBT Margin % PAT Margin %

Q4,13 29.0% 9.7% 5.9% 5.6% 6.2%

Q4,12 32.0% 10.5% 6.2% 6.0% 4.4%

bps -306 -75 -30 -38 180

Q3,13 30.5% 9.6% 5.7% 5.3% 3.4%

bps -151 8 19 23 276

Anand Rathi Retail Research

Paper Product
20 February 2014 Result Update Q3, FY 14 CMP- Rs. 79

Income Statement (consol) Net Sales Growth % Cost of materail GP Employee Other Expenses EBIDTA Depreciation EBIT Finance Cost EBT Other Income Forex Gain/( loss) Exceptional Gain PBT Tax Net Income

Q4,13 281.47

Q4,12 229.39

Var % 22.7

Q3,13 269.44

Var % 4.5

Financial Estimates (Cons.) Sales EBIDTA

CY 12a 900.6 91.2 10.1% 45.1 7.20

CY 13a 1085.5 116.8 10.8% 56.2 8.98

CY 14e 1222.0 128.7 10.5% 59.1 9.44

CY 15e 1389.5 146.7 10.6% 67.1 10.72

199.98 81.49 18.9 35.19 27.4 10.77 16.63 0.93 15.7 0.77 0.15 7.05 23.37 5.94 17.43

155.96 73.43 18.34 31.03 24.06 9.82 14.24 0.57 13.67 1.72 0.24

28.2 11.0 3.1 13.4 13.9 9.7 16.8 63.2 14.9 -55.2 -37.5

187.36 82.08 22.89 33.19 26 10.6 15.4 0.99 14.41 0.68 1.07

6.7 -0.7 -17.4 6.0 5.4 1.6 8.0 -6.1 9.0 13.2 -86.0

EBIDTA Margin Net Income EPS

Figures are in Rs. Cr. except per share data

~ Valuation: We are revising our target price from Rs. 84.6 to Rs. 95. We expect company will grow at 13% CAGR from CY13-15. Currently stock is quoting at 7.2x and 8.2x PE for CY14e and CY 15e respectively. On EV/EBIDTA front PPL is quoting at 3.7x and 3.3x for CY 14e and CY15e respectively. At our target stock implied PE is 8.9x for CY 15e. Risk: Slowdown in economy will impact consumer expenditure hence volume of the company can be impacted. Currency fluctuation can lead to deterioration of margin.

15.15 5.08 10.07

54.3 16.9 73.1

14.02 4.78 9.24

66.7 24.3 88.6

Figures are in Rs. Cr. except per share data

For Private Circulation Only

Anand Rathi Retail Research

Paper Product
20 February 2014 Result Update Q3, FY 14 CMP- Rs. 79

CA Vivek Gujrati vivekgujrati@rathi.com Tel No: +91 22 4001 3867

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