Checklist

Sl no Category

1 Industry & Market Size

2 Competition

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3 Business

4 Financials

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5 Shareholding

6 Due Diligence

7 Valuation

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8 Risk Management

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What products/services is the company into?

What is the market size and what has been the industry growth rate?

What has been the rate of technology change in the industry?

Who are the key influencers on the buying decision?

How has the industry changed over the past 10 years?

What is the extent of Govt regulation/interference?

Is the industry structure consolidated or fragmented?

What is the share of organized and unorganized players?

Is the company a Top 3 player in the industry?

What is the extent of product/service differentiation across competitors?

Is the demand cyclical or structural?

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Who are the firms customers & suppliers?

Is this a business driver or a business enabler?
What is the annuity component of the business?

Is demand capacity utilization or capacity expansion driven?

Can this business grow at 12%+ over the next 5 - 10 years? Why?

Notes on Balance Sheet

Notes on P&L

Notes on Cash flow

What is the current capacity utilization?

What has been the trend in working capital over the period?

What capex plans has the company announced?

Does the company have avenues to invest cash back into the business?

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How has realization been growing over the period?

What is the incremental ROIC expected to be?
Is the company forced to give aggressive discounts to push sales?
What has been the investment into ASP over the years?
Has the company been working on product portfolio expansion?

What is the promoter holding?

What is the MF/DII/FII holding?
Who are the marquee investors currently invested?

Split/Bonus actions?

What is the quality of voluntary disclosures in the AR?

Has the management followed through on past announcements/strategies?

Has the accounting policy been consistent over the years?

Has the depreciation been consistent over the years?

What is the promoter remuneration?
What are the related parties & transactions? If this is a business group, how well are the
other entities being managed?
Any over the top statements/plans by the management?

Has the management shown the tendency to bite off more than they can handle?

Equity dilution/accelerated debt raising instances?

How has the management been allocating capital over the years?
What proportion of the promoter holding is pledged?

What scenario is the CMP discounting?

What parameters is the valuation most sensitive to?

What real world events need to play out for this growth rate to materialize?

What is the margin of safety on offer?

Stock discovery process - what stage are we at?

How many analysts regularly track the stock?
Does this offer a realistic possibility of 2X in 3 years?

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Risk of rapid technology obsolescence?

Risk of Govt intervention/regulation?

Customer concentration risk?

Commodity Risk?
Invisible/Quasi debt?
Valuation Risk wrt growth?

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Notes
Paperboard based packaging solutions for clients in the Liquor, cigarette & FMCG space, conversion work for some clients
their specifications & corrugated boxes
Scope of services includes -
Designing the folded cartons based on inputs from brand managers and ad agencies
Programming the printers to print the artwork using the right combination of ink, labels etc followed by laminations, pressing
other associated activities
Deliver the finished product to client packaging centers in flat form
Assist client teams in coding the right combination for the CNC machines in folding the cartons the right way
Market size for paperboard packaging appears to be in the range of 12000 -13000 Cr per annum
Paperboard market growing at 7.5-8% per annum with value added segment (used in packaging) growing at 10%+ as per I
SBU & other sources

Technology is imported from Europe, most players in the segment end up buying from the same tech vendors (KBA Germa
Refresh of technology is periodic with large investments needed into building assets that can be used to print
1) Brand Management team of FMCG players to ensure the right message through packaging
2) Creative agency in charge of the campaign design & execution
3) Procurement teams for commercial & sourcing discussions
4) Packaging shop floor teams to integrate on the actual packaging execution
Packaging is assuming greater importance in the end segments due to -
1) Premiumization
2) Greater range of sizes due to pricing pressures & packaging regulations
3) Modern retail where customers picks the product off the shelf as opposed to asking for a particular product in a mom and
kirana store
4) Customers demanding a lifestyle product in the affluent segment

On an average 3-6% of sales is being spent on packaging by clients which indicates that packaging is a large component o
marketing and branding efforts. This is surely not a commodity anymore

Minimal other than the following -

1) Packaging regulations from time to time
2) Import duties on raw material (paperboard)
3) Excise duty on paperboard manufacturers and packaging players

From the point of view of paperboard makers Govt interference is huge due to a deficit of raw materials and controllership o
land by the Govt. Raw materials will either need to be captively developed, bought from forest dept or imported

Paper Mills Consolidated structure due to lack of access to raw materials, scale needed to spread process manufacturing

Packaging players -

Low end box manufacturers Dime a dozen, long tail of unorganized players
High end packaging manufacturers Consolidated structure (ITC Packaging, Parksons Packaging, TCPL Packaging, Ruby
(now MVW), Manipal Packaging, Borkar Packaging)

No clear data available on this, ITC is the largest player by far followed by other players each with 3-6% market share
Yes, appears to be a Top 5 if not Top 3
Differentiation in quality and integration with customer organization is high compared to unorganized players
Within large organized players the difference is minimal, customer relationships will be the key differentiator in combination
strength of the balance sheet

Structural since demand drives off categories that are traditionally slow to medium growth industries (lower to higher single
Demand can show spikes and troughs but nature is surely not cyclical

Once locked in customers will continue to give repeat business

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Customers Cigarette makers, Liquor makers, FMCG, OTC Pharma players

Suppliers Paper Mills
Equipment Europe based printing equipment manufacturers
Paperboard India based paper mills or imported from SEA
Ink Sourced from the specialist makers or made inhouse
Business Enabler clearly, an important piece in the overall chain
Mostly annuity based, B2B model with limited players will ensure that repeat business is high
Capacity utilization based, sudden collapse in demand is a low probability event. Once capacity is in place it is very likely th
production engine will keep going
Industry growth in the value added segment is 10%+
Specific company growing volumes at 14% over the past 7 years
Realization growth has been more than 5% per annum
Good chance that the business can grow at 12%+ unless paperboard realizations collapse from here big time

The business has and will be heavy on fixed assets and will not be a high turnover business Likely that the company will
based advantages beyond a point
WC needs have been kept under control, at no point of time has the WC spiked over the past 7 years
Growth has not come at the expense of looser credit or higher inventory
Inventory days at < 40 implies that sudden inventory writedowns due to price variations won't be too much
D/E at 1.3+ is high since the technology needed to run a high quality printing press is expensive, this can work as a moat a
new entrants who cannot be profitable unless they operate at a minimum level of scale
So far the value accretion to shareholders has been linear wrt the increase in balance sheet size, need to evaluate where e
this change in favor of faster value accretion to shareholders
Equity capital has been steady with no major equity dilution over the past 7 years, warrants were issued to promoters in 20
converted

EBITDA margins have been very steady which implies this is likely to be a cost + margin business
EBITDA margins will increase if the conversion work % comes down and exports continue to go up
Likely that this will improve margins as the OCF improves beyond a scale and D/E trends down
Realization growth has been high, this will be the case as long as paperboard prices show a positive trend though this is so
one should not bank on
Sustainability of volume growth appears to be the key here
Clearly these margins indicate a customer advantage as opposed to a production based one
This will not be a high asset turnover business since the underlying technology is not cheap and not easy to procure
Scale based advantages will play out but unlikely to be a game changer here on given that critical mass appears to have b
reached already
This is a 18% ROCE business where the predictability and sustainability of earnings growth is high for entrenched players
No challenges in distribution or logistics since this is point to point shipping, plants can be planned around client locations
Higher cash profits reflect in dividend payouts as well (20% payout ratio)

Operating cash has always been very high relative to the EV

Investment into WC has been minimal over the period which implies that the relationship with suppliers & customers is very
and not subject to sudden changes
High investment into fixed assets has been taking away most of the OCF
Cash flow beyond a scale has the potential to change the nature of the balance sheet since volume growth cannot explode
business like this. Once the business becomes FCF positive expect the margins to increase over a period of time
Current OCF yield at 10%+, business appears cheap this way
No clear data available on this
In a business like this where demand and volumes are relatively predictable operating leverage and under utilization of cap
rare
Very steady and well under control. Do not see any challenges on this front
Approx 60 Cr + capex will be needed here on every year
This will call for regular investments to drive incremental growth
The key tradeoff to be watched will be Cash flow Vs Capex needs
Yes, given that the underlying sector is growing at 10%+. While reinvestment rate will not be very high, don't think cash bui
happen till the D/E drops below 0.5, good 5+ years to go before that happens

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Yes but not due to any great value addition, hence may not be sustainable. Do not bank on this
Will be steady since this is not an operating leverage or demand expansion play
No
Not needed since this is a B2B with concentrated exposure to customers
Yes, has been selling to newer verticals. No other product diversification maybe needed here

Approx 60%, has increased in the past 12M

No DII holding, no FII invested
Anil Goel, Vijay Kedia & Dolly Khanna (may have sold off a large part of the stake)
Last Bonus in Sep 1991
Last Rights issue in Sep 1993
No Split
Last change in Share Capital was in 2011

Disclosures over and above what is mandated by regulations is minimal. This is expected for a company of this scale wher
institutional investor interest has been non existent. Would not view this as a negative
Not very vocal in articulating their approach and strategy, don't really have too much on the table to make an assessment h
this as a black box
Yes, simple business with not too many moving parts. Not much scope for accounting jugglery as well
Yes till FY2015 where the life of assets has been extended and there is a subsequent fall in depreciation. This is in line with
companies as well
In FY2015 the senior management remuneration is 2.5 Cr on a PAT base of 32 Cr.
No significant related party transactions. Family appears to have multiple businesses as per an interview Textiles, jute, ch
tea & sugar. Colleges in Jaipur Kanoria group started in 1940
None, Saket Kanoria comes across as a well ground entrepreneur in his interviews

None, Saket Kanoria comes across as a well ground entrepreneur in his interviews
Warrants issued to promoters in 2011 is the last instance of equity issuance. No instances of accelerated debt in the period
considered
Capacity addition has been funded through debt since internal cash flows weren't sufficient all the time. Going forward will n
see how the debt levels change, any illogical spike in debt will need to seen very seriously. Dividend payout of 20% seems
norm
None

Sales growth (value) of 12% per annum with a reduction in D/E to < 1 in 3 years
EBITDA holds steady at 16% over the period
No non linear PAT growth over the period, just a cleaning up of balance sheet
ROCE at 18% over the period, ROE will trend down over the period from current level due to higher reserves accretion
Predictable & sustainable growth over the period, not much of a delta from realization growth
No collapse in paperboard prices, Govt is likely to step in and safeguard the domestic industry from cheap imports
WACC at 12%
Not much of a range in terms of outcomes
EBITDA margin staying steady needs to play out
Paperboard prices do not collapse from here
Company will turn FCF positive from FY17 onward, incremental cash to be used to pay off debt
Any capex that is higher than current rate
No collapse in urban consumption from here, especially in premium segments
The growth rate being discounted appears doable, not too many things need to go right from here since the variables aren'
unpredictable or high in number
Cheap on a forward P/E basis
High OCF yield, stock appears very reasonable though this isn't a mouth watering level

First stage of discovery over after the Parksons packaging deal in 2014 following which the price has spiked by 2.5X in 1 ye
Not many, firstcall and boutiques
Looks likely as long as the bottom does not fall out of the markets in the current correction

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Not high, technology changes time to percolate when you have limited equipment suppliers. Threat of substitute products m
medium to high here
Possible only on the raw material side, will affect the paper mills more than converters like TCPL
Inherent in the business model, they will keep selling to concentrated buying centres. Watch out for signs where receivable
spiking higher or margins are dropping. Concentration risk is the source of the narrow moat that the company enjoys, henc
edged sword
Present, paperboard prices may have a down cycle as well. Need a buffer in the valuation for this
Cannot see anything other than a unionized workforce where downsizing maybe slow and painful
At CMP this risk is minimal

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