SUNDARAM MULTI -PAP —branded name in printing and stationary.
Nature of the Business:
- The Company designs, manufactures and markets paper stationery products exercise note books, long books, note pads, scrap books, drawing books, graph books – for students of all ages, as well as office/ corporate stationery products and printing, writing & packaging paper. Company has over 190 varieties of paper stationery products under the brand “Sundaram” which are very popular among the student communities and enjoy very high reputation in the market for its superb quality and durability. Sundaram is strong Brand in Education stationary market in western India for almost 3 decades. In Maharashtra it is one of the top two brands with 15% market share.
- The Company was incorporated on 13th March, 1995 with the Registrar of Companies, Maharashtra, at Mumbai. Shri Amrutbhai P. Shah and Shri Shantilal P. Shah promoted the Company. The Company took over the partnership firm viz. Starline Industries engaged in the manufacture of exercise note books, account books and other paper stationery products, with its assets, bank liabilities and business and the said promoters were the partners of this partnership firm. The purchase consideration was fixed at Rs. 42 lacs and the same was paid by the company through the issue of 4.2 lacs Equity Shares of the company at par. The Company made its maiden public offer of 1.8 million Equity Shares of Rs. 10/- each for cash at par aggregating to Rs. 18 million on 23rdFebruary, 1996 which was fully subscribed and obtained the listing of its Equity Shares on Pune and Ahmedabad Stock Exchanges. In July 2005 the Equity Shares of the Company were also listed on BSE.
- At the start of the Company in the year 1995, the Company had a capacity of 5 tons per day of conversion of paper into paper stationery, which was increased to 20 tons per day in 1998 with the addition of two German made machines, to 50 tons per day in 2001 with the addition of one more unit of manufacture, and to 60 tons per day in 2003 with the addition of one more unit of manufacture. The Company’s existing capacity of conversion of paper into various paper stationery product stands at 15,000 tonnes of paper per annum. Current utilisation stands at around 45%.
- Company had formed a wholly owned subsidiary, E-Class Education System Ltd in 2010. E-Class Education System is an audio-visual educational content development company focusing on school education. E-class, company’s first product under E-Class Education System ltd is an audio-visual, animated content, exactly as per the syllabus of Maharashtra State Board, Standards 1 to 10, available in English, Marathi and Semi-English Medium. This way each school can have its own digital classroom, and this product can also be used by coaching classes and individual students at home. Maharashtra has around 2 crs students so there is a huge opportunity for this business.
To Be Debt Free
- Management has reduced its debt from Rs. 120 crs to Rs. 37cr as on 07.12.17. Company will be almost debt free by FY18 end. Interest cost will come down by Rs. 5 crs in FY18 i.e. reduction of around 50%.
Company has paid another 7cr recently and total debt is now 37cr—Rs 17cr long time and 20cr working capital.
Reason for losses in past
- Due to high debt level of around Rs. 120 crs, management was not able to procure ample amount of papers for production of exercise books and therefore the utilisation level fell down to 50%. Sales fell to Rs. 88 crs in FY16 from Rs. 120 crs in FY13.
High interest cost, lower sales and fixed expenses lead to loss of Rs. 3.6 crs in FY14, Rs. 23 crs in FY15 and Rs. 8 crs in FY16. Accordingly market cap of the company fell from Rs. 500 crs in Oct’13 to Rs. 50 crs in Apr’14.
- Post repayment of debt, utilisation of notebooks will ramp up gradually and accordingly topline and profitability.
De-merger of E-Class business (Value unlocking for shareholders, not yet publicly announced)
- Management is planning for demerger of its E-class business and to list it on exchanges in FY18. Company may announce the same by April’17 end. This will be a value unlocking for the shareholders. Ebitda margin from E-class business is around 40% i.e. 2x more than Exercise books business which is around 13-18%. Sales from E-class business will be around Rs. 6 crs in FY17. This business was doing sales of around 2 crs in past. Company has won orders under e-class from various municipal corporations in Mumbai such as BMC, TMC, PMC.
Expansion of Exercise Notebooks Business
- On the other side management is also planning to sell its 25 acres land (non-core) at Nagpur valuing around Rs. 40-45 crs. The amount will be used to expand exercise notebooks business in South, pay debt etc.
- During FY16, Company had reported loss of Rs. 8.7 crs after considering loss on sale of non moving inventories of Rs. 10.6 crs (exceptional item). All obsolete inventories have been disposed upto Q1FY17.
Management is expecting topline of Rs. 130 crs from Exercise notebooks business and Rs. 10-15 crs from E-class business in FY18. PAT margin would be around 9% in notebook business and 30% in e-class business. No tax due to carry forward losses.
- Profit will be around Rs. 14.2 crs and Eps of Rs. 0.60 in FY18.
. Considering restructuring, future announcements, expansions and improvements in future earnings, stock will move back to its earlier level of Rs. 20-25 in 2 years.
Company has made profit of 2.6cr and top line of 32cr in 1st quarter of 2017-2018.
mIn q2 mad profit of 25 lakhs. But over all made loss of 16cr due to exceptional item.
Prediction of topline for 2019-20120 is around 200cr and profit will be around 24-25 cr.
Company has allotted 2.6cr share at price of 3.01 to group of investor and collected 7cr rs.
Equity of company is now 24.56cr---- Promoter has 24% and other has 76%.
recent news on land sale/ development.— http://www.moneycontrol.com/stocks/stock_market/corp_notices.php?autono=10198541
*comparable business is Navneet publication.
*Now execution of plan if not done properly is the Risk for company.
disclosure: holding the share. So my view may be biased.
Suggestions are welcome.