From Q2 results there are signs that this is finally turning the corner after a bad set of results over 5-6 Q’s.
What was most likely happening over the past few Q’s -
Their timing of flexible packaging plant was bad, they commissioned the plant and got hit with DeMo. At the same time their packaging board business started seeing higher input costs which they were not able to pass on to customers who were themselves coping with reduced demand. This was followed up by GST related issues in a couple of Q’s
In the meanwhile overheads for the flexible packaging coupled with depreciation ensure that they were EBITDA negative on this since the volumes weren’t taking off. Hence EBITDA tanked from a level of 16%+ to 11% at the lowest point. Logically they must have been positive at gross margin level (management has indicated that flexible line with operate at an OPM of 10-12%), hence it was a question of enough volumes kicking in so that the line turns EBITDA positive. Looks like this has started happening from this Q2 onward. Else paper prices continue to be high and I do not see how the paperboard packaging line could have reverted to the EBITDA of almost 17% that one saw in 2016.
For Q2, top line is 210 Cr at an EBITDA margin of 14.5% and PAT of 11 Cr
Company is sitting on net block of 390 Cr inclusive of WIP, D/E at approx 1.2
Currently trading at 370 Cr (less than net asset value)
Operating cash flow continues to be healthy, their working capital terms will not change too much since the buyers are FMCG companies where terms are more or less standardized
I don’t think this will ever be a low debt company since reinvestment into fixed assets will always be needed to keep the growth engine going.
One more Q of decent results and this should look interesting. Let’s see how the market reacts to this next week
Disclosure: This is one of my larger holdings and has tested my patience a bit over the past 2 years