Company AGM presentation on company website is very interesting
A forgotten MNC packaging company servicing the best names in the industry. Company mainly caters to the premium segment of packaging. Its major clients include Britannia,
Cadbury, Castrol, Coca Cola, Dabur, Emami, Eveready, GSK, Godrej, HUL, ITC, Marico,
Nestle, Pepsi, Perfetti, P&G, Tata Tea, TTK-LIG, Wipro etc
CY19 revenues grew by 9% YoY to Rs 25.5bn while EBITDA growth was 32% YoY to Rs 2.9bn mainly due to a better product mix. PAT improved by 161% YoY to Rs 1.7bn, led by interest/tax reversal taken on account of favourable Supreme Court (SC) verdict in the Rudrapur plant tax dispute.
Adjusting for these reversals PAT grew by 34% YoY to 818mn.
During CY19, redeemed non-convertible debentures (NCDs) aggregating to Rs 3.85bn along with the interest thereon amounting to Rs 110mn; hence long-term debt reduced by Rs 3bn to Rs 1bn. Net debt stood at Rs 2bn vs. Rs 3.5bn in CY18.
The capital outlay for CY19 was Rs 600mn. Despite the NCD repayment and capex,
it generated OCF/FCF of Rs 2.4bn/Rs 1.8bn.
1HCY20 EPS 7.16. Extrapolating for full year 14.32 EPS in CY20. Stock at Rs246 trading at 17x trailing which seems quite cheap compared to where the market is trading.
With the objective to expand footprint in Southern India, HPPL acquired the flexible
packaging business of Mohan Mutha Polytech (MMPPL) in Jan-2020 at an enterprise
value of Rs 741mn. MMPPL’s manufacturing plant is located in Sri City (Andhra Pradesh)
and has a capacity of 5,400tpa with the capability to produce Multi-layer laminates, Biodegradable
films, Bio-compostable films, BOPP (Biaxially-Oriented Polypropylene) wraps
and Shrink Sleeve labels. With total sales of Rs 762mn, debt-free balance sheet and an
innovative product portfolio, MMPPL will support HPPL’s goal to penetrate further in
During the year, HPPL launched Huhtamaki blueloop® - protective recyclable packaging
solutions that are manufactured by using coated paper or polymers (polyethylene and
polypropylene). These solutions offer the same machine-run ability and barrier
performance as multi-material structures. In 2019, HPPL commercialised these recyclable
solutions for shampoo, confectionery, industrial bulk packaging and snacking
applications; it is now prepared to expand the applications to more segments. This is
expected to help HPPL grow its revenue share from NASP (New Applications, Structures,
Products and Processes) from 23-25% of total sales currently.
Export growth was 17% YoY (revenue share 24%) led by the increase in share with key accounts and further penetration across SEA and LATAM. HPPL faced intense competition from the local suppliers in Middle East and West Africa.
HPPL paid royalty of Rs 86mn to parent as “Cost for Centralised Services” towards the use of trademark and centralised services. As per the agreement (with parent w.e.f. 1st Oct’19), there is no royalty payable during CY20.
HPPL has 18 manufacturing plants across India. Its parent company Huhtamäki Oyj (Finland) has 81 manufacturing units across 35 countries.
On the industry
Online portals are expected to play a key role for the companies that are trying to enter the hinterlands. The Internet has facilitated cheaper and more convenient means to increase the reach. It is estimated that 40% of all FMCG consumption in India will be online by 2020.
The food processing industry, part of the food and beverages segment of the sector, accounts for >50% of the total demand for flexible packaging.
The size of the global flexible industry is estimated at US$ 228bn in 2019. The global industry is expected to grow at a CAGR of 3.3% to reach US$ 269bn in 2024.
India’s flexible packaging industry is expected to grow at a CAGR of 10% to reach a size of US$ 8.5bn by 2022-23, up from US$ 5bn in 2017-18.