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Rajshree Polypack - The food packaging specialist

About the company

Rajshree PolyPack Ltd. is one of the leaders in manufacturing of Plastic rigid sheets and Thermoformed packaging products ranging from Yoghurt containers to coffee cups, Daily containers, trays, lids etc. The company caters to diverse industries like Dairy, Beverages, FMCG, QSR, Retail, Pharmaceuticals & Electronics etc.

The company has a good presence in thermoformed packaging (explained below). Almost every packaged curd container sold today, is developed by Rajshree. The clients of the Rajshree include several regional and national established names like Nestle, Gowardhan, Hatsun, Cream Bell etc.

The company also supplies to QSR and food delivery companies like Swiggy and Zomato. More on their clients later in this post.

The company has only two product segments

  1. Plastic Rigid Sheets
  2. Thermoformed Packaging

Let me explain both in detail.

The company manufactures plastic rigid sheets that it then supplies to various industries to be used further. This is the B2B and industrial side of the business.

The main growth area and sales for the company comes from its Thermoformed Packaging segment.

Thermoformed packaging, as the name suggests, is the process where rigid plastic is transformed into various custom thermoformed solutions such as trays, cups and other container shapes. If you have ever bought a packaged Nestle curd packet, the container that it comes in is basically thermoformed packaging. The product labelling is printed on the container itself and is not added separately. The technology to do this is not easily available only a few players possess this capability.

Rajshree got this technology via a Swiss firm that is invested in the company and sits on the board of the company.

Here are some of the products of Rajshree in the thermoformed segment.

Branded

For QSR and Food Delivery

Here are a few clients of the company (this is not an exhaustive list)

The company has great set of clients for its size (~100cr Market Cap). Also, every Kinder Joy sold is sold in a packaging developed by Rajshree.

The company has worked hard to build its clients and has shown its ability to sign up even the tough ones.
In one of their earlier conference calls (2018), management alluded how hard it was sign to Hatsun as a client. The company persisted and finally Hatsun was a client of the company in 2020.

History of the company

The company has a practice to keep upgrading its technology which has helped them lower its costs down.

The company’s factories are based in Daman and an important point to note is that some of these factories are rented. The machinery is all imported and there was a case in recent history where one of the main machines faced a breakdown and the company had to depend on engineers flying into India to fix it. The company since then has employed more engineers, kept a stock of further spare parts and trained its mechanics to ensure such an incident doesn’t take place again.

Areas I like

The company is one of its kind in India. Due to their technology tie up with Swiss firm and reliance on outside machinery they are able to onboard and retain premium clients which keep increasing the business with them.

The company has forayed into multiple segments including QSR and food delivery business which are sticky in nature. Here is the management alluding to the same in one of their conference calls.

The company has been increasing its sales rapidly and guiding for a above ~20% EBITDA margins (they currently range above 17%)

The company is leveraging its rigid plastic sheet business captively and foraying into multiple other sectors.

Further growth plans of the company

Marquee Investors

The mutual fund house y Prabhudas Lilladher and Sunil Singhania from Abakkus hold sizeable positions in the company. Abakkus increased its holding in the company last quarter and now owns 8.8% of the entire company.

Financials

The company is selling for ~1x sales and PE of about 13x yearly earnings.
Sales for the company has grown at a healthy pace, though have become stagnant for the last few years. 2019 was the machinery breakdown and 2020 was Covid.

image

88% sales are in India and rest in export.

Borrowing are low at 8cr and reserves are high at 89cr. Assets on balance sheet itself comes to about Rs 72 per share. The Current Market Price of the share is ~120 (Good margin of safety).

About the Management

I will let the jockey talk about his company, here is a great video of him explaining the business in detail.

https://www.youtube.com/watch?v=xSKC6Nt-Ym4

The company has a habit of good disclosures and is conducting conference calls etc. even though its a microcap.

All details, conference calls, etc. available here Financial Results - Rajshree Polypack

Risks

Environmental impact of plastic remains and any government litigation against it can impact the prospects of the company.

Disclosure: Invested


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They also added some technology pertaining to bio-degradable and compostable products…in the technology slides. Maybe the company realizes the need to hedge against being a completely plastic-based packaging solutions provider

Any idea about when they are going to commercialize it?

I assume its on track and maybe scaled up as the client requires it. The company has always been ahead of the curve when it comes to changing trends. They have constantly kept themselves updated with latest technology and started biodegradable products before govt started going after plastic.

The funds from IPO have just been utilized completely and capacity is now increased to 6000MT.

They have the capability to commercialize biodegradable products but my guess is there is not enough demand from clients. If and when demand increases, they should be able to adopt quickly.

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Are we talking about Biodegradable PLA products from their slide?

Polylactic acid polymers are not that much ‘Biodegradable’ in natural environment. Infact it takes thousands of years to decompose.

This is the basic idea which i got when i searched about it.

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The PLA products can be recycled and transformed into plastic pellets that are then used in other industries.

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Yes it can be recycled or are biodegradable on industrial conditions. But it is not biodegradable on natural environment for thousand years. That is what i meant to convey. In that sense, it is not ‘biodegradable’ as it is labelled, as most of the packaging plastics end up in natural environment.

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Going through the AR list, do not see quarterly results. Is it okay to not report quarterly results? isn’t is deviating from rules?

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For companies listed on SME board of NSE or BSE, it is required to publish 6 monthly results (to minimise the burden of compliance on SME companies). 6 monthly reporting means as an investor you have to wait for 2 quarters to see the performance. Also stocks are traded in “lots”. You have buy 1 lot minimum.
Yl

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Hi,
Thanks for starting the thread, had one query is there any reason before 2016 company roe is single digit ,but from the year 2016 onwards roe went up from single digit to 26% and stayed above 20% there . Any changes happened during 2016-2017 helped company drastically

Hi Sathish,
This can be clearly explained when we see what ROE consists of. ROE is nothing but net profit divided by equity. And you can see clearly below trends in Net profit

2012 - 1 cr
2013 - 2 Cr
2014 - 0 Cr
starting from 2016(8cr), 2017(9cr), 2018(10cr), 2019(11cr) and 2020(9cr) the company started making profit.

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Yes I understood that, but not able to find the reason for 1cr to 8cr sudden jump in profit.

Thank you so much for bringing this company to VP forum’s radar. I am just starting to study. Seems exciting.

where did you get this? I checked 2 different sources

From both investor presentation:
Screenshot 2021-06-11 at 10.58.24 AM
as well as screener:

it seems to be close to 27cr rupees. Even at 120 rupees, company’s market cap was close to 134cr so cash per share seems to be only close to :
(27/134)*120 = 24 rupees not 72. Can you please let me know where that number of 72 come from?


We see the H1FY21 capacity utilization was around 62%. And co has utilized earlier, capacity up to 89%. Then why did they put up new thermoforming capacity of 2000 MT?

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I took (Reserves - Debt)/ no.of shares.
(89.2cr - 8.46)/1.12 = 72/share

out of 89cr 45 cr can be given as bonus shares only. Please have a look at Note4 from AR. And remaining retained earnings part is given as dividend(after that ~43 cr left).

This brings interesting question. How long company can keep this Reserves? is there any obligation to distribute the same. And in one of video the MR.Ramswaroop told the IPO amount used for the manufaturing unit which is operational now.

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I’m not sure about every Kinder Joy sold being developed by Rajshree. I think Huhtamaki India also develops Kinder Joy Packaging. Have a look here.

https://www.huhtamaki.com/en-in/flexible-packaging/our-portfolio/food/confectionery/

The company you have mentioned makes Kinder Joy packaging for North America.

Every Kinder Joy sold in China and India is sold in a packaging developed by Rajshree.

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Some interesting videos to understand the co better:

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This is inappropriate.

Reserve (Shareholders Contribution) and Debt (External Borrowing) are both major sources of funds (liabilities) and a business uses them to create assets such as PPE, Working Capital (Inventory, Receivable), Cash, Investment etc. Do note that cash is only one of the components among the assets.

@sahil_vi has pointed out the appropriate cash amount as per the latest disclosures from the company.

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I use this to ascertain my margin of safety. Not interested in core accounting.
I want to assess if things go south, does the business have enough cash to pay off debt and what is the per share cash (reserves / book value etc.) left over.

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Which are the other peers in listed space, whether in india or globally whose valuations we can pitch against the company ?? As I see, TCPL Packaging, which is also into packaging space trades at a very low valuation multiples.

Unifi Capital has been seller since last few months and has offloaded at 109 price in may and yesterday at 145 also. It has been an investor in the company since ipo time.i think so when the story seems to be getting recognition, why it is pressing sell button that’s what i wonder.

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