Shree ajit pulp and paper

Stock Opportunities Untested - but worth a good look
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.Shree Ajit Pulp And Paper Limited was incorporated under the Companies Act, 1956 as M/S. Ajit Pulp And Paper Private Limited on 23/03/1995 with the Registrar of Companies, Gujarat and was subsequently converted into a Public Limited Company on 13/11/1995 and the name was changed to Shree Ajit Pulp And Paper Limited. The company started its operation of Kraft paper mill with an installed capacity of 50 tons per day or 16500 tones p.a. at village Salvav, Tal. Pardi, Dist. Valsad. The capacity was considered at 50 T.P.D. Production for 330 days in a year. By this way the production capacity has increased from 16500 TPA to 42000 TPA. The company is a profit-making unit since inception and financials of the company are very strong. The company has recently completed renovation & modernization of Land & Building and Plant & machinery. The customers of the company are in the different varieties of Kraft Paper of 120-220 GSM and Bursting Factor (BF) ranging from 16 to 28. The company develops 35 BF paper in 80 GSM and Golden Yellow paper ranging from 20 BF to 28 BF. The product is in reels form and is used for making Corrugated Boxes, Liners, Textile Tubes, Duplex Cartons etc. the main consumption is thus in packaging. The Company’s subsidiary Shree Samrudhi Industrial Papers Pvt ltd. has not yet commenced the business.” “Shree Ajit Pulp & Paper Ltd expected to achieve a turnover of Rs. 230 cr For the year 2015/16 . With demand for Kraft paper growing the OPM is expected to be in the region of 13/14 (sept qtr opm 13.67) EBITDA of Rs. 30 cr and a net profit of Rs. 15 cr looks possible. The company has reported an EPS of Rs. 12.5 for the Healy year 2015/16 as against an EPS of Rs. 13.5 of the previous year.” “At the current market price of Rs.120 the stock P/E ratio is at 4* 30 FY16 E and the current book value is 160.
Net Sales of the company has grown at a CAGR of 15 percent and 8 percent over 5 and 3 yr respectively. Profit growth is seen this year at above 50%
The promoter mr Gautam shah has very good experience in paper industry and promoter holding is around 48% the negative is they have pledged 15% of the holding. There dividend payout is low in the region of 3/4 but if see the holding we can understand the floating stock is very less nearly 33% of the public holding is with less than 10 people.
The debt is around 32 cr and net block is around 95 cr the ROE has been a above 18% leaving the previous yr the ROCE 3 yr avg above 20%
As mentioned the negative are pledge and low dividend and the pace of growth in the last two yrs has been slacking but with packing industry looking up and with there capacity expansion can they achieve the scalability and maintain profit growth. With other companies in this sector having printing paper also this is a pure packing play as of now.
Invite senior comment as regards to long term prospects and valuation

DISC. invested a tracking quantity

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Does it have some prominent customers or whether it has a scattered ??

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i just copy pasted chairman msg hope it is helpful and also now the capacity is 90000mt
Dear Shareholders,

It gives me great pleasure to write to you at the end of another exciting year in our journey. Your Company has continued to deliver satisfactory performance and further strengthened its position in key market. Our approach in creating value and achieving profitable growth has clearly delivered results.

Paper Industry in India has over the last few years achieved a significant improvement in its environmental footprint to become much more attractive in terms of sustainability of operations and reduced environmental impacts. Examples of these improvements are widespread implementation of water recycling measures, reduction in energy consumption levels and a significant reduction in the waste water norms and air emission level.

Same way your company will continue sustainability practices by following said processes that have the least impact on the environment. Your company plans to work closely with customers and the market in seeking to become the preferred brand.

Last year same day, I had written to you about the enhancing installed capacity from 66000 MT to 90000MT per annum. The Company has successfully implemented expansion and up gradation of existing second line of production plant in the month of October, 2014.

Enhancing productivity through technological up gradation is one of the key drivers of economic growth. Started with an initial capacity of 15000 MT per annum, Now SAPPL has reached a capacity of 90000 MT per annum. The result of the expansion can be seen during the current year.

We have continuing improved our operating processes and have become a far stronger organization with a robust model. The fundamental that we have put in place are remunerating in solid progress.

Discussion on financial performance has been dealt with in the Director’s report.

As per the provision of section 135 of the Companies Act, 2013, your company covered under corporate social responsibilities (CSR) activities. Your company spend total amounting of Rs. 32.71 lakh towards its CSR activities.

INDIAN ECONOMY

The Indian GDP grew at 7.3%in 2014-15 and is poised to grow by 8% in 2015-16 according to forecasts by Organisation for Economy Cooperation and Development (OECD), compared to China, which is pegged to grow at 7% during these years. With labour costs spiking in China, India is now expected to emerge as the fastest-growing major economy in 2015-16. Lower oil prices and widespread monetary easing brought the world economy to a turning point, with the potential for the acceleration of growth needed in many countries.

The first few months of the year 2015 have added optimism with a hint of excitement to the economic outlook. The government’s initiative MAKE IN INDIA promises to brand India a global manufacturing hub. Your company intends to leverage this initiative by offering the highest quality and a diverse range of products.

OUTLOOK

As per industry guesstimates, over all paper consumption has now touched 13.10 million tons and per capita consumption is pegged at 10 kg. Demand of paper has been hovering around 8% for some time. So far, the growth in paper industry has mirrored the growth in GDP. India is the fastest growing market for paper globally and it presents an exciting scenario; paper consumption is poised for a big leap forward in sync with the economic growth and is estimated to touch 13.95 million tons by 2015-16. The futuristic view is that growth in paper consumption would be in multiples of GDP and hence an increase in consumption by one kg per capita would lead to an increase in demand of 1million tons.

The paper packaging products are an important part of the overall packaging industry in India. The growth in the India paper packaging industry has been largely impelled by the augmenting demand for better quality of paper packaging products and changing consumer preferences. Increasing demand for paper packaging products along with high urban population growth, rising disposable incomes and paper production in India are anticipated to further stimulate the country’s overall paper packaging industry.

A higher demand of paper packaging products especially an increased trend in the usage of folding cartons has been observed in India. The increase in the folding carton has been observed on account of factors such as increasing FMCG and other sectors. The corrugated box market has been increasing mainly due to development of the country’s logistics sector and escalating exports in the country.

I am sure that the revival of the economy coupled with our operational excellence will result in further all-round success in the years to come.

I am also grateful to all of you for your whole hearted support which propels us to carry on with our job tirelessly. I look forward to meeting you at the forthcoming Annual General Meeting of the Company.

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My ground checking, when I went to surat I checked out about Shree ajit pulp and paper ltd there annual capacity is now 90000 mt they are one among the largest in western region and using RCF ie rcylled paper as raw material and no natural resource important they have increase the strength of Kraft paper in higher gsm variety test liner and now running at there full capacity also the Kraft price is around 28000 to 300000 rs per ton they can get to the turnover of 250 cr/270 cr easily and improve the Ebita to 35 cr.
this fy the revenue it should be easily around 225 cr and yes the net profit will be around 12/13 cr and eps of 25 looks easy there cash flow for last years is very good either way they can reduce the debt or they can go for expansion of another 20000 mt wirh decent cash flow if they reduce the debt there bottom line will improve to 20 cr and eps to 40 now the debt is around 30 cr which is very resonable and ROE/ ROCE this year above 16% and operating cash should be around 18 cr and book value of 150 good promoter holding and ethical management
the promoter mr.gautham shah is very good knowledgable person with vast experience in this field also in the public holding if you see nearly 28% holding is with just5 people and hence limited floating stock still unrealised by the market
I think valuations wise this looks very safe at present market cap of just around 50 cr and available at a pcf of less than 4 and a pe of 4. with net block of 95 cr and limited down side risK and good favaourable potential upside with head winds in packing sector.

I thank u very much for your mail and will try and do the scuttle but for the other company sukhjit starch and chemicals when I go to chanḍigaṛh and start a thread on that also regards Prakash iyer

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Prakash I think the market should see it as packing company Kraft paper prices around 30000 per ton in western region and Ajit is only major supplier of recycled Kraft paper in Gujarat area they are running full capacity at around 90000 tons per year which should give a revenue of 230/240 cr and Opm around 12% can give ebita of 30 cr debt reduced to 28 cr present market cap around 50 cr so quoting around less than3 EVEBITA and cash flow is 15 cr for fy 15 and eps fy 16 above 25 looks like undervalued but what about the scalability but other than that looks with less downside risk and potential upside
Have the promoters realised the pledge and any chance of capacity expansion can u find these

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Prakash just go thru this report it gives details can u find the latest

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The revenue for last many quarter is stagnant. Looks like the present capacity of company is fully utilized and until expansion happens it is difficult to see revenue growth.

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yes gaurav you are correct they are presently running at full capacity of 90000 tons at around 29/30000 rs per ton price in western region and this company being the largest supplier of high bust rcf kraft in the region my question is with debt reduction because of good cash flow if the opm is increased by just 200 basis point we can see a jump in net profit upto 15/18 cr with low equity 0.54 lac the eps will come to around 30/35 my point does it not look undervalued with a book value of around 170

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Thats correct but with high interest coverage I would be panicking a bit if the banks dont renew loans
Their inventory cover and AR cover is impeccable
I would watch the script and wait for it to have atleast 4-5 times interest coverage even if its a bit expensive later on
Its a bit risky for me but good track record by management

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Edwardlobo the interest coverage ratio works out around 5 this fy 16
The interest is around 4 cr and EBIT should be above 19 cr

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Hai Adrian
I checked up with Ramkumar Sunkara who is a leading consultant in this field as suggested by you and got a mail from Ramkumar Sunkara also check is website

Dear Mr. prakash
Please note the following:
Corrugated box was in micro and small scale long back. Now it is small and medium scale industry.
Paper industry is medium to large scale industry
Shree Ajit is not a small paper mill. It produces 250tons of Kraft paper per day.
SAPPL is not a paper mill it only exclusively produces high bust rcf Kraft in gold and plain variety
Gautham shah is a very experienced promoter and has a good name in the industry.

I can help you to meet them and do your work
Regards
Ram kumar

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Prakash if you notice they are trying to reduce the power cost with the help of there captive power generation if you good find out about that I think with the present revenue itself there bottom line can go upto 20 cr see the kind of valuavation south Indian paper mill is getting compared to that I think it is very cheap
Also the equity bas is just 55 lac as mentionedinteresting is 47% promoter holding but nearly 30% in public is held by promoters proxy and nearly 5 lac shares are not not dematerlised still with some good result this qtr I think with low floating this will spike up suddenly
Disl invested a small qty

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Hi,

As per the latest AR, the company is currently operating at ~89% capacity utilization (Installed capacity at 90,000 MT and production at 80010 MT). They can easily do ~250 to 260 Cr Rs of topline in the current year with the given capacity.

They have also mentioned in the AR that they will be doing Rs. 25 cr capex for upgradation and cost optimization. But no mention of any capacity addition.

Any idea on what is the further plan to increase capacity.

The valuation looks attractive and have invested a small tracking quantity.

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Is anyone tracking this co closely? Good q3 results

555a0a20-78df-4faf-bf51-1b86bde00022 (1) (1).pdf (700.3 KB)

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SHREE AJIT PULP AND PAPER LTD.docx (18.2 KB)