Shreyans Industries is a Punjab based paper manufacturer of writing & printing paper. It has two units which together currently have an installed capacity of 94,000 MT per annum. It uses agro waste such as wheat straw & sarkanda as its primary source of raw material. The Indian per capita paper consumption is only about 13 kgs as against the world average of 57 kgs. This is likely to rise rapidly due to the expected pick up of the education sector, improving literacy levels & increasing number of schools & colleges.
The paper industry is currently in a sweet spot as is reflected in the recent results of most paper Co.'s. This is partly due to the increased pulp prices globally. A falling rupee has further reduced imports drastically.
The Co. has been upgrading its plants on a regular basis, having invested about 25 crs. in 17-18. A similar amount is planned in the current year as well. This is been done from internal accruals. It is debt free on a net basis. In fact, it is sitting on surplus cash currently, having investments in mutual funds of about 61 crs. against combined debt of about 37 crs. as on September 2018. It is an extremely efficient user of capital with a much higher RoCE than the industry average. This continuous plant upgradation has resulted in improving operating margins as is visible from the quarterly numbers.
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The valuations are attractive. The Co. should comfortably do 500 crs. in turnover in the current year with profits of about 35 crs. after paying full taxes. The Co. is available at a market cap of under 215 crs.
Here’s a link to the latest quarterly results.
Concerns: Paper is a commodity & as such Shreyans suffers from all the risks associated with a commodity player, but the paper industry is currently on a roll after many years and good times are expected to last for the foreseeable future.
Disclosure: Invested & looking to add as the story unfolds.