Sree Sakthi Paper Ltd

Stock Opportunities
21

FY 12 results for sree sakthi paper

sales up from 182 crores to 197 crores.

Operating profit up from 14.86 crores to 16.35 crores.

Net profits down to 6.6 crores from 7.04 crores.

Total borrowings around 40 crores. current investments around 20 crores and cash on hand around 7 crores.

Management has announced the completion of expansion cum modernisation.

According to a note given by them, they have reported the commissioning of boiler and turbine project.

It has commissioned a Krima dispersing unit - which will help in making spec free paper meeting the requirements of high end customers.

It has installed 22 TPH high pressure boiler for supplying steam to its paper making besides commissioning a 2 MW turbine for captive power consumption.

Modernisation has enhanced the company’s paper production capacity by 55 tons per day or 18150 MT annually. The commissioning of power generation plant will not only reduce cost of paper manufacturing but also help the company tide over the crisis if there is a power shortage in future.

The benefits of modernisation cum expansion would accrue in coming quarters.

The company is increasingly focussing on corrugation industry

All the above announcements have been made by the management in a seperate annoucnement declared on bse.

For q4 fy 12 vs q4 fy 11

Sales up marginally from 51.18 crores to 52.04 crores.

net profit up from 2 crores to 2.4 crores.

If the management talk of benefits of modernisation and expansion fructifies, then this could be a dark horse which a lot of downside protection.

Ideal time to buy such stock would be when it goes down post going ex dividend.

e.g cmp is around 26-27. and dividend declared is rs 2.10.

I think sometime after it goes ex dividend it might be available at around 22 or so which should be a good level to buy assuming things go right for the company or atleast doesnt deteriorate.

from whatever the management mentions, company could be headed for good times and based on cmp, markets dont seem to be ready to accept the management claims. at cmp of around 26-27, it is available at a div yield of around 8%.

Heads I gain, tails I dont lose too much.

22

Hi Hitesh,

Good to see your write up. I have been following this company closely and the promoters and the past track record looks pretty good. I’m expecting them to deliver 20%+ growth for FY 13.

The best thing about such ideas is that these are pretty safe and provide lot of downside protection to the portfolio and if these cos continue to grow then after 3-4 years the price also doubles out. So effectively one gets close to 20% CAGR (including dividends)

Regards,

Ayush

23

No question that with 8% dividend yield and track record so far, there is enormous downside protection. It is worth looking into:

Some contra views:

1). Exactly a year back the hypothesis was same, but the business has not been able to deliver on growth. 8% sales growth in FY12 isn’t up to the mark. The stock hasn’t gone anywhere too.

3). Any idea about the paper industry cycle? What hampered Sree Sakthi from growing at a higher rate - I am guessing it wasn’t capacity constraints?

4). What makes us see a 20% growth in FY13, margins have contracted in FY12. That implies Sree Sakthi will need to log higher level of Sales.

5). If that confidence is based on the expansion, we need to check the capacity utilisation in FY12 to be sure of a quantum jump in Sales.

24

Hi Donald,

FY12 has been a tough year for most of the businesses…many promising cos haven’t been able to grow and margins have been affected. For Sree Sakthi Paper, the longer track record is pretty good:

Haven’t put in the FY 12 figures in my excel sheet (as the posted results are not very clear)

For last 5 yrs, CAGR in sales was 31.81% similarly 5 yr CAGR in sales till 2010 was 26%.

Perhaps a better indicator of growth would be 10 yr CAGR - which is again 21%.

Capacity utilization in 2011 & 2012 was close to 90-92%.

Capacity expansion has happened after few years and I don’t think they will face trouble in utilizing the same.

Ayush

25

Any idea why the company is making losses?

26

Look at the following CA’s on BSE. These could be the reasons…

9 Jul 2016
http://www.bseindia.com/corporates/anndet_new.aspx?newsid=14ef09e3-3a60-40fd-9d7f-4a3742db25ab

  1. The board decided to lock out and close down two units at Edayar due to the order of the Kerala State Pollution Control Board (KSPCB) dated May 24, 2016 which were initially stayed and finally disposed off by the Hon’ble Kerala High Court by its order dated June 21, 2016 by which it has upheld the order of the KSPCB to close all process / production activities at Edayar plant. This order was received by the Company on June 27, 2016 and the same was already intimated to good office on the same day. The board has advised the company to comply with the directions given in the order dated May 24, 2016.

25 Nov. 2014
http://www.bseindia.com/corporates/anndet_new.aspx?newsid=6654e9b2-6fe5-47c1-b01e-6bcd156139a7

Sree Sakthi Paper Mills Ltd has informed BSE that the Board of Directors of the Company at its meeting held on November 14, 2014, has been passed the following resolution:

Closing down of the Duplex Board Factory at Chalakudy

“That as it is not economically visible to run the Chalakudy Duplex Board Factory in the present day market scenario and working in the present condition will be Incurring only heavy loss in the ensuing financial years, the operations of the Duplex Board Factory at the Chalakudy be closed down forthwith”

Accordingly application has been made to Kerala State Electricity Board for dismantling and disconnecting power supply of the factory.

Now AFAIK, The company had only these three units. With that gone, What’s the way forward? Anybody tracking it?

27

I’m a duplex board consumer, & i have never consumed Shakti bcoz of substandard quality.

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