Pudumjee Paper Products Ltd. is a newly incorporated company post demerger of Paper Manufacturing & related businesses from the erstwhile Pudumjee Industries Ltd. & Pudumjee Pulp & Paper mills Ltd.
Company Profile
The Company, mainly belongs to Paper Industry and operates in Specialty Paper segment for Wrapping and Food. Grade Packaging Paper, household and Sanitary Paper etc. The Company’s manufacturing facilities located at Thergaon, Pune.
The Hygiene Products Division of the Company markets its Away-from-Home converted tissue products such as Bathroom roll, Kitchen towel, Napkins, dispensers etc. under well received brand name ‘Greenlime’ and mainly focuses on institutional buyers, comprising Luxury Hotels, Airports, Corporate Offices etc.
Here is the Market Size & Growth Data from IPMA for Indian Paper Industry as a whole:
Note:
Note: This segment is also a net exporter.
What I like:
What I don’t like:
Opportunities for the Company
PUDUMJEE is well-known pioneers in the specialty paper products segment and manufactures a wide range of Specialty Papers ranging from Glassine and grease resistance papers, laminating base paper for flexible packaging, packing tissues for precision engineering components and tools etc., Décor paper for furniture and laminates, label release papers, fine papers for printing bible, parchmentine for textile cones, etc. and M.G. Papers for industrial and other applications, Crepe tissues for bathroom, facial and towel applications, etc. More recently products like papers for baking cakes, etc., paper for pharma packaging, saturating paper for application for mosquito repellent, paper for packing surgical instruments etc., have been added to the range.
Whilst the Company has its marketing channels spread throughout the country, its products are also exported to Europe and other countries with potential for gradual increase in it. The growing awareness and consciousness about cleanliness and better hygiene conditions amongst Indian population offers better opportunities for Company’s products including converted tissue products.
The Company’s manufacturing facilities are currently located at Pune and foreseeing future growth prospects, the Company intends to relocate the facility to Mahad in Maharashtra State in due course which not only offers a much larger area for future expansion with virtually the same locational advantage as being enjoyed but also entitles incentives which Government allows.
Concerns and threats
The Company is dependent mainly on bought out fiber for its raw material requirements and majorly imports them from overseas. The price and foreign exchange volatility substantially impacts its working. Dependence on costlier purchased energy due to lack of Co-generation facilities is another challenge, which though is addressed partially by purchase of bilateral power from Power Plants including Wind Turbines, through open access arrangement and installation of 132/100 KV Sub-station, frequently changing Government’s policy on levies with a view to discourage such a sourcing does, at times upsets working. The paper industry also faces shortage of talented and experienced workforce due to shortage of good institutes offering technical courses for the pulp and paper industry and general aversion to seeking career in the Industry and working in the shop floor.
Disc: Invested
Sources:
I just had a cursory look at its balance sheet.
Good thing is that the inventory has come down substantially.
LT and ST debts have also come down.
But I can’t understand why management has decided to put about 23cr in mutual funds. Wouldn’t it be better if they use this surplus to further reduce the debt?
Dividend payout is also low considering excess cash and investment in mutual funds.
Company has also provided bank guarantees of about 32Cr in favor of raw material suppliers.
Dana 3 Dana:The Company’s manufacturing facilities are currently located at Pune and foreseeing future growth prospects, the Company intends to relocate the facility to Mahad in Maharashtra State in due course which not only offers a much larger area for future expansion with virtually the same locational advantage as being enjoyed but also entitles incentives which Government allows
This could potentially be the reason why dividends are lower. They’ve entered into an agreement to lease the current place in Pune for 4 years as a part of the De-merger deal.
As an Aside, the Chairman Mr Jatia drew zero salary last fiscal, I take this as a positive.
Dhruva1705 4Seems like Cigar butt to me …
vatawde 5I am a novice investor and have taken a keen interest in Pudumjee, i see it as a long term investment here is my 2% on what i feel about the compnay. Please let me know your opinions and also tell me if there is something i may have missed.
Pudumjee Paper Products Limited:
The Good:
Current ratio:1.06 (should be greater than one,
implies liabilities and assets are about the same )
Quick Ratio:0.77(should of been greater than one
is excludes inventory for the calculations)
debt/equity:0.29 (is very low implying equity outweighs dept )
Inventory Turnover Ratio: 10.20 ( the higher the better and it has increased
form last year of 4.91)
Operating Profit Margin(%):9.19 (increased from last year 5.79)
Also: the Gross Profit Margin,Cash Profit Margin,Net Profit Margin,
have also increased from last year
So all in all the balance sheet looks good.
Also GST gets reduced for paper and paper products so it could help in q3 numbers
Stock is trading at 1.18 times its book value
Return on Equity is 8.83 which is very good compared to its peers
Return on Assets is 5.14 is also good compared to peers
The Bad:
Yashvardhan Jatia Trust sold 9,465,201 in march 21, which basically means
the promoter are selling their shares.Yet their holdings are still 66%
Cash flows to long term debt: 2.21 which is low compared to its peers
Disclosure:Invested
I see the thread for this company stopped long back. I started following markets in the last 3 years and still consider myself a novice in this arena. Just putting my study over here, might help anyone.
First Lets Cover the Paper Sector, I have few points from CRISIL Research:
The Global Demand for the Paper & Paperboard industry is ~400 mn tonnes. from 2014 to 2019 Demand remained around 400mn tonnes for the paper industry and the demand is expected to stay flat at ~400 mn by 2025.
The Paper sector can be divided into 3 broad segments
Paperboards contribute to the majority of paper industry demand.
While the overall paper sector demand is expected to be remain muted for the next 5 years, each sector has different growth projections by CRISIL research.
Global Paperboards segment is expected to clock 3-5% cagr growth in the next 5 years, whereas the W&P paper and Newsprint segment are expected to degrow by (3-4%) CAGR and (8-9%) CAGR.
China is the largest consumer & producer of paperboards globally and has a 100mn tonne capacity.
Let’s talk about the Domestic paper industry:
The domestic paper industry also has the same segments as global, paperboards can be further split into paperboards & specialty paper.
The below image from CRISIL research explains the broad split of the domestic paper industry
While the global demand is expected to remain muted, domestic paper demand is projected to clock 5.5% to 6.5% CAGR over the next 5 years and have an annual demand of 23-25 million, and demand for specialty paper is expected to grow by 10-12% CAGR. Demand for W&P and the newsprint segment is expected to remain flat in the next 5 years and the main reasons are a shift towards digital books, news apps than ever before. The paperboards segment is expected to continue growing on the back of healthy demand from the FMCG, Pharma & food delivery industry.
CASE STUDY: PUDUMJEE PAPER PRODUCTS LTD
PPPL is engaged in Specialty paper manufacturing and has expertise over 40 years in paper manufacturing. The company was initially created as an SPV in 2015 for merging it into the paper business of Pudumjee pulp and paper mills ltd, pudumjee industries ltd & pudumjee hygiene products ltd.
The company is currently operating under a lease agreement in the property owned by promoter group companies. The company operates from Theragoan Pune, where it has seen increased urbanization around the manufacturing plant and facing difficulties with increased compliances.
The company has invested in 80 acres in MIDC Mahad and plans to shift operations gradually over there. Due to Covid and uncertainty surrounding the demand, the company has shelved plans to shift operations to Mahad.
The Companies product portfolio consists of glassine & grease resistance papers, laminating base paper for flexible packaging, packaging tissues for precision engg components, and other tools. Decor paper for furniture and laminates. Fine papers for the bible, parchment for textile cones, papers for baking cakes, pharma packaging, paper for packing surgical instruments.
Hygiene products brand Greenlime has good recall value in luxury hotels, airports & corporate offices.
Things I like about the company:
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P/S ratio of peers (FY 21 sales)
Pudumjee 0.84
JK Paper 1.59
WestCoast Paper Mills 0.78
Seshasayee Paper 1.62
Emami Paper 0.99
P/E (TTM)
JK Paper 12.9
Seshasayee Paper 12
Emami paper 21
Pudumjee 5.8
FY21 had an exceptional item of 24.5 crores
Things I do not like about the company:
Company is heavily dependent on Raw material for its manufacturing, hence exposure to raw material price volatility and forex volatility
Power supply for the company is a huge concern as there is no co-generation facility for the company. The company has been obtaining power under open access scheme and group captive scheme which would cost lower than the power obtained through discoms. State electricity board imposed levies/tariffs on the company for using power through open access for the years 2016-2019 amounting to 33 crores of which 24.5 crores has been provisioned in 2021. There is still uncertainty about the power supply for the company and how the company would mitigate its power concerns
Company has been planning to move its entire operation to MIDC Mahad and expand capacity, which would require substantial Capex even though the company is expected to receive state govt incentives operating from Mahad.
The company was having significant ICD’s (Inter-corporate deposits) within promoter group companies, which is a red flag for me as it creates multiple transactions with related parties and is difficult to determine if the transaction has been done at arm’s length. ( forensic accounting experts on the forum can help here)
Rating:
My Overall opinion would be that company is poised to have a decent growth of 10% for the next 5 years as the sector it operates in is expected to grow at 10%. capacity utilization is improving and margins are improving consistently for the company. The company also has a very low debt-to-equity ratio. The company also has a good credit rating of - CRISIL A-/Stable by Crisil.
Link to Crisil rating report
Crisil rating report
So at this price, I find this company a decent buy in this buoyed market. the company shifting operations to Mahad, expanding capacity, and resolving its power supply would be the next triggers for the company. But more related party transactions in the future would be a red flag again.
Thanks for reading!!.
Would come up with more study about the whole sector and other good companies in the sector. I am happy to stay corrected if anything is incorrect in the above reading.
Disclaimer: I am invested in the company and this is only for educational purposes. I am not a SEBI registered investment advisor. Do your due diligence before you buy the stock. Microcap investments are illiquid and sometimes exit is not easy. Consult an investment advisor before you buy.
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7 Likes JK Paper - Best Bet in Paper Sector? praveen_sham 8Why are they investing 75 cr on a guest house in Mumbai ?
I would appreciate if anyone has any idea and can share it?
Screenshot_2022-12-09-14-31-38-693_com.google.android.apps.docs1080×2340 164 KB
I am sharing the company’s latest CRISIL credit ratings.
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I hope you find it useful.
Invested and Biased
dr.vikas
dark_hunter 10Where does Pudumjee go from here?
To answer this question, one needs to
recognise our operational and locational
constraints. Following the rapid growth
of Pune in the last couple of decades,
we are now being seen as an urban mill
with no expansion possibilities. The only
plausible expansion possibility will lie in
the identification of a second location in
close proximate to Pune and provides us
with a large headroom for our proposed
next growth round. Your company’s Mahad
site is in the process of obtaining statutory
clearances that should clear the way for a
second greenfield venture.
We believe that the proposed expansion,
when firmed, will graduate our company
to the next orbit for various reasons. It will
enhance the confidence of our customers
that we would be in a position to service their
growing appetite for specialised packaging
grades, accounting for a larger share of the
customer’s wallet. We will be empowered to
leverage our rich subject matter competence
across a larger production base. We will
be able to explore the development and
manufacture of a wider range of technology-
driven products that we are presently
unable to address on account of limited
manufacturing capacity. We will remain
focused on the manufacture of customised
products as opposed to integrating
backwards into the manufacture of pulp
due to constraints of fibrous raw material
availability in close proximity of our location.
We believe that the incremental capacity
across the foreseeable future will be funded
largely through the cash available in our
books complemented with moderate
debt, which is expected to enhance
competitiveness from day one. In view of this,
we face an attractively sustainable future
– from national, sectorial and corporate
perspectives – that should enhance value for
all those associated with our company.
Arun Jatia
Chairman
Annual Report FY 2023-24
1 Like dark_hunter 11Challenges and its counter measures
Rising costs of pulp and other inputs
The Company modified the fibre mix, product
mix and production schedule to enhance value
addition, customer satisfaction and market
retention.
**Need to enhance sales while maintaining **
**quality consistent with customer **
expectations.
The Company adjusted the product mix,
prioritised specific grades, focused on new
products as a replacement of plastics and increased
customer interaction.
High demand for specific paper varieties.
The Company proactively addressed market
dynamics by modifying production schedules to
focus on high-demand paper grades
**Higher fibre and energy costs due to **
geopolitical issues.
The Company implemented a suitable
procurement strategy for fibre and other inputs,
optimising the product mix to enhance value
addition and market share
**Delay in the implementation of a captive **
solar plant.
The Company sourced over 8% of renewable
energy from third parties, increasing the total
share of renewable energy to about 13%, reducing
energy cost and at the same time lesser carbon
footprint.
**Competition in pricing and quality from **
international suppliers for décor paper.
The Company balanced costs by using alternative
inputs and improving quality, achieving
competitiveness using the same flexible packaging
machine.
Need for papers with specific properties (oil-
proof and grease-proof).
The Company developed specialised paper
varieties, attracting orders in line with evolving
consumer expectations
Reading latest annual report is a must, if one would like to build thesis almost all of the questions that can be answered in that, summarising it won’t be do any justice,
For example they have stated short, but concise crisp case study on how their unique product are placed in the market
There is new facility which is under proposal in mahad, waiting for clearance ( although we don’t know the timeline it may take years too not much information I could find), which doubles actually more than doubles the current capacity, this is a cash rich company with financial discipline and management is prudent.
Companies profit are driven by operational efficiencies and innovation, however there is a limit to what they can only achieve with above, but this shows the capability of the management.
If the speciality products ( incremental 3 million Ton is gonna be added in few years) demand has increased, due to customer opting for better lifestyle
This company should do well
This is a business where the industry is not buoyant, however they are creating their own niche and market through sheet innovation and value proposition for their customer,
If they can create seperate market ( ex: Coco cola bottles made by paper, ) this will force other companies to opt for the same.
The management is solid, industry is not buoyant, but the niche segment could be sunrising industry
Anti thesis
On the flip side, the H2 won’t be as good as H1 due to high base last year and raw material pressure, (which was also mentioned in annual report)
And another monitorable is getting clearance for their mahad plant, if they do that, it will launch them in another orbit
However, i have no idea, how much multiple will the market give in future, it may derate also,
Requesting members to comment on the industry outlook, since he had already have clear idea about the paper industry in general
Their capacity utilisation reached 89%, so even achieving 10% volume growth is not probable, so it’s constrained by it’s manufacturing capacity this year profitability may be driven by operational efficiencies and product mix, but personally i don’t see that happening this year, so i guess, once should start accumulating after they get clearance for the new plant or after the H2 results declared( assuming there will be share price drawdown might happen)
Disclaimer: tracking want to invest in lower levels(120) waiting for H2 results and market wide correction to add
2 Likes IamAnshul 13Pudumjee is different from other listed paper stocks and that keeps it in a “category of one” (article on this) so peer analysis on this one is rather difficult.
Why do I say so?
For starters most of the paper companies make bulk of writing paper (higher margins, slow growth) or ecomm-packaging/board paper (Lower margins, high growth) and tend to backward integrate keeping their cost in check. Pudumjee doesn’t have that advantage of backward integration and hence you would see the margins to be on the lower end. They import lot of their pulp/RM required to manufacture paper. This is also the biggest risk for the company.
Secondly most paper companies compete against each other and although imported paper is a risk, it doesn’t affect them much unlike Pudumjee.
Pudumjee has an interesting product mix and an innovative team that can work on the next leg of growth for the paper industry and that is with hygiene products and also with replacement of plastic. And hygiene is the biggest growth segment for Pudumjee - take their indiamart listing page as an example (here) they list hygiene related, non paper based products like kitchen dispensers on top.
Glassine - a product that is touted as replacement of plastic - and I am sure you must have seen this material during shopping - is heavily imported.
For Pudumjee to flourish, it has to have robust partnerships and distribution network - two areas where they can dominate smaller importers - while also keeping margins in check.
There is lot to uncover - would like to know the split amongst various product segments, future growth prospects, specific margins and concerns of stock dumping which led to 43% increase in imports of paper (source)
While the industry has written to the central government and there is a committee now which is overlooking the impact of import and fair trade policies (source), there is speculation currently in the market that Indian government will possibly curb imports by bringing in protectionist policies - which also might be the reason for sudden increase in stock prices of these paper stocks (this is my take, not to be constructed as a fact)
I have skimmed through information available on Pudumjee, might be wrong at places, and might dive deeper in coming few weeks. Will keep the tread posted.
Also not holding any significant amount in current PF, just a very small allocation for tracking, keeping away from consumption based stocks in the current environment.
@IamAnshul Since you had already worked on this company, since 2020, may be you can present an investment thesis/anti thesis on this company better, based how your perspective has changed , as well as company since then company has grown 4x in PAT, it would be a valuable insight to learn from you on this counter
The reason I am interested in pudumjee, for a company of their size their aspiration and marketing their niche is good
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Already they have operational efficiency in place, and with scale most of the topline should flow to the bottom line,
Due to the inexperience in the sector, I couldn’t; differentiate whether its a secular play(hygenine) or cyclical , however I wanna be as clear as possible before the H2 results with capital
2 Likes dark_hunter 15Emami Paper Mills Limited
Seems to be entering into same territory of Pudumjee,
And they are backward integrated too, with large distribution and strong parent group with economies of scale
Only disadvantage they have is debt in the books, but it seems to reducing too with better valuations
But they have reduced 1000cr of debt in last 5 years
They are well diversified and entering into same segments where Pudumjee is there
Can pudumjee defend the threat ?? Or is there enough space for both to grow ??
Which company might be have edge over other ??
Views are welcomed especially from any veteran in paper industry.
2 Likes rupaniamit 16Went through last 5 years of Pudumjee’s AR. I will give them 10/10 for their latest AR. Any sort of transparency from the management is always good news for the investors.
Latest AR of Pudumjee reminded me of Symphony Ltd’s boasting ARs after it turned around itself post bankruptcy.
Pudumjee has enjoyed possibly one-off margin improvement thanks to timely procurement of pulp per below screenshot from the latest AR page #21. They have mentioned that this benefit is expected to continue across the first half of current FY.
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Business is already running at full capacity with not much possibility of volume/product mix growth until they move to the new facility which seems to be few years away.
Cannot understand the current excitement in stock price from all publicly available information. I will not be surprised if EBITDA margins revert back to 11%-13% range.
disc: no position
4 Likes dark_hunter 17It seems institutional-driven volume which resulted in price hikes, and purely supply-demand dynamics, ownership is getting transferred from retail (I am speculating)
2 Likes IamAnshul 18 rupaniamit:Cannot understand the current excitement in stock price from all publicly available information. I will not be surprised if EBITDA margins revert back to 11%-13% range.
Pudumjee is leader but the whole bunch of paper stock is performing well. Genus, kuantum, JK, westcoast - all are up today. The entire sector is giving a signal of some kind of external trigger, like ban on imported papers or a duty hike. Pudumjee clearly has the biggest impact from imports in hygiene and decor products - specially from China.
Having said that, capacity buildup might be little too late. Agreed with you on this
rupaniamit:3 Likes dark_hunter 19 rupaniamit:Business is already running at full capacity with not much possibility of volume/product mix growth until they move to the new facility which seems to be few years away.
Cannot understand the current excitement in stock price from all publicly available information. I will not be surprised if EBITDA margins revert back to 11%-13% range.
Seems like a pump and dump on this counter,
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below mentioned risks are still there, may be in a personal capacity I think one should exit now
dark_hunter:Their capacity utilisation reached 89%, so even achieving 10% volume growth is not probable, so it’s constrained by it’s manufacturing capacity this year profitability may be driven by operational efficiencies and product mix, but personally i don’t see that happening this year, so i guess, once should start accumulating after they get clearance for the new plant or after the H2 results declared( assuming there will be share price drawdown might happen)
Disclaimer: not invested
2 Likes vikasbargale 20At last, hopefully, the trigger has come for further re-rating
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Invested and Biased.
dr.vikas
1 Like dark_hunter 211350 crore seems to be mistake probably
Coz thier total Fixed assets itself 275 cr
And until the results out (which i think will not be great one) , we may still left drawdown, especially in this current market conditions (personal opinion)
Disclaimer: tracking and Waiting to enter at lower levels
3 Likes