CD Equisearch Pvt Ltd - Business...
Transcript of CD Equisearch Pvt Ltd - Business...
CD Equisearch Pvt Ltd March 8, 2016
Equities Derivatives Commodities Distribution of Mutual Funds Distribution of Life Insurance
Huhtamaki PPL ltd.
No. of shares (m) 72.7
Mkt cap (Rs crs/$m) 1645/244.5
Current price (Rs/$) 226/3.4
Price target (Rs/$) 281/4.2
52 W H/L (Rs.) 332/176
Book Value (Rs/$) 85.1/1.3
Beta 1.1
Daily volume (avg. monthly) 12880
P/BV (CY16e/17e) 2.4/2.2
EV/EBITDA (CY16e/17e) 7.2/6.3
P/E (CY16e/17e) 19.3/15.3
EPS growth (CY15/16e/17e) 16.4/10.6/26.5
OPM (CY15/16e/17e) 11.4/11.2/11.2
ROE (CY15/16e/17e) 13.0/13.1/14.9
ROCE (CY15/16e/17e) 11.8/9.5/10.7
D/E ratio (CY15/16e/17e) 0.9/0.8/0.8
BSE Code 509820
NSE Code PAPERPROD
Bloomberg HPPL IN
Reuters HUHT.BO
Shareholding pattern %
Promoters 68.8
MFs / Banks / FIs 6.0
Foreign 1.0
Govt. Holding 0.0
Non-Promoter Corp. 4.6
Total Public 19.6
Total 100.0
As on Sept 30, 2015
Recommendation
BUY Phone: + 91 (33) 4488 0043
E- mail: [email protected]
Figures (Rs crs)
CY13
CY14 CY15 CY16e CY17e
Income from Operations 1085.80 1225.33 2037.38 2296.95 2590.39
Other Income 11.95 15.53 14.24 16.29 21.55
EBITDA (other income included) 126.52 134.58 246.53 272.76 311.13
Net Profit after MI and EO item 51.56 60.33 76.93 85.10 107.62
EPS (Rs) 8.22 9.09 10.58 11.70 14.80
EPS growth (%) 14.4 10.5 16.4 10.6 26.5
Equity 12.54 14.54 14.54 14.54 14.54
Company Brief Huhtamaki PPL is a leader in the flexible consumer packaging sector
serving various large and mid corporate players in the FMCG business.
HPPL offers a wide portfolio of packaging solutions that include Flexible
Packaging, Labeling Technologies, Shrink Sleeve solutions, Specialized
Cartons, Cylinder Engraving and Specialized Films for high barrier.
Quarterly Highlights
� HPPL reported a modest growth of 1.3% (y-o-y) to Rs 290.88 crs in
Q4CY15 in its standalone revenue whereas on a consolidated basis the
revenue jumped by 70.2% to Rs 527.99 crs as against Rs 310.14 crs
buttressed by the acquisition of Positive Packaging and by robust
growth in the flexible and labeling materials which form the bulk of
HPPL consumer packaging business.
� EBITDA for the same period stood at Rs 68.15 crs as compared to Rs
34.79 crs in Q4CY14 (a growth of 95.9%). The operating expenses rose
by just 64.7% to Rs 462.88 crs owing to the lower raw material prices
which helped to keep the margins on a positive trend. The revision in
the bonus provision increased the employee benefit expenses by 110.2%
to Rs 50.30 crs last quarter from Rs 23.93 crs in the same period a year
ago.
� For Q4CY15, the finance costs increased to Rs 9.93 crs as against Rs 0.89
crs in the same period due to issuance of non-convertible debentures for
financing acquisition of Positive Packaging. The depreciation expenses
also increased by 107.6% to Rs 23.25 crs in Q4CY15 as a result of this
acquisition. The net profit after extraordinary items rose to Rs 20.56 crs
last quarter showing an increase of 33.4% (Rs 15.41 crs in Q4CY14). The
growth in the bottom line was as a result of better operational
performance with improved margins offsetting the increase in the
depreciation, interest and tax expenses.
� The stock currently trades at 19.3x CY16e EPS of Rs 11.70 and 15.3x
CY17e EPS of Rs 14.80. In the light of moderation in realizations owing
to lower crude oil prices, we cut our current year sales estimate by 5.7%,
prompting cut in earnings (CY16 EPS slashed by 4.6%; CY17 EPS by
4.9%). Considering promising sector trends, we maintain our buy
recommendation with target of Rs 281 (previous target: Rs 311) based
on 19xCY17 earnings (peg ratio: ~1) over a period of 9-12 months.
2
2
CD Equisearch Pvt Ltd
Equities Derivatives Commodities Distribution of Mutual Funds Distribution of Life Insurance
[
Outlook & Recommendation
Indian Flexible Packaging Industry Indian packaging industry is among the fastest growing sectors spanning across almost every industry segment. It is currently
valued at US$13 bn. and is expected to grow to US$ 16.5 bn. by 2016 (Source: FundsIndia). Flexible packaging technology has
advanced dramatically over the past 10 years and is now a consumer household mainstay, steadily moving into new markets
and applications. India’s flexible packaging industry anticipates strong growth but remains challenged by negative perceptions
about the use of plastics. India’s flexible packaging market is growing at 14% a year and currently accounts for 24% of the
consumer packaging market and is expected to be worth $32 billion in 2020.
Packaging has a massive upside in the country because basic household items like flour, rice, sugar and tea are still being sold
unpackaged in the country’s interior, where organized retailing has yet to make its presence felt. Merely 5% are sold in
packaged form and the majority 95% is unpackaged. The growth in the packaging industry in India is mainly driven by the
food and the pharmaceutical packaging sectors. A major factor which has provided substantial stimulus to the packaging
industry is the rapid growth of exports which requires superior packaging standards for the international market.
Flexible plastic packaging is the fastest growing packaging category which has surpassed the FMCG and pharma industry
growth rate achieving a CAGR of 16.6% over a three year period ending March 2015. In order to become a technology transfer
driven country, India has to resuscitate the use of agricultural byproducts for packaging. Achieving this will help it to propel
the growth to more than 20% from the current 15%.
Consumer flexible packaging consumption by product (‘000 tonnes)
Source: HPPL, CD Equisearch Source: Smithers Pira
Positive Packaging to drive growth
Through the acquisition of Positive Packaging, Huhtamaki is basically looking to increase its presence in the emerging markets
including India. Positive Packaging has strong presence in international market and exports mainly to Africa, Middle East and
North African countries. While there are no new markets aimed for exports, all depends upon how international economy picks
up and how things stabilize. The integration is now fully complete and the synergies will come in the form of lower sourcing
costs and economies of scale though the impact on administrative cost will not be seen immediately. Though the acquisition is
expected to drive the growth for HPPL, the main synergies of manufacturing footprint, production and operative efficiencies
will take another two years to unlock.
3
3
CD Equisearch Pvt Ltd
Equities Derivatives Commodities Distribution of Mutual Funds Distribution of Life Insurance
Financials and Valuations
With the complete integration of the two entities, Huhtamaki is looking forward to improve its business in flexible packaging
manufacturing in Middle East and hopes to increase its sales in African countries. The benefits of the synergy have been reflected
in the CY15 results. HPPL’s income from operations increased by 66.3% to Rs 2038 crs in CY15 as against Rs 1225 crore in CY14
mainly due to the acquisition of Positive Packaging Industries. About 25% of its revenue is derived from exports to various
countries, majority of which are to the African countries. Though the trading conditions have not improved absolutely to ones
expectations, but looking at the positive momentum in the growth, we expect its revenues to increase by 12.7% to Rs 2297 crore
in CY16 and to Rs 2590 crore in CY17.
At the operating profit margin level, HPPL showed improvement in both standalone and consolidated level basis. Softening of
the raw material prices because of continuous slide in oil prices increased its margin to 11.4% in CY15. Owing to the high degree
of volatility in raw material prices in the near term, the margin is expected to hover around 11.2% over the next two years.
Source: HPPL, CD Equisearch Source: HPPL, CD Equisearch Source: HPPL, CD Equisearch
In CY15, HPPL did not go into any major expansion. It plans to have a routine capex of around 30-40 crore for CY16. With
sizable market share in the domestic flexible packaging products, Huhtamaki generated good growth in both its topline and
bottomline. The net profit after tax (excl extraordinary items) rose by 27.5% to Rs 76.93 crore in CY15 (Rs 60.33 crore in CY14).
The net profit margin declined to 3.9% (5.1% in CY14) on account of massive increase in the interest expenses (Rs 40.38 cr vs. Rs
3.10 cr) and depreciation costs (Rs 90.53 cr vs. Rs 43.86 cr). With benefits of acquisition coming into play, the net profit is
expected to increase to Rs 85.10 crore (growth of 10.6%) and Rs 107.62 crore in CY16 and CY17 respectively.
The return ratios like ROCE and ROE stood at 11.8% and 13.0% respectively in CY15. ROCE is expected to decline to 10.7% in
CY17 while ROE is expected to increase to 14.9% in CY17 backed by growth in the topline and improvement in the margins. The
current ratio is expected to increase to 2.2 by CY17 while the debt-equity ratio will remain stable at 0.8.
Source: HPPL, CD Equisearch Source: HPPL, CD Equisearch Source: HPPL, CD Equisearch The stock currently trades at 19.3x CY16e EPS of Rs 11.70 and 15.3x CY17e EPS of Rs 14.80. In the light of moderation in
realizations owing to lower crude oil prices, we cut our current year sales estimate by 5.7%, prompting cut in earnings (CY16
EPS slashed by 4.6%; CY17 EPS by 4.9%). Considering promising sector trends, we maintain our buy recommendation with
target of Rs 281 (previous target: Rs 311) based on 19xCY17 earnings (peg ratio: ~1) over a period of 9-12 months. For more info,
refer to our Aug 2015 report.
4
4
CD Equisearch Pvt Ltd
Equities Derivatives Commodities Distribution of Mutual Funds Distribution of Life Insurance
Risks and Concerns
Volatility in raw materials At present raw material costs constitute 68% of HPPL’s revenues. Considering the outlook of petrochemicals, there is a risk of
high volatility. The high volatility in the raw material prices caused by various factors like foreign exchange movement and
sharp fluctuations in the crude oil prices may make operating profits highly vulnerable.
Client Concentration Risk
Huhtamaki top clients include Costco, Kraft, McDonald’s Unilever, Coca Cola, Cadbury, Nestle, Glaxo Smithkline, Perfetti,
Marico and P&G which together account for almost 60% of its revenue. Thus HPPL is prone to client concentration risk and
their retention is extremely important in order to maintain the market share in the business.
Other Factors
Since a large portion of its revenue is derived from the FMCG sector, any slowdown in this sector due to higher inflation can
hit the revenue growth. Rural distress, arising due to vagaries of monsoon can also fetter the company’s revenue as it will
have an impact on the production of consumer goods. Flexible packaging industry being a fragmented market can put HPPL
into severe competition with other packaging companies like Uflex, Essel Propack and Jindal Poly Films etc.
Cross Sectional Analysis
Company Equity CMP MCAP* Sales* Profit*
OPM
(%)
NPM
(%)
Int
Cov
ROE
(%) Mcap/Sales P/BV P/E
Essel Propack 31.4 143 2247 2235 175 18.8 8.0 4.7 19.6 1.0 2.3 12.9
Huhtamaki 14.5 226 1645 2037 77 11.4 3.9 3.9 13.0 0.8 2.7 21.4
Jindal Poly 42.1 418 1758 7024 369 13.7 6.5 7.2 18.7 0.3 0.8 4.8
Uflex 72.2 149.5 1080 6085 304 12.7 5.0 3.0 9.7 0.2 0.3 3.6
Calculations on ttm basis, * figures in crores
Source: HPPL, CD Equisearch Source: HPPL, CD Equisearch Source: HPPL, CD Equisearch
5
5
CD Equisearch Pvt Ltd
Equities Derivatives Commodities Distribution of Mutual Funds Distribution of Life Insurance
Financials
Quarterly Results Figures in Rs crore
Q4CY15 Q4CY14 % chg CY15 CY14 % chg
Income From Operations 527.99 310.14 70.2 2037.38 1225.33 66.3
Other Income 3.04 5.77 -47.3 14.24 15.53 -8.3
Total Income 531.03 315.91 68.1 2051.62 1240.86 65.3
Total Expenditure 462.88 281.12 64.7 1805.09 1106.29 63.2
EBITDA (other income included) 68.15 34.79 95.9 246.53 134.58 83.2
Interest 9.93 0.89 1015.7 40.38 3.10 1202.1
Depreciation 23.25 11.20 107.6 90.53 43.86 106.4
PBT 34.97 22.70 54.1 115.62 87.62 32.0
Tax 14.47 4.58 215.9 36.89 19.11 93.0
PAT 20.50 18.12 13.1 78.73 68.50 14.9
Minority Interest -0.06 0.33 -118.2 1.80 1.90 -5.5
PAT after MI 20.56 17.79 15.6 76.93 66.60 15.5
Extraordinary Item 0.00 2.38 -100.0 0.00 6.27 -100.0
Net Profit 20.6 15.41 33.4 76.93 60.33 27.5
EPS(Rs) 2.83 2.12 33.4 10.58 9.09 16.4
Income Statement Figures in Rs crore
CY13 CY14 CY15 CY16e CY17e
Income From Operations 1085.50 1225.33 2037.38 2296.95 2590.39
Growth (%) 20.5 12.9 66.3 12.7 12.8
Other Income 11.95 15.53 14.24 16.29 21.55
Total Income 1097.45 1240.86 2051.62 2313.23 2611.94
Total Expenditure 970.93 1106.29 1805.09 2040.48 2300.81
EBITDA (other income included) 126.52 134.58 246.53 272.76 311.13
Interest 3.75 3.10 40.38 42.35 44.66
Depreciation 42.02 43.86 90.53 102.65 105.52
PBT 80.75 87.62 115.62 127.75 160.94
Tax 22.93 19.11 36.89 40.88 51.50
PAT 57.82 68.50 78.73 86.87 109.44
Minority Interest 1.61 1.90 1.80 1.77 1.83
PAT after MI 56.21 66.60 76.93 85.10 107.62
Extraordinary Item 4.65 6.27 - - -
Net Profit 51.56 60.33 76.93 85.10 107.62
EPS (Rs) 8.22 9.09 10.58 11.70 14.80
6
6
CD Equisearch Pvt Ltd
Equities Derivatives Commodities Distribution of Mutual Funds Distribution of Life Insurance
Balance Sheet Figures in Rs crore
CY13 CY14 CY15 CY16e CY17e
Sources of Funds
Share Capital 12.54 14.54 14.54 14.54 14.54
Reserves 378.27 552.94 604.14 664.74 747.84
Total Shareholders’ Funds 390.81 567.48 618.68 679.28 762.39
Minority Interest 20.13 22.03 23.83 25.60 27.43
Long Term Debt 39.90 35.41 435.21 478.50 504.60
Total Liabilities 450.84 624.92 1077.72 1183.38 1294.41
Application of Funds
Gross Block 594.60 660.61 1234.37 1269.37 1304.37
Less: Accumulated Depreciation 362.78 385.33 475.86 578.51 684.04
Net Block 231.82 275.28 758.51 690.86 620.33
Capital Work in Progress 10.98 5.94 - - -
Investments 54.79 186.34 206.62 260.90 398.03
Current Assets, Loans & Advances
Inventory 93.48 98.25 156.07 171.68 188.84
Trade Receivables 208.69 245.78 418.87 481.70 539.50
Cash and Bank 15.80 11.65 15.37 17.40 18.60
Short term loans 12.06 16.15 20.65 24.60 29.35
Other Assets 13.84 15.31 32.75 35.80 39.40
Total CA & LA 343.86 387.13 643.71 731.18 815.70
Current Liabilities 179.09 213.07 466.19 435.02 475.74
Provisions-Short term 30.30 35.20 58.83 62.36 66.56
Total Current Liabilities 209.39 248.27 525.02 497.38 542.30
Net Current Assets 134.48 138.86 118.69 233.80 273.40
Net Deferred Tax -0.99 -5.49 -4.23 -4.50 -4.50
Net long term assets 19.76 23.99 -1.87 2.33 7.15
Total Assets 450.84 624.92 1077.72 1183.38 1294.41
7
7
CD Equisearch Pvt Ltd
Equities Derivatives Commodities Distribution of Mutual Funds Distribution of Life Insurance
Key Financial Ratios
CY13 CY14 CY15 CY16e CY17e
Growth Ratios (%)
Revenue 20.5 12.9 66.3 12.7 12.8
EBITDA 21.9 7.4 92.1 10.6 14.1
Net Profit 14.4 17.0 27.5 10.6 26.5
EPS 14.4 10.5 16.4 10.6 26.5
Margins (%)
Operating Profit Margin 10.6 9.7 11.4 11.2 11.2
Gross profit Margin 10.7 10.2 10.1 10.0 10.3
Net Profit Margin 4.9 5.1 3.9 3.8 4.2
Return (%)
ROCE 12.6 11.9 11.8 9.5 10.7
RONW 13.8 12.6 13.0 13.1 14.9
Valuations
Market Cap/ Sales 0.4 1.1 0.9 0.7 0.6
EV/EBITDA 3.7 9.0 8.3 7.2 6.3
P/E 9.1 19.9 22.7 19.3 15.3
P/BV 1.2 2.3 2.8 2.4 2.2
Other Ratios
Interest Coverage 20.7 27.2 3.9 4.0 4.6
Debt Equity 0.1 0.1 0.9 0.8 0.8
Current Ratio 1.9 2.3 1.6 2.0 2.2
Turnover Ratios
Fixed Asset Turnover 4.6 4.8 3.9 3.2 4.0
Total Asset Turnover 2.5 2.3 2.4 2.0 2.1
Debtors Turnover 5.9 5.4 6.1 5.1 5.1
Inventory Turnover 10.7 11.5 14.2 12.5 12.8
Creditor Turnover 7.0 6.9 7.8 6.8 6.9
WC Ratios
Debtor Days 61.8 67.7 59.5 71.6 71.9
Inventory Days 34.2 31.6 25.7 29.3 28.6
Creditor Days 52.0 53.2 46.6 53.9 52.5
Cash Conversion Cycle 44.0 46.1 38.7 47.0 48.0
8
8
CD Equisearch Pvt Ltd
Equities Derivatives Commodities Distribution of Mutual Funds Distribution of Life Insurance
Financial Summary – US dollar denominated
CY13 CY14 CY15 CY16e CY17e
Equity capital 2.0 2.3 2.2 2.2 2.2
Shareholders’ funds 63.1 89.6 93.3 101.0 113.3
Total debt 7.5 6.6 79.8 81.8 86.2
Net fixed assets (inc CWIP) 39.2 44.4 114.4 102.7 92.2
Investments 8.9 29.4 31.2 38.8 59.2
Net current assets 21.7 21.9 17.9 34.8 40.6
Total assets 72.8 98.7 162.5 175.9 192.4
Revenues 185.1 200.8 317.6 341.4 385.1
EBITDA 20.4 21.0 38.4 40.5 46.2
EBDT 19.7 20.5 32.1 34.3 39.6
PBT 12.6 13.3 18.0 19.0 23.9 Profit after minority & extraordinary items 8.8 9.9 12.0 12.7 16.0
EPS ($) 0.14 0.15 0.16 0.17 0.22
Book Value ($) 1.0 1.2 1.3 1.4 1.6
*income statement figures translated at average rates; balance sheet at year end rates; projections at current rates All dollar denominated figures are adjusted for extraordinary items.
9
9
CD Equisearch Pvt Ltd
Equities Derivatives Commodities Distribution of Mutual Funds Distribution of Life Insurance
Disclosure& Disclaimer CD Equisearch Private Limited (hereinafter referred to as ‘CD Equi’) is a Member registered with National Stock Exchange of India Limited,
Bombay Stock Exchange Limited and Metropolitan Stock Exchange of India Limited (Formerly known as MCX Stock Exchange Limited). CD
Equi is also registered as Depository Participant with CDSL and AMFI registered Mutual Fund Advisor. The associates of CD Equi are
engaged in activities relating to NBFC-ND - Financing and Investment, Commodity Broking, Real Estate, etc.
CD Equi is registered under SEBI (Research Analysts) Regulations, 2014 with SEBI Registration no INH300002274. Further, CD Equi hereby
declares that –
• No disciplinary action has been taken against CD Equi by any of the regulatory authorities.
• CD Equi/its associates/research analysts do not have any financial interest/beneficial interest of more than one percent/material
conflict of interest in the subject company(s) (kindly disclose if otherwise).
• CD Equi/its associates/research analysts have not received any compensation from the subject company(s) during the past twelve
months.
• CD Equi/its research analysts has not served as an officer, director or employee of company covered by analysts and has not been
engaged in market making activity of the company covered by analysts.
This document is solely for the personal information of the recipient and must not be singularly used as the basis of any investment decision.
Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such
investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in
this document (including the merits and risks involved) and should consult their own advisors to determine the merits and risks of such an
investment.
Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading
volume, as opposed to focusing on a company's fundamentals and as such, may not match with a report on a company's fundamentals.
The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources
believed to be true but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general
guidance only. CD Equi or any of its affiliates/group companies shall not be in any way responsible for any loss or damage that may arise to
any person from any inadvertent error in the information contained in this report. CD Equi has not independently verified all the information
contained within this document. Accordingly, we cannot testify nor make any representation or warranty, express or implied, to the accuracy,
contents or data contained within this document.
While, CD Equi endeavors to update on a reasonable basis the information discussed in this material, there may be regulatory compliance or
other reasons that prevent us from doing so.
This document is being supplied to you solely for your information and its contents, information or data may not be reproduced, redistributed
or passed on, directly or indirectly. Neither, CD Equi nor its directors, employees or affiliates shall be liable for any loss or damage that may
arise from or in connection with the use of this information.
CD Equisearch Private Limited (CIN: U67120WB1995PTC071521)
Registered Office: 37, Shakespeare Sarani, 1st Floor, Kolkata – 700 017; Phone: +91(33) 4488 0000; Fax: +91(33) 2289 2557 Corporate Office: 10,
Vasawani Mansion, 2nd Floor, Dinshaw Wachha Road, Churchgate, Mumbai – 400 020. Phone: +91(22) 2283 0652/0653; Fax: +91(22) 2283, 2276
Website: www.cdequi.com; Email: [email protected]
buy: >20% accumulate: >10% to ≤20% hold: ≥-10% to ≤10% reduce: ≥-20% to <-10% sell: <-20%