Paper Products, standalone net sales for 2QCY13 grew by 7.9 percent YoY to Rs 2555.1 mn, comprising marginal volume growth (up 0.25-0.5 percent YoY) and ~7.5 percent price growth, which is led by combination of improvement in product mix and price hikes. Volume growth has shown flattish growth in tonnage terms, as during slowdown, FMCG companies usually uses thinner packaging material leading to flattish tonnage growth. Export contributed ~20 percent to the topline.
We expect volume growth in FMCG industry to be 4-5 percent for next 3-4 qtrs and accordingly remains cautiously optimistic on the CY13 and CY14 volume growth for PPL. We have assumed volume growth of 5 percent each in CY13 and CY14 and will revise our assumptions, post the result of 3QCY13. Good monsoon and likely election spending remains the key upside risk to our volume growth assumption.
Gross margin improved marginally by 10 bps YoY to 29.7 percent mainly led by stable raw material pricing environment and price hikes taken during earlier qtr. However, in short to medium, the increased volatility coupled with depreciation of Rs against $, may impact gross margins, as incremental cost pass-thru usually comes with lag. We have assumed gross margin of 30 percent and 30.2 percent for CY13E and CY14E respectively.
Overall, standalone EBITDA increased by 13.7 percent YoY to Rs 254.7 mn and EBITDA margin expanded by 50 bps YoY to 10.0 percent.
Tax rate for 2QCY13 was higher at 31.2 percent as compared to 26.3 percent in 2QCY12. The higher tax rate was mainly due to increased surcharge in Union Budget and end of tax benefits for Silvassa Plant in Mar13.
Standalone PAT increased by 8.2 percent YoY to Rs 144.5 mn.
The company has envisage the capex plan of Rs 400-450 mn for capacity expansion, debottlenecking and regular maintainance. Out of this, Rs 100 mn has been spent in 1HCY13.
Webtech Labels Ltd (WLL): For 2QCY13, Webtech has posted topline of Rs 202.3 mn and EBITDA of Rs 36.0 mn, implying EBITDA margin of 17.8 percent. For full year, WLL is expected to post topline of Rs 800-850 mn, with EBITDA margin of ~15 percent.
Outlook: Volume growth in FMCG industry has tapered down to 4-5 percent after coming out of high base of double digit volume growth in last 2 yrs. However, few players with niche products and strong brand continues to report volume growth in high single digit. With good monsoon and elections round the corner, in short to medium term, we expect FMCG volume growth to alteast sustain growth of 4-5 percent. We expect volume for PPL to grow inline with the underlying FMCG growth.
Valuations: "At CMP, the business is available at P/E ratio of 6.7x CY14E earnings and on P/BV of 0.9x CY14E book. We have valued equity investment in Webtech Labels Pvt Ltd at book value, implying value of Rs 6.2/share. We reiterate our BUY rating on the stock with a rolled over Aug14 price target of Rs 93.1/share," says Aditya Birla Money research report.
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