Quick take
Shreyans Industries Ltd
BUY
CMP
`205
Tapping the paper potential
Target Price
`247
Shreyans Industries Ltd (SIL) is engaged in the manufacturing of writing and printing
paper. It has two plants i.e. Shreyans Papers and Shree Rishabh Papers, both located
Investment Period
12 Months
in Punjab. The company’s products include high brightness paper, cream wove,
coloured paper, duplicating paper, surface sized printing paper, azure laid paper,
Stock Info
maplitho paper, stamp paper, inland letter paper, postal envelope paper, super
Sector
Paper Industry
printing paper, etc. SIL offers its products in various grades ranging from 44 grams
Market Cap (` cr)
283
Net Debt (` cr)
(6)
per square meter (GSM) to 200 GSM. SIL’s combined capacity for the manufacturing
Beta
1.4
of writing and printing paper is ~85,000MT pa.
52 Week High / Low
219/ 97
Indian paper industry at a sweet spot: Indian paper industry is witnessing a demand
A vg. Daily Volume
7,405
revival scenario. The industry is estimated to grow at a CAGR of 7.6% over the next
Face Value (`)
10
couple of years backed by healthy demand and in-line with the GDP growth of India.
BSE Sensex
34,057
Further, the per capita paper consumption in India is at a little over 13 kg, which is
Nifty
10,531
very low compared to world average of 57 kg, indicating potential for an increase
Reuters Code
SHRY.BO
in demand.
Bloomberg Code
SHYI.IN
Ban in China to boost paper prices: The Chinese Government has banned the
import of waste paper, which is the primary raw material for finished paper. Thus,
Shareholding Pattern (%)
Promoters
47.3
the production of finished paper would be impacted in China. This in turn would
MF / Banks / Indian Fls
0.1
lead to an increase in the prices of finished paper. Eventually, the paper
FII / NRIs / OCBs
1.1
manufacturing companies like SIL would witness volume growth and also benefit
Indian Public / Others
51.6
due to the increased paper prices.
Upgradation of existing units to improve production efficiency: In the Shree Rishabh
Abs. (%)
3m 1yr
3yr
Papers Plant, a major capital expenditure has been planned (expected to be
Sensex
8.2
29.1
23.6
completed by FY2018 end), which will entirely revamp both pulp mill and paper
SIL
22.9
105.8
469.8
machine. Total project is expected to cost ~`20.4cr, which is being partially
financed by a term loan of `13cr. Moreover, for the Shreyans Papers Plant, capital
expenditure has also been planned during FY18 in order to further improve and
debottleneck the operations.
3 year daily price chart
Outlook and Valuation: We forecast SIL to report healthy top-line CAGR of ~9% to
250
`545cr over FY17-20E on the back of healthy demand growth in printing. On the
200
bottom-line front (reported PAT), we estimate ~14% CAGR owing to strong
improvement in operating performance. Further, improvement in manufacturing
150
efficiency and benefits from increasing global finished paper prices (ban in China)
100
would aid margins. We initiate coverage on SIL with a Buy recommendation and
target price of `247 (10x FY2020E EPS), indicating an upside of ~20% from the
50
current levels.
0
Key financials
Y/E March (` cr)
FY2016
FY2017
FY2018E
FY2019E FY2020E
Net Sales
389
420
459
500
545
Source: Company, Angel Research
% chg
5.4
7.8
9.2
9.0
8.8
Net Profit
9
23
29
31
34
% chg
(11.5)
166.6
26.7
4.9
10.9
Amarjeet S Maurya
OPM (%)
5.9
11.1
11.8
11.9
12.0
022-39357800 Ext: 6831
EPS (Rs)
6.3
16.7
21.2
22.2
24.7
P/E (x)
32.7
12.3
9.7
9.2
8.3
P/BV (x)
2.9
2.3
2.3
1.9
1.7
RoE (%)
8.8
19.0
23.9
20.9
20.2
RoCE (%)
10.1
23.7
25.3
24.6
24.5
EV/Sales (x)
0.8
0.7
0.6
0.6
0.5
EV/EBITDA (x)
13.9
6.1
5.4
4.8
4.2
Source: Company, Angel Research, Note: CMP as of December 29, 2017
Please refer to important disclosures at the end of this report
1
Quick take
Shreyans Industries
Company Background
Shreyans Industries Ltd (SIL) is engaged in the manufacturing of writing and
printing paper. It has two plants i.e. Shreyans Papers and Shree Rishabh Papers,
both located in Punjab. The company’s products include high brightness paper,
cream wove, coloured paper, duplicating paper, surface sized printing paper,
azure laid paper, maplitho paper, stamp paper, inland letter paper, postal
envelope paper, super printing paper, etc. SIL offers its products in various
grades ranging from 44 grams per square meter (GSM) to 200 GSM. SIL’s
combined capacity for the manufacturing of writing and printing paper is
~85,000 metric tons per annum.
Historical Revenue volume trend
82,000
20.0%
80,309
79,438
80,000
15.0%
78,000
76,415
10.0%
76,000
74,521
5.0%
74,000
71,862
0.0%
72,000
-5.0%
70,000
68,000
-10.0%
66,000
-15.0%
FY2013
FY2014
FY2015
FY2016
FY2017
Volume MT (LHS)
yoy growth (RHS)
Source: Company, Angel Research
December 30, 2017
2
Quick take
Shreyans Industries
Outlook and Valuation
We forecast SIL to report healthy top-line CAGR of ~9% to `545cr over FY17-
20E on the back of healthy demand growth in printing. On the bottom-line front
(reported PAT), we estimate ~14% CAGR owing to strong improvement in
operating performance. Further, improvement in manufacturing efficiency and
benefits from increasing global finished paper prices (ban in China) would aid
margins. We initiate coverage on SIL with a Buy recommendation and target
price of `247 (10x FY2020E EPS), indicating an upside of ~20% from the
current levels.
Exhibit 1: One year forward PE chart
300.00
250.00
200.00
150.00
100.00
50.00
0.00
Share Price
2.0 X
4.0 X
6.0 X
8.0 X
Source: Company, Angel Research
Risks to our estimates
1) An increase in supply of paper would create a surplus in the market, which would
lead to high competition, affecting the overall pricing of paper, and hence, impact
the company’s profitability
2) Increase in raw material prices (bagasse, wheat straw, rice straw, sarkanda, etc.)
could impact the company’s profitability
December 30, 2017
3
Quick take
Shreyans Industries
Profit & Loss Statement
Y/E March (` cr)
FY2016
FY2017
FY2018E
FY2019E
FY2020E
Total operating income
389
420
459
500
545
% chg
5.4
7.8
9.2
9.0
8.8
Total Expenditure
367
374
405
441
479
Raw Material
206
213
233
254
277
Personnel
41
46
51
57
63
Others Expenses
120
114
120
130
139
EBITDA
23
46
54
60
65
% chg
(4.6)
103.6
16.5
10.0
9.8
(% of Net Sales)
5.9
11.1
11.8
11.9
12.0
Depreciation & Amortisation
7
8
9
10
11
EBIT
15
38
45
49
54
% chg
(7.4)
148.5
16.0
10.8
10.1
(% of Net Sales)
4.0
9.2
9.7
9.9
10.0
Interest & other Charges
6
6
6
7
7
Other Income
1
3
3
3
3
(% of PBT)
13.4
8.4
7.1
6.5
5.9
Share in profit of Associates
-
-
-
-
-
Recurring PBT
11
36
42
46
51
% chg
(19.7)
223.5
17.4
9.6
10.9
Tax
2
13
13
15
17
(% of PBT)
21.3
35.1
30.0
33.0
33.0
PAT (reported)
9
23
29
31
34
% chg
(11.5)
166.6
26.7
4.9
10.9
(% of Net Sales)
2.2
6.9
6.4
6.1
6.3
Basic EPS (Rs)
6.3
16.7
21.2
22.2
24.7
Fully Diluted EPS (Rs)
6.3
16.7
21.2
22.2
24.7
% chg
(11.5)
166.6
26.7
4.9
10.9
December 30, 2017
4
Quick take
Shreyans Industries
Balance Sheet
Y/E March (` cr)
FY2016
FY2017
FY2018E FY2019E FY2020E
SOURCES OF FUNDS
Equity Share Capital
14
14
14
14
14
Reserves& Surplus
85
108
135
165
197
Shareholders Funds
99
122
149
178
211
Minority Interest
-
-
-
-
-
Total Loans
55
41
54
54
54
Deferred Tax Liability
25
29
29
29
29
Total Liabilities
179
192
232
261
294
APPLICATION OF FUNDS
Gross Block
261
277
297
312
327
Less: Acc. Depreciation
124
131
140
150
161
Net Block
138
147
157
162
166
Capital Work-in-Progress
9
3
3
3
3
Investments
18
38
38
38
38
Current Assets
82
76
99
127
159
Inventories
26
29
35
44
48
Sundry Debtors
35
25
31
38
45
Cash
4
3
9
14
25
Loans & Advances
11
8
9
13
19
Other Assets
6
11
14
18
22
Current liabilities
70
74
67
71
74
Net Current Assets
12
2
32
56
84
Deferred Tax Asset
2
2
2
2
2
Mis. Exp. not written off
-
-
-
-
-
Total Assets
179
192
232
261
294
December 30, 2017
5
Quick take
Shreyans Industries
Cash flow Statement
Y/E March (` cr)
FY2016
FY2017
FY2018E FY2019E FY2020E
Profit before tax
11
36
42
46
51
Depreciation
7
8
9
10
11
Change in Working Capital
(3)
18
(24)
(19)
(17)
Interest / Dividend (Net)
4
4
0
0
0
Direct taxes paid
(1)
(10)
(13)
(15)
(17)
Others
1
(1)
0
0
0
Cash Flow from Operations
19
54
15
22
28
(Inc.)/ Dec. in Fixed Assets
(26)
(11)
(20)
(15)
(15)
(Inc.)/ Dec. in Investments
2
(23)
3
0
0
Cash Flow from Investing
(24)
(34)
(17)
(15)
(15)
Issue of Equity
0
0
0
0
0
Inc./(Dec.) in loans
12
(14)
13
0
0
Dividend Paid (Incl. Tax)
(2)
(2)
(2)
(2)
(2)
Interest / Dividend (Net)
(9)
(5)
0
0
0
Cash Flow from Financing
1
(21)
11
(2)
(2)
Inc./(Dec.) in Cash
(5)
(0)
9
5
11
Opening Cash balances
5
1
0
9
14
Closing Cash balances
1
0
9
14
25
December 30, 2017
6
Quick take
Shreyans Industries
Key Ratios
Y/E March
FY2016
FY2017
FY2018E FY2019E FY2020E
Valuation Ratio (x)
P/E (on FDEPS)
32.7
12.3
9.7
9.2
8.3
P/CEPS
17.7
9.1
7.3
6.9
6.3
P/BV
2.9
2.3
1.9
1.6
1.3
Dividend yield (%)
0.0
0.0
0.0
0.0
0.0
EV/Sales
0.8
0.7
0.6
0.6
0.5
EV/EBITDA
13.9
6.1
5.4
4.8
4.2
EV / Total Assets
1.8
1.5
1.3
1.1
0.9
Per Share Data (Rs)
EPS (Basic)
6.3
16.7
21.2
22.2
24.7
EPS (fully diluted)
6.3
16.7
21.2
22.2
24.7
Cash EPS
11.6
22.5
28.1
29.5
32.5
DPS
0.0
0.0
0.0
0.0
0.0
Book Value
71.3
88.1
108.0
129.1
152.5
Returns (%)
ROCE
10.1
23.7
22.0
21.3
20.6
Angel ROIC (Pre-tax)
11.8
31.6
28.5
27.4
27.0
ROE
8.8
19.0
23.9
20.9
20.2
Turnover ratios (x)
Asset Turnover (Gross Block)
1.5
1.5
1.5
1.6
1.7
Inventory / Sales (days)
25
25
28
32
32
Receivables (days)
33
21
25
28
30
Payables (days)
31
28
28
28
28
Working capital cycle (ex-cash) (days)
26
19
25
32
34
Source: Company, Angel Research
-
December 30, 2017
7
Quick take
Shreyans Industries
Research Team Tel: 022 - 39357800
DISCLAIMER
Angel Broking Private Limited (hereinafter referred to as “Angel”) is a registered Member of National Stock Exchange of India Limited,
Bombay Stock Exchange Limited and MCX Stock Exchange Limited. It is also registered as a Depository Participant with CDSL and Portfolio
Manager with SEBI. It also has registration with AMFI as a Mutual Fund Distributor. Angel Broking Private Limited is a registered entity
with SEBI for Research Analyst in terms of SEBI (Research Analyst) Regulations, 2014 vide registration number INH000000164. Angel or
its associates has not been debarred/ suspended by SEBI or any other regulatory authority for accessing /dealing in securities Market.
Angel or its associates including its relatives/analyst do not hold any financial interest/beneficial ownership of more than 1% in the
company covered by Analyst. Angel or its associates/analyst has not received any compensation / managed or co-managed public
offering of securities of the company covered by Analyst during the past twelve months. Angel/analyst has not served as an officer,
director or employee of company covered by Analyst and has not been engaged in market making activity of the company covered by
Analyst.
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
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Note: Please refer to the important ‘Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the
latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Pvt. Limited and its affiliates may
have investment positions in the stocks recommended in this report.
Disclosure of Interest Statement
Shreyans Industries
1. Analyst ownership of the stock
No
2. Angel and its Group companies ownership of the stock
No
3. Angel and its Group companies' Directors ownership of the stock
No
4. Broking relationship with company covered
No
Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors
Ratings (Based on expected returns
Buy (> 15%)
Accumulate (5% to 15%)
Neutral (-5 to 5%)
over 12 months investment period):
Reduce (-5% to -15%)
Sell (< -15)
December 30, 2017
8
