04
Jan
13

Ruchira Papers

In my previous post (https://writingoptions.wordpress.com/2013/01/01/happy-new-year-2013/), I had mentioned about Ruchira Papers. I am extremely positive about this small paper company. The Company is engaged in the manufacturing of Kraft paper which is used as a Raw Material in the Packaging Industry and commonly used Writing & Printing Paper.

Financial Performance: In first half of FY13, company has posted 8.7 crore profit compared with 4.48 crore last year. In-fact half-year profits of FY13 are more than full year profits of FY12. Top line for first half of FY13 rose 5.3% over same period of FY12. Debt of the company is consistently coming down and margins are on the rise. EBITDA margins for first half FY13 were 18.2% and NPM were 5.8% (NPM were lower on account of DTL provisioning).

Valuation: Company total equity is 22.42 crore (2.242 crore shares of face value Rs. 10 each).

  • Company trades at 4.4 P/E multiple of FY12 (current share price 14.95). I am expecting 15 crore profit for FY13, so on that it trades at 2.23 P/E multiple.
  • EV/EBITDA : 2.27 (Enterprise Value (EV) : 123.69 (33.52 (Market Capitalization) + 91.92 (Debt) – 1.75 (Cash & cash equivalents)); EBITDA : 54.5 (expected FY13))

Obviously, some kind of discount needs to be given for cyclical nature of Paper Industry and small scale of company operations. I would refrain from giving any kind of price target for Ruchira Papers, but if company continues to deliver on financial parameters than significant re-rating is on the card from current levels.

One key risk for Ruchira Papers is deficit monsoon, which would increase its raw material cost.

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