Astron Paper

CM RATING30/100
Incorporated in 2010, and promoted by Kirti Patel, Ramakant Patel, Karshan Patel and Asian Granito India (listed on the BSE and the NSE), Astron Paper & Board Mill (APBM) is an Ahmedabad-based company manufacturing kraft paper. The company mainly caters to the packaging industry and the companys kraft paper is used by packaging industry in manufacturing corrugated boxes, liners, sacks and composite containers. Kraft paper is also used in textile industry, in manufacturing ordinary boxes, book/note book register bindings and envelop manufacturing.

It has current manufacturing capacity of 96,000 million tonnes per annum (mtpa) at Halvad, Gujarat, which it proposes to increase it to 1,29,000 mtpa. The company has triple wire machine with a daily capacity of 350 tonnes along with daily pulp mill capacity of 400 tonnes. 

The company offers varied products like high ring crust test, Kraft liner, liner to corrugated medium paper, ranging mainly from 140 gram square meter (gsm) to 350 gsm and 22-35 board foot (bf). It is operating at around 75% of the installed capacities as on September 2017.

It is using waste paper as its main raw material and thus saving usage of wood, thus following green initiative. 

It has also installed an in house captive power plant of three MW to support its electrical requirements.

Over the years, the company has been able to develop a loyal clientele network consisting of various packaging companies and MNCs. Currently the company is operating in domestic markets with its products being supplied on pan India basis and is also in the process of exploring export markets.

The Offer and the Objects

The offer comprises initial public offering of 140 lakh shares, which at lower price band of Rs 45 per share, works out to Rs 63 crore and at higher price band of Rs 50, the issue size works out to Rs 70 crore.

The minimum bid lot is 280 equity shares and in multiples of 280 equity shares. The issue is made through the book-building process and will open on 15 December and will close on 20 December.

The objects of the issue is to set up additional facility for manufacturing of kraft paper with lower gsm, ranging from 80 to 180 gsm, for Rs 23.02 crore, to meet the working capital requirement of Rs 23.9 crore and to repay unsecured loans availed by the company of Rs 8.10 crore apart from the benefits of listing the equity shares on the BSE and the NSE and to enhance its visibility and brand image and provide liquidity to its existing shareholders.

Strengths

The demand for kraft paper is estimated to increase to six mt by 2025 from 3.5 mt in 2016, with growth of 8% per annum, as per Care Advisory and Research.

The companys business model is order driven which helps it to develop the linkage with raw material suppliers and thus results in optimum utilisation of resources and well thought out manufacturing process.

The process of manufacturing kraft paper involves recycling of waste paper and with many organisations supporting the go-green revolution; it increases the demand of FSC-certified kraft paper produced by the company which is eco friendly.

The company aims to enter into packaging industry post the expansion, and will manufacture corrugated boxes using its own kraft paper thus will have an edge over the competition. Corrugated boxes account for 85-90% of total demand of kraft paper.

Strong growth for corrugated box packaging due to demand from sectors such as food and beverages, Super market shelves, growth in e-commerce industry, horticulture, ready to eat foods, marine products, industrial products and others will lead to higher demand of Kraft paper going forward as well. Increase in consumer awareness regarding use of recycled products will further boost the demand for recycled paper packaging products like kraft paper.

The company has 9,9251 sq meter of land and is utilising only around 25% of installed capacity. Surplus land is available for future expansion opportunities.

Weaknesses

Low entry barrier and fragmented industry.

One of the group companies, that is, Shreerangam Packaging Pvt Ltd has objects similar to the companys business leaving scope for conflict of interest.

Any change in regulations including safety, health, pollution and environmental norms can affect the sector.

The business is also exposed to seasonality and market conditions and has low pricing power. The business requires significant working capital and operates at working capital days of around 105.

Domestic raw material pricing, quality and availability is an issue and is one of the biggest barrier for the growth of the industry. Players are forced to import the raw material from countries like UK, US, Central EU and Middle East.

Company mainly imports raw material while its sales are predominately domestic. It is, thus, exposed to forex risks.

The proposed expansion is for lower GSM kraft paper and thus is of low value compared to existing product range.

There have been delays in statutory payments and delay in repayment of loans thus signifying cash flow issues in the past with the company.

Top 10 customers account for 65.1% and 60% of total sales for FY 2017 and for the six months ended September 2017. Top 5 customers account for 49.4% and 42.5% of total sales for FY 2017 and for the six months ended September 2017. Further, Gujarat, MP and Rajasthan together account for 64.5% and 77.3% of the total sales for FY 2017 and for six months ended September 20 17 respectively.

Any new technology for manufacturing corrugated boxes other than from kraft paper will significantly affect companys business.

Valuation

For FY 2017, net sales were up 16% to Rs 110.95 crore. The OPM stood at 11.8% down by 60 bps thus restricting the OP growth to 11% to Rs 19.49 crore. Other income stood at Rs 0.36 crore up by 268%. Interest cost was higher by 6% to Rs 11.30 crore while depreciation was higher by 16% to Rs 3.25 crore. Thus, PBT growth was 33% to Rs 8.47 crore. There was a tax credit of Rs 1.49 crore in FY 17, as compared to tax payment of Rs 0.27 crore thus resulting in a PAT for FY 2017 of Rs 9.96 crore, up by 64%.

For the half year ended September 2017, net sales stood at Rs 110.95 crore with OPM of 13.2% resulting in an OP of Rs 14.62 crore. Interest cost was at Rs 5.82 crore and depreciation stood at Rs 1.71 crore. After providing for total tax credit of Rs 2.36 crore PAT stood at Rs 9.46 crore. Due to seasonality of business, half yearly earnings cannot be annualised.

The diluted equity share capital of the company stands at Rs 46.50 crore of face value of Rs 10. EPS for FY 2017 works out at Rs 2.1. At higher price band of Rs 50, The P/E on FY 2017 diluted EPS works out to 23.3.

Its nearest competitors are Shree Ajit Pulp and Paper (SAPP) and South Indian Paper Mill (SIPM). SAPP reported net sales and PAT of Rs 208.66 crore and Rs 6.4 crore respectively for FY 2017 and EPS for FY 2017 stood at Rs 11.95. At current market price of Rs 190, SAPP is trading at 15.9 P/E of times its FY 17 earnings.

SIPM reported net sales and PAT of Rs 195.27 crore and Rs 12.61 crore, respectively, for FY 2017 and EPS for FY 2017 stood at Rs 8.41. At the current market price of Rs 122, SIPM is trading at 14.5 P/E of times its FY 2017 earnings.

Astron Paper & Board Mill : Issue highlights
Fresh Issue ( in Rs crore)
- On lower price band63.00
- On upper price band70.00
Total Issue size for fresh issue ( in no of shares in lakh)140.00
Price band (Rs)45-50
Bid size ( in no of shares)280
Post issue share capital (Rs crore) 46.50
Post-issue Promoter & Group shareholding (%)43.8%
Issue open date15-12-2017
Issue closed date20-12-2017
ListingBSE, NSE
Rating 30/100

 

Astron Paper & Board Mill: Standalone Financials
1303(12)1403(12)1503(12)1603(12)1703(12)1709(06)
Net Sales26.59105.84151.91157.49183.27110.95
OPM (%)4.6%10.4%12.6%12.4%11.8%13.2%
OP1.2310.9719.1019.4921.6814.62
Other in. 0.130.360.220.361.320.00
PBDIT1.3711.3319.3219.8523.0114.62
Interest2.969.5410.7010.7011.305.82
PBDT-1.591.798.639.1511.718.80
Dep.1.013.192.662.793.251.71
PBT -2.60-1.415.976.368.477.09
Tax (including Deferred Tax)2.091.621.840.27-1.49-2.36
PAT-4.69-3.024.136.089.969.46
EPS (Rs)*--0.91.32.1#
*EPS is on post issue equity capital of Rs 46.50 crore of face value of Rs 10 each
# EPS not annualised due to seasonality of business
Figures in crore
Source: Capitaline Database

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