ASTRON PAPER AND BOARD MILLS LIMITED December 13, 2017 SMC Ranking (1/5) Issue Highlights Industry Book Running Lead Manager Pantomath Capital Advisors Private Limited Name of the registrar PAPER INDUSTRY Total Issue (Shares) - Fresh Issue 14,000,000 Net Offer to the Public 14,000,000 Employee reservation 700,000 Issue Size (Rs. Cr.) 63-70 Price Band (Rs.) 45-50 Discount to eligible employees Offer Date Close Date Rs. 2.50 per share Link Intime India Pvt. Ltd. 15-Dec-17 20-Dec-17 Face Value 10 Lot Size Issue Composition 280 Share In shares Total Issue for Sale 13,300,000 QIB 1,330,000 NIB 7,315,000 Retail 4,655,000 Shareholding Pattern (%) Particulars Pre-issue Post -issue Promoters & promoters group 62.64% 43.78% QIB 0.00% 2.86% NIB 26.39% 34.17% Retail 10.98% 19.19% Total 100.00% 100.00% *calculated on the upper price band Objects of the Issue Setting up of additional facility for manufacturing of Kraft Paper with lower GSM ranging from 80 to 180 GSM and lower B.F ranging from 12 B.F to 20 B.F Part repayment of unsecured loan availed by the Company Funding the working capital requirements of the Company General corporate purposes About the Company Incorporated in 2010, Astron Paper & Board Mill Ltd is Ahmadabad based manufacturer of Kraft paper, also known as paperboard or cardboard. The paper produced by the company is used mainly in packaging industry for manufacturing corrugated boxes and liners, corrugated sacks and composite containers. It has manufacturing facility in Halvad, Gujarat. Company uses waste paper as raw material. It has Triple Wire Machine with a daily capacity of 350 MT along with daily pulp mill capacity of 400 MT. It is ISO 9001-2008, ISO 14001, UKAS Management systems and FSC certified. Strength Scalable Business Model: From 42600 MTPA, the company has doubled its capacity to 96000 MTPA. It believes that Scalable Business model has helped the company to scale up its capacities as per the requirement generated by the Company in past. Quality certifications: Its products undergo quality check at various levels of production to ensure that any quality defects or product errors are rectified on real time basis. The company also has an in-house laboratory for conducting various tests for further improvements in paper technology. Its qualitative approach has helped the company to obtain status of a recognised vendor with large corporate houses and MNCs. Repeat orders: The Company has made continuous efforts to ensure customer satisfaction by taking steps for meeting customer specific requirements, timely delivery of orders to its customers as well as maintaining consistency in quality and this has yielded results in the form of repeat orders from its customers. Location Advantages: Its manufacturing unit is strategically located in terms of access to key raw materials. Further the Company is accredited with Authorised Economic Operator T1 certificate. The certificate entitles the company to many benefits such as it accords better facilitation in imports and export of its consignments, thereby ensuring shorter cargo release time, facility of Direct Port Delivery (DPD) of its import Containers and/ or Direct Port Entry (DPE) of their Export Containers. Business Strategy Setting up of additional manufacturing facility which will increase its product range: The Company is setting up additional manufacturing facility to manufacture Kraft Paper with lower GSM ranging from 80 to 180 GSM and lower B.F ranging from 12 B.F to 20 B.F. The proposed facility will ensure to meet the requirements of the customers who require lower GSM and lower B.F Kraft paper. Expand its domestic geographical reach through marketing network: To expand its business, it intends to aggressively penetrate in the domestic markets and expand its domestic market presence by expanding its sales and distribution network. Continue to improve operating efficiencies through technology enhancements: The Company believes that its in-house technology capabilities will continue to play a key role in effectively managing and expanding its operations, maintain strict operational and fiscal controls and continue to enhance customer service levels. Forward integration: The Company aims to enter into packaging industry and thereby expanding its business operations. It believes that it can have an edge over competitors in corrugated boxes manufacturing industry with its kraft paper manufacturing facility, being its distinguished strength as Kraft paper is one of the key raw material for manufacturing of corrugated boxes. 1
Risk factors Revenues have been significantly dependent on few customers: The Company s revenues have been significantly dependent on few customers. The loss of one or more of its significant customers or significant reduction in production and sales of, or demand for its product from its significant customers may adversely affect its business, financial condition, result of operations and cash flows. Major portion of sales from its operations in certain geographical regions: For the year ended March 31, 2017, and September 30, 2017 the Company generated 64.96% and 77.31% respectively of its net revenue from manufacturing operations, cumulatively from these three states especially Gujarat, Madhya Pradesh and Rajasthan. Any adverse developments affecting its operations in these regions could have an adverse impact on its revenue and results of operations. Requires certain approvals and licenses in the ordinary course of business: The Company requires certain approvals and licenses in the ordinary course of business. It also has to comply with certain rules and regulations to operate its business. Amy failure to obtain, retain and renew such approvals and licences or comply with such rules and regulations, and the failure to obtain or retain them in a timely manner or at all may adversely affect its operations. Business prospects and continued growth depends on its ability to access financing: The business prospects of the company and its continued growth depends on its ability to access financing at competitive rates and competitive terms. Failure to do so would affect the business of the company. Dependent on third party transportation providers: The company is dependent on third party transportation providers, with whom it has no formal arrangements, for the delivery of its raw materials and goods and any disruption in their operations or a decrease in the quality of their services or an increase in the transportation costs could adversely affect its reputation and results of operations. Industry outlook The Indian paper industry accounts for about 3% of the world s production of paper. The estimated turnover of the industry is INR 50,000 crore (USD 8 billion) approximately and its contribution to the exchequer is around INR 4,500 crore. The industry provides employment to more than 0.5 million people directly and 1.5 million people indirectly. The per capita paper consumption in India at a little over 13 kg, is way behind the global average of 57 kg. India is the fastest growing market for paper globally and it presents an exciting scenario; paper consumption is poised for a big leap forward in sync with the economic growth. The futuristic view is that growth in paper consumption would be in multiples of GDP and hence an increase in consumption by one kg per capita would lead to an increase in demand of 1 million tonnes. As per the World Bank outlook January 2017, India s GDP is projected to be 7.6% for 2017 and increase to 7.8 % for 2018 and 2019. According GoI, Indian economy would continue to grow at 7 to 9 per cent and would double in size to US$ 4 5 trillion in a decade, becoming the third largest economy in absolute terms. Peer comparison Company name Total Operating Income PAT EPS P/E P/BV BV FV CMP MCAP Genus Paper & Bo 302.96 9.95 0.37 35.82 1.00 13.02 1.00 13.08 336.32 S I Paper Mills 121.69-0.39 0.00 0.00 1.53 87.58 10.00 134.30 201.45 Sh. Ajit Pulp 226.61 5.26 9.82 22.81 1.23 181.38 10.00 224.00 119.99 Astron Paper and Board 221.90 18.91 4.07 12.30 1.86 26.83 10.00 50.00 232.50 Mill Limited **Astron Paper and Board Mill Limited financials are as on March 2018 2
Valuation Considering the P/E valuation on the upper end of the price band of Rs. 50, the stock is priced at pre issue P/E of 8.59x on its projected annualised FY18 EPS of Rs. 5.82. Post issue, the stock is priced at a P/E of 12.30 x on its EPS of Rs. 4.07. Looking at the P/B ratio at Rs. 50 the stock is priced at P/B ratio of 3.59x on the pre issue book value of Rs.13.94. and on the post issue book value of Rs. 26.83 the P/B comes out to 1.86x. On the lower end of the price band of Rs.45 the stock is priced at pre issue P/E of 7.73x upto its projected annualise FY18 EPS of Rs. 5.82.Post issue, the stock is priced at a P/E of 11.07x on its EPS of Rs. 4.07. Looking at the P/B ratio at Rs. 45, the stock is priced at P/B ratio of 3.23x on the pre issue book value of Rs. 13.94 and on the post issue book value of Rs. 26.83, the P/B comes out to 1.68x. Outlook The company has the existing manufacturing capacity of 96,000 tonnes per annum at its plant in Halvad. The expansion will increase the product basket for the company. With the new addition of additional range of products, the company will be able to provide a complete range of craft papers to its clients. A long term investor may opt the issue. An Indicative timetable in respect of the Issue is set out below: EVENT INDICATIVE DATE (On or about) Bid/Offer Opens Date December 15, 2017 Bid/Offer Closing Date December 20, 2017 Finalisation of Basis of Allotment with the Designated Stock December 26, 2017 Exchange Initiation of refunds (if any, for Anchor Investors)/unblocking December 27, 2017 of funds from ASBA Account Credit of Equity Shares to depository accounts of Allottees December 28, 2017 Commencement of trading of the Equity Shares on the Stock December 29, 2017 Exchanges 3
Annexure Consolidated Financials Profit & Loss Rs. in Cr. Particulars Period ended Period ended Period ended 30-Sep-17 (6 Months) 31-Mar-17 (12 Months) 31-Mar-16 (12 Months) Total Operating Income 110.95 183.27 157.49 Total expenditure 96.34 161.58 138.00 Operating Profit 14.61 21.68 19.49 OPM% 13.17 11.83 12.38 Other Income 0.01 1.32 0.36 PBDIT 14.62 23.01 19.85 Depreciation 1.71 3.25 2.79 PBIT 12.92 19.76 17.06 Interest 5.82 11.30 10.70 PBT 7.09 8.47 6.36 Tax -2.36-1.49 0.27 Profit after tax 9.45 9.96 6.08 Balance sheet is on next page 4
Balance Sheet Rs. in Cr. Particulars As on 30-Sep-17 As on 31-Mar-17 As on 31-Mar-16 Non-current assets Fixed assets Tangible assets 93.98 91.87 84.32 Less: Accumulated Depreciation -14.56-12.89-9.65 Intangible Assets (Net) 0.05 0.09 0.08 Capital Work in Progress 1.69 1.39 0.00 81.15 80.45 74.75 Non-current investments 0.00 0.00 0.00 Long-term loans and advances 0.01 0.01 0.02 Total Non- Current Asset 81.17 80.46 74.77 Current assets Current Investment 0.00 0.00 0.05 Inventories 41.52 42.36 35.28 Trade Receivables 46.44 34.92 37.14 Cash and Bank balances 6.22 6.06 5.30 Short-term loans and advances 6.95 8.94 5.88 Other current assets 0.00 0.00 0.02 Total current assets 101.13 92.28 83.61 Total Assets 182.30 172.74 158.39 Non-current liabilities Long-term borrowings 34.78 38.49 33.21 Deferred tax liabilities (net) 1.99 4.35 5.84 Other non current liabilities 4.10 4.11 12.92 Long-term provisions 0.19 0.14 0.14 Total non-current liabilities 41.06 47.09 52.11 Current liabilities Short-term borrowings 51.38 42.69 37.13 Trade Payables 25.01 25.23 21.92 Other Current Liabilities 8.96 10.56 10.54 Short Term Provisions 1.86 1.86 1.34 Total current liabilities 87.21 80.35 70.93 Total 128.27 127.43 123.04 54.03 45.31 35.35 Net worth represented by: Share capital 32.50 32.50 32.50 Reserves and surplus 21.53 12.81 2.85 Net Worth 54.03 45.31 35.35 5
RANKING METHODOLOGY WEAK NEUTRAL FAIR GOOD EXCELLENT E-mail: researchfeedback@smcindiaonline.com Corporate Office: 11/6B, Shanti Chamber, Pusa Road, New Delhi - 110005 Tel: +91-11-30111000 www.smcindiaonline.com Mumbai Office: Lotus Corporate Park, A Wing 401 / 402, 4th Floor,Graham Firth Steel Compound, Off Western Express Highway, Jay Coach Signal, Goreagon (East) Mumbai - 400063 Tel: 91-22-67341600, Fax: 91-22-28805606 Kolkata Office: 18, Rabindra Sarani, Poddar Court,Gate No.- 4, 5th Floor, Kolkata-700001 Tel: 91-33-39847000, Fax: 91-33-39847004 SMC Global Securities Ltd. (hereinafter referred to as SMC ) is regulated by the Securities and Exchange Board of India ( SEBI ) and is licensed to carry on the business of broking, depository services and related activities. SMC is a registered member of National Stock Exchange of India Limited, Bombay Stock Exchange Limited, MSEI (Metropolitan Stock Exchange of India Ltd) and M/s SMC Comtrade Ltd is a registered member of National Commodity and Derivative Exchange Limited and Multi Commodity Exchanges of India and other commodity exchanges in India. SMC is also registered as a Depository Participant with CDSL and NSDL. SMC s other associates are registered as Merchant Bankers, Portfolio Managers, NBFC with SEBI and Reserve Bank of India. It also has registration with AMFI as a Mutual Fund Distributor. SMC is a SEBI registered Research Analyst having registration number INH100001849. SMC or its associates has not been debarred/ suspended by SEBI or any other regulatory authority for accessing /dealing in securities market. SMC or its associates or its Research Analyst or his relatives do not hold any financial interest in the subject company interest at the time of publication of this Report. SMC or its associates or its Research Analyst or his relatives do not hold any actual/beneficial ownership of more than 1% (one percent) in the subject company, at the end of the month immediately preceding the date of publication of this Report. SMC or its associates its Research Analyst or his relatives does not have any material conflict of interest at the time of publication of this Report. SMC or its associates/analyst has not received any compensation from the subject company covered by the Research Analyst during the past twelve months. The subject company has not been a client of SMC during the past twelve months. SMC or its associates has not received any compensation or other benefits from the subject company covered by analyst or third party in connection with the present Research Report. The Research Analyst has not served as an officer, director or employee of the subject company covered by him/her and SMC has not been engaged in the market making activity for the subject company covered by the Research Analyst in this report. The views expressed by the Research Analyst in this Report are based solely on information available publicly available/internal data/ other reliable sources believed to be true. SMC does not represent/ provide any warranty expressly or impliedly to the accuracy, contents or views expressed herein and investors are advised to independently evaluate the market conditions/risks involved before making any investment decision. The research analysts who have prepared this Report hereby certify that the views /opinions expressed in this Report are their personal independent views/opinions in respect of the subject company. Disclaimer: This Research Report is for the personal information of the authorized recipient and doesn't construe to be any investment, legal or taxation advice to the investor. It is only for private circulation and use. The Research Report is based upon information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied upon as such. No action is solicited on the basis of the contents of this Research Report. The Research Report should not be reproduced or redistributed to any other person(s)in any form without prior written permission of the SMC. The contents of this material are general and are neither comprehensive nor inclusive. Neither SMC nor any of its affiliates, associates, representatives, directors or employees shall be responsible for any loss or damage that may arise to any person due to any action taken on the basis of this Research Report. It does not constitute personal recommendations or take into account the particular investment objectives, financial situations or needs of an individual client or a corporate/s or any entity/s. All investments involve risk and past performance doesn't guarantee future results. The value of, and income from investments may vary because of the changes in the macro and micro factors given at a certain period of time. The person should use his/her own judgment while taking investment decisions. Please note that SMC its affiliates, Research Analyst, officers, directors, and employees, including persons involved in the preparation or issuance if this Research Report: (a) from time to time, may have long or short positions in, and buy or sell the securities thereof, of the subject company(ies) mentioned here in; or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the subject company(ies) discussed herein or may perform or seek to perform investment banking services for such company(ies) or act as advisor or lender/borrower to such subject company(ies); or (c) may have any other potential conflict of interest with respect to any recommendation and related information and opinions. All disputes shall be subject to the exclusive jurisdiction of Delhi High court. 6