Paper & Paper Products November 8, 2012 CMP Rs. 6.85 BSE Code 516020 BSE ID AGIOPAPER High/Low 1Y (Rs.) 7.4 / 5.1 Average Volume (3M) 536 Market Cap (Rs. Cr.) 11 Shareholding % Sep-12 Jun-12 Promoters 54.17 54.13 DIIs # 0.04 0.04 FIIs # - - Public & Others 45.79 45.83 Stock Chart ( Relative to Sensex) Agio Papers & Industries Ltd. Company Overview Incorporated in September 1984 under the name BDT Business Ltd., the company was promoted by Buxa Dooars Tea Co. (India) Ltd. and J.P. Kanoi, R.K. Kanoi and S.K. Kanoi. In August 1989, the company changed its name to Kanoi Paper & Industries Ltd. The company s plant and machinery installation include a pulp mill, designed to produce 15,500 TPA of pulp and an imported second hand MG combination paper machine, which can provide 15,500 TPA of paper in the range of 47 gram per square metre (gsm) to 120 gsm. In 2007, the company again changed its name to Orion Paper & Industries Ltd. and finally in 2009, the company got its present name Agio Paper & Industries Limited (APIL). APIL manufactures writing and printing paper, which finds a vast array of applications in printing of books, textbooks, brochures, pamphlets, including manufacturing of notebooks and office and computer stationery. 145 120 95 70 08-Nov-11 08-May-12 08-Nov-12 Agio Papers & Industries Ltd. Sensex Company Fundamentals Lower turnover resulted in a decrease in the company s total revenue in FY12: According to the audited financial statement for the financial year ended March 2012, the total revenue of the company registered a decrease of 98.8% to Rs. 0.2 crore against Rs. 14.6 crore reported in the previous financial year. This decrease in total revenue was largely attributable to the decrease in total net sales due to the closure of the factory since October 2010 as per instructions issued by the Central Pollution Control Board. Stock Performance (%) 1M 6M 1Yr Agio Papers 3.6-2.6 29.0 Sensex 0.3 14.8 12.3 Financials FY10 FY11 FY12 Revenue 23.3 14.6 0.2 Y-o-Y -34.4% -37.3% -98.8% EBITDA -1.6-3.7-2.9 Y-o-Y - - - Net Profit -3.3-2.0-6.9 Y-o-Y PL - - EPS (Dil.) -5.38-3.15-4.31 EBITDA Margin - - - Net Profit Margin - - - P/E(x) - - - Financial year ends at March 31. All figures in Rs. crore except for per share data # FIIs- Foreign Institutional Investors # DIIs- Domestic Institutional Investors PL - Profit to Loss LP - Loss to Profit Net Profit Margin (NPM) declined largely due to lower EBITDA margin: The company witnessed a significant fall in its net NPM, mainly due to erosion of its top line, higher financial cost and a sharp decrease in other income from Rs. 9.7 crore to Rs. 1.0 crore in FY12. - Key Strengths - Opportunity for starting afresh. - Complete overhauling of infrastructure. Initiative of the BSE Investors Protection Fund -1-
Company Business Management of Agio Paper & Industries (APIL) was changed twice during its history and the current management took over the company in 2003. A new team of professionals started in earnest and a few months after the takeover, extensive repair and maintenance work was carried out in the unit and subsequently when the mill re-started manufacturing operations in May, 2003, it started producing paper up to its potential capacity. A number of initiatives on cost reduction was undertaken together with aggressive marketing policies. APIL is engaged in manufacturing of writing and printing papers. The factory unit of APIL was originally set up for manufacturing of writing, printing and Kraft Paper with an installed capacity of 13,800 TPA, which was later increased to 15,500 MT. The primary raw material used in the manufacturing process is rice straw, which is easily and abundantly available within short distance of the factory premises. The other raw materials used are gunny and waste papers, majority of which are procured from nearby states. A limited quantity is also imported from other countries. - The company has been selling its products through well-established distributor network, spread all over India. At present, the company s markets are located in West Bengal, Chhattisgarh, Tamil Nadu, Maharashtra, New Delhi, Bihar, Orissa, Gujarat, Madhya Pradesh, Uttaranchal, Uttar Pradesh and Karnataka. The plant is situated at Masturi, at a distance of approximately 8 km from Bilaspur District, Chhattisgarh at the banks of river Arpa, which also is a reliable source for water supply during monsoon and winter months. The plant is approachable by National Highway, connecting Bilaspur to Champa. It has a road frontage and ends at the riverbank. The factory and quarters are on level developed land. Keeping in mind fierce competition in the Indian paper market, the management has envisaged going beyond the existing capacity of 15,500 MT and enhanced the capacity recently by adding a 100% waste paper-based pulping and manufacturing unit. This will increase the production capacity of APIL by 18,000 MT. The company has also installed a captive power plant, having 4 MW capacity to serve its captive power requirements. After becoming fully functional, it will enable the company attain self sufficiency in power generation and lower the costs significantly. The mill also houses a full fledged Effluent Treatment Plant Consisting of Equalization Tank, Primary Clarifier, Aeration Tank and secondary clarifier. In order to stay pollution free, the management has also taken a conscious decision to install a chemical recovery plant for better future, keeping in view the requirement of the industry. The closure of the factory since October 6, 2010 due to instructions issued by the Central Pollution Control Board has put a halt on the company s production and in the last fiscal, the company s net worth has reduced by half. Initiative of the BSE Investors Protection Fund -2-
Industry Overview The Indian paper industry still remains highly fragmented. As per estimates, there are more than 1,000 paper mills in the country. There are three segments in the entire Industry, other than newsprint segment (i) large integrated mills using bamboo and hardwood and large mills using waste paper/recycled fibre, (ii) medium mills using agricultural residues and (iii) small/medium mills using waste paper/recycled fibres. The paper industry is an important industrial sector, having a bearing on the socio-economic development of the country. The industry mirrors the country s economic growth and creates economic wealth in the hands of the poor, by generating rural employment. The Indian paper industry is an important vehicle to drive the Government's National Literacy Mission. It is also an important contributor to greening India through Social Forestry Programmes*. The industry experienced an unprecedented situation in 2011-12 with growth slowdown and commissioning of new capacities in some segments by major players. This led to a temporary demand supply mismatch and inventory buildup in the industry. Over the past few years, the Indian industry has grown faster at 8.5% annually against the global paper industry growth of 2%. The long-term growth drivers, which remain intact, will ensure that the Indian paper industry will continue to grow at 8-9% in this decade. The market for writing and printing paper is expected to grow by about 9% annually over the next 5-7 years. As a result, the market size will expand from the current 4.4 million tonnes to about 8 million tonnes per year*. The Indian paper industry has a turnover of over Rs. 35,000 crore at present and contributes over Rs. 3,000 crore to the national exchequer. This industry provides employment to more than 0.37 million people directly and 1.3 million people indirectly. After being delicensed since 1997, the technology used in this industry ranges from dated to modern. Raw materials that are used include wood, bamboo, recycled fibre, bagasse, wheat straw, rice husk, etc. Approximately 35% are based on chemical pulp, 44% on recycled fibre and 21% on agro-residues. India is considered to be the fastest growing market for consumption of paper and the same is estimated to touch 13.95 million tonnes by 2015-16. ** The domestic demand for all varieties of paper is estimated at around 11.6 million tonnes per year. Of this, writing and printing paper account for approximately 4.2 million tonnes, packaging grades for approximately 5.05 million tonnes and newsprint for about 1.75 million tonnes apart from specialty grade about 0.60 million tonnes***. Even though our domestic paper consumption is growing steadily, it is still only 10/11 kg per capita, which is abysmally low when compared to even highly populated and developing economies. For example, per capita consumption in China and Indonesia is estimated at 42 kg and 23 kg, respectively***. To meet this demand, the Indian paper industry expanded its capacity close to 1 million tonnes. However, the recession of 2008 had slowed down fresh capacity expansion, coupled with uncertainty in the supply of raw materials, particularly for wood-based units. The capacity additions initially resulted into oversupply situation, which has now been absorbed in the market*** * Source: Company s Annual Report ** Source: Indian Paper Industry Indian Paper Manufacturers Association (http://www.ipma.co.in/paper_industry_overview.asp) *** Source: West Coast Paper Mills Ltd. 2012 Company s Annual Report. Initiative of the BSE Investors Protection Fund -3-
Competitor Analysis We have compared Agio Papers & Industries Ltd. with its close peers in the domestic Paper & Paper Products industry. Company Year End CMP M Cap Revenue EBIT Margin EPS P/E Agio Paper & Industries Ltd.* Mar-12 6.9 11.0 0.2 - -4.31 - Magnum Ventures.* Mar-12 4.1 14.0 197.2 5.6% -5.41 - Malu Paper Mar-12 9.1 15.0 169.7 7.52% -11.85 - Source: BSE, Capitaline, Market cap and Revenue in Rs. crore. CMP and M Cap as of 8 th Nov 12 Initiative of the BSE Investors Protection Fund -4-
Summary Financials Particulars (Rs crore) FY10 FY11 FY12 Net Sales 23.3 14.6 0.2 Other Op. Revenue 0.0 0.0 0.0 Total Revenue 23.3 14.6 0.2 Growth (%) -34.4% -37.3% -98.8% Cost of Goods Sold -20.0-14.0-0.5 Gross Profit 3.3 0.6-0.3 Employee Costs -2.3-2.3-1.4 Other Expenditure -2.6-1.9-1.2 EBITDA -1.6-3.7-2.9 Growth (%) - - - Depreciation -1.3-4.8-1.2 EBIT Profit -2.9-8.5-4.1 Finance cost -0.9-2.9-4.0 Other Income 0.4 9.7 1.0 Exceptional Items 0.0 0.0 0.0 PBT -3.3-1.8-7.1 Growth (%) PL - - Income Tax 0.0-0.2 0.1 Profit after Tax -3.3-2.0-6.9 Extra Ordinary Items 0.0 0.0 0.0 Net Profit -3.3-2.0-6.9 Growth (%) PL - - Rep. Basic EPS -5.38-3.15-4.31 Rep. Diluted EPS -5.38-3.15-4.31 Equity Capital 9.2 15.0 8.1 Face value 10 10 10 Ratio Analysis FY10 FY11 FY12 Margins EBITDA Margin (%) - - - Net Profit Margin (%) - - - Valuation P/E (x) - - - P/BV (x) 0.7 0.7 0.7 Profitability ROCE (%)* - -21.0% -11.2% RONW(%) -35.8% -13.0% -85.9% Solvency Ratio Debt/ Equity Ratio (x) 4.8 2.0 4.4 Interest Cover (x) -3.4-2.9-1.0 *Bifurcation between Long Term and Short Term Debt is not available for FY10 PL - Profit to Loss; LP - Loss to Profit Initiative of the BSE Investors Protection Fund -5-
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