Recommendation from Paper Industry

This section gives a recommendation of a stock having a stock price below Rs 150 with sound fundamentals and expected to give handsome returns over a one-year time horizon.

Satia Industries : Making Paper Profitable

HERE IS WHY

✓ Ambitious capex plans
✓ Steady revenue growth
✓ Positive market projections

In the post pandemic scenario there are several companies and sectors which are getting back to normal and one such company is Satia Industries. Incorporated in 1980, Satia Industries Limited (SIL) is one of the biggest and completely integrated wood and agro-based paper manufacturers. Its products are extensively used in the printing of books, directories, envelopes, diaries, calendars, computer stationery, annual reports, etc. As of now, the company supplies its products to state boards, which makes up for 40-50 per cent of its revenues while the remaining revenue comes from open market supplies. 

Some of the marquee clients of the company include Balbharti, State Election Commission, Indian Railways, Odisha State Bureau of Textbooks and Chhattisgarh Pathya Pustak Nigam. The company currently has 550 tonnes per day (TPD) pulping capacity that produces a mix of agro, wood pulp and waste paper. The company also has four plants of paper machines with capacity of 700 TPD. Currently the company’s chemical recovery capacity is of 650 TPD and the power generation segment includes four turbines with total capacity of 41.95 MW. SIL has recently added the fourth state-of-the-art paper machinery to its production facilities with a capacity of 100,000 MTPA. 

With a diverse capex programme to modernise and scale up its capacities, SIL now has total installed capacity of 205,000 MT in FY22. Currently, 93 per cent of the company’s revenue comes from India and around 7 per cent comes from the rest of the world. The company generates revenues from 15 states. Uttar Pradesh accounts for a majority of its revenues at 18 per cent, followed by Maharashtra (14 per cent), Delhi (13 per cent), Rajasthan (9 per cent), Punjab (8 per cent) and others. The company has a base of 70 distributors with three branch offices across the nation. SIL has carbon credit surplus with regular income accruing from renewable energy credits. 

The trailing 12-month sales of the company total ₹1,390 crore. In FY22 the company’s top-line grew 52 per cent on a yearly basis to ₹891 crore. The operating profit and net profit margin of the company in FY22 was 20.3 per cent and 11.3 per cent, respectively. Its quarterly sales in the FY23 September quarter grew by 146 per cent on a sequential basis to ₹459 crore. In Q2FY23, the operating margin improved from 16.8 per cent to 20.3 per cent and the net profit margin improved from 7.3 per cent to 11.1 per cent. The state textbook orders are tender-driven and these projects are state government-funded under Sarva Shiksha Abhiyaan and do not rely on school fees to pay the vendors. The average receivable days are 45-60 days. 

The average ROE and ROCE of the company is 20.3 per cent and 16.5 per cent, respectively, for the year ended FY22. The company generated ₹160 crore in cash from its operations in FY22. The management expects further growth in volumes for H2FY23 as compared to H1FY23 and hopes to produce 80,000 tonnes additional paper in FY23, contributing incremental revenue of ₹700 crore in FY23. The management expects the EBITDA margins to further expand by 100 bps in FY23. It is now trading at PE and PB ratios of 10.2 times and 2.25 times. Due to the company’s strong performance and future outlook with projections of growth in revenues, profitability, cash flows and return ratios, we recommend investors to BUY this scrip.