Yash Papers

This is an investment idea so it's a buy and hold stock (no stoploss or target), these investment ideas will be reviewed every March. This ideas may give you a multi-multibagger return in a long run.

CMP: Rs 41.69

Mkt Cap: Rs 184.31Crs

EPS: Rs 3.17

Book Value: Rs 16.38

Price/Book: 3.19

P/E: 16.5

Industry P/E: 13.37

Source: https://sharemultibaggerstocks.blogspot.in/?m=1

Why Yash Papers: It makes recyclable papers made with use of bagasse-based biomass (considered as waste), putting that into application they have created a brand called chuk (making paper plates, paper cups, paper mugs, etc) substitutions for cutlery(used for serving food items). The quality it has, the brand they are making & the efforts they are putting in it is a big positive. Chuk as a brand has a Hugh market. Plus adding to the positives is the financial performances shown by it in past quaters.

Source: https://sharemultibaggerstocks.blogspot.in/?m=1

Negatives:
High interest cost, opting out for CDR package will reduce interest rates, similarly as the plant is running with full capacity may not face any liquidity issues which it faced earlier.

About Company:
Yash Papers, located in Faizabad, India, is synonymous with machine-glazed varieties of paper. Their brand revolves around manufacturing the best wrapping grades of papers in India. They make MG wrapping papers in both brown and white varieties.

Established in 1981 by entrepreneur KK Jhunjhunwala, Yash Papers started by producing low grammage kraft grades of paper. Beginning with just one paper making machine, they successfully doubled capacity on that machine, then added a second machine in 1991 to more than triple their paper-making capacity. This level of growth within ten years helped them quickly establish dominance over the low grammage kraft market.

Product Details:
Yash Paper mainly deals in Kraft paper, Poster paper, Egg trays and disposable tableware products. The difference between Kraft and poster lies in the level of bleaching the product. For understanding sake, bleaching is the process which adds value to the product by way of quality and appearance. So can we conclude it as a simple commodity kind of business , doing so may be immature with out reading further.

The company products kraft paper, bags, pulp products is a value added products used across Quick Service Restaurant (QSR), FMCG, personal care, beverages and pharmaceutical sectors.

The company operates in sustainable business model,  what is the meaning of Sustainable? Sustainable means coming to an end after a phase. Just with little more digging, if our previous generations exists on earth even now, think of difficulties faced in our survival on this limited space. For me sustainable is all about regeneration capabilities. Yash management adapted same theme into business. We will evaluate the business model along with financial improvements happened in the past one year.

Yash Business model :
Raw Material Advantage : On the raw material front plant located in a strategic location of UP, where sugar cane cultivation is very high and availability will not be a issue. In fact  Yash constructed go-down to preserve wet based raw material to avoid any cyclical and quality issues. 

Self Reliance: Own power plants of 8.5MW  run by Agri products to support all the plants requirements.

Process Innovation: Sludgy convertion to Egg tray units, extraction of Silica from Rice husk are few examples of the process innovation.

Product Reach-ability: Regular products catering to esteemed clients such as KFC, MCD, LIC and Tata groups. Where as newly launched products are going to reach wide user base with good margins to players like Food Panda, Pizza Hut etc...

Operational Observations:
Basically Yash Papers Limited (YPL) comprises following 5 units – Unit-1, Unit-2, Unit-3, Egg Tray Unit and Tableware Unit.

Capacity of Unit-1 is 20 TPD, Unit-2 is 30 TPD and Unit-3 is 70TPD, which is 39100 MTs per year (considering plant usage linking between pulp and paper, understand it is not 365*120 = 43,800 MT).Production of paper 35,794 MT (Kraft Paper 18,446 MT and Poster Paper 17348 MT) and saleable pulp of 5,088 MT during FY 2017, translated to 91% capacity utilization which is exactly similar to last year.The Company exported 5,335 MT Kraft and Poster Paper in 2017 Vs 6,693 MT in FY 2016. Though exports are reduced, sales were not reduced. we can see the first sign of domestic demandimproving Q4 last quarter on domestic front.In the Q1 quarter sales increased only by 0.7cr yet operating margins expanded from 3.6% to 9.6%. Kraft paper prices are increased by 23% in this quarter, second indication of domestic demand growth.During current quarter Q2 , August month 3376 MT produced from Unit 1,2 & 3 translated to fully 100% utilization, clear cut indication of growth keeping all the doubts aside.Plant de-bottlenecking to improve the paper manufacturing capacity to 45000 tonnes per annum. Last year average sales from paper per MT is 45k and on pulp it is 32k. This year already Kraft paper prices are increased by 23% or 6rs per kg, now improved prices together with plant de-bottlenecking is going to improve sales & net profit. On top of it tableware plant will come into stream line during Q3 will augur well for company.Promoters converted preferential warrants to equity is another confidence indicator of YPL business, subsequently promoter stake increased from 35% to 40%.YPL successfully came out of CDR package, which would lead to a reduction in the average interest cost of loans – the benefit of this is expected to reflect in the current year. Similarly completed repayment i.e unpaid deposits of 1.2cr for the previous period.  The reserves of the Company stand at 22.49cr during the year as compared to 14.86cr in the previous year 2015-16.

Operational Efficiencies:
Self reliant considering own power production from Rice Husk & Steam based power plants. Out of total capacity of 8.5MW, one power plant 6 MW is used for Unit 1,2 & 3 operations. Second power plant 2.5 MW is for power back as well as for Tableware plant.Recovery of spent chemicals & lime from recovery units making it reusing the every resource perfectly back into manufacturing process is what sustainable according to me.Installation of egg tray machine based on 100% usage of ETP sludge is completed and egg tray production is increased from 5,71,900 in 2016 to 65,15,550 pieces of egg tray 2017. Remember sludge is generally a waste generated during paper production, good that company is effectively using the waste material.Automation in Softwood pulp mill , step towards plant automation making the product quality right all the time coupled with operational stability.Development of new colored grades of paper for domestic / export and successful trial at plant scale.Research about Silica extraction from rice husk ash is an interesting area currently company is exploring.Development of stone paper from lime sludge, already lime sludge is used as paper filler at one end.

Growth trigger in the form of New Unit:
YPL plans of setting up of 100% biodegradable products from bagasse-based paperboard single use biodegradable tableware at Faizabad (Uttar Pradesh) with an installed production capacity of 3,300 MTPA  is completed and trial Production also completed this month. These products are sold under CHUK brand and i expect Q3 onwards revenue contribution will come from this plant. Once the Plant get stabilize, expect 90cr business with this plant alone in next 2 years with good margins considering value added custom products in nature.

This plant starts with initial capacity of 3300 MTPA in next one year can be doubled the capacity to 6600 MTPA , this plant expenditure is close to 51cr gathered by way of internal accruals + financial borrowings.

Already yash enjoys niche clientele in the form of KFC, LIC, MCD, Coffee day etc..now Yash got 9 clients for CHUK products such as Food Panda,Paradise hotels,Pizza hut, costa coffee targeting quick service restaurants. These products are priced between 1-7rs making affordable across the usage chain and protecting the margins. 

As people are more becoming educated and changing their life style or food habits according to eco friendly environment. Similarly Govt also focused more on protecting environment with different policy initiatives such as Clean Ganga, Swatcch Bharat, i expect company products will appear soon in Indian railways as well.

 
Altogether company is clearly in a bright spot considering Existing plant de-bottlenecking, New plant commercialization, product offering to bigger players, favorable pricing with 6rs price increase in last quarter, CDR exit reducing interest rates..is it called inflection point in company journey, YES is my answer.