Riding consumer yen for packaging

HUHTAMAKI INDIA

Huhtamaki India (Huhtamaki-PPL), acquired by Huhtamäki Oyj of Finland in 1999, is a leading provider of innovative and sustainable flexible packaging and labelling solutions, catering to the food and beverages, home and personal care, healthcare and other speciality segments. Parent Huhtamaki holds a 66.94% equity stake in HPPL as on September 30, 2020. HPPL has 18 manufacturing facilities in Maharashtra, Dadra & Nagar Haveli, Telangana, Uttarakhand, Sikkim, Assam, Karnataka, Daman and Himachal Pradesh. Prospects for the company are robust.

Consider:

• HPPL is a part of global packaging giant Huhtamäki Oyj that has a presence in more than 40 countries with 50-plus years of association with leading FMCG MNCs. This has helped HPPL (India) in product launches, R&D and customer acquisitions. HPPL has increased its presence in India via organic as well as inorganic expansion. It currently has one of the largest capacities in flexible packaging with 18 plants spread across India and 2 R&D centres.
• Interestingly, the lockdown has increased demand for packaged foods and other products. HPPL is well placed to capture this demand as all its customers are in the FMCG and pharma sectors. The Indian flexible packaging industry is expected to reach a value of Rs 64,038 crore by 2022-23, up from Rs 37,500 crore in 2017-18, growing at a CAGR of 10% from 2017-2018 to 2022-23. The growth of the industry is due to the increased use of flexible packaging at food service outlets, along with higher demand for packaged beverages. Consumers prefer flexible packaging over rigid packaging since they are lighter, easily disposable and their impact on the environment is significantly less.
• People are increasingly recognising the benefits of flexible packaging, which include extended shelf life, improved cost economics and lower pack weights and transport costs. Compared to traditional packaging such as glass jars and metal cans, these require less energy and resources in comparison to other packaging types, which reduces the cost of production per packaging unit. Further, flexible packaging uses recyclable materials, reducing the usage of the conventional virgin polymer.
• As the demand for premiumization of products from FMCG and other user industries improves, the demand for premiumization of packaging solutions (a forte of HPPL) will improve further. A continuous growth in consumption spending in India, along with product upgradation, will lead to higher value and volume growth for HPPL. The company’s product and client diversification will also help in faster growth.
• Huhtamaki PPL’s net sales rose 6% to Rs 685.9 crore in Q3CY20 compared to Q3CY19. The company’s operating margins increased 110 bps to 11.3%, leading to a 17% increase in operating profits to Rs 77.43 crore. The acquisition of Mohan Mutha Polytech Private Limited, Sri City, Andhra Pradesh on a slump sale basis was completed on January 10, 2020. Accordingly, the results of the acquired business have been included in the results from January 10, 2020. PAT was up 16% to Rs 36.88 crore.

For nine months ended September 2020, net sales fell 1% to Rs 1,904.99 crore. The company’s operating margins decreased 140 bps to 10.4%. Net profit fell 11% to Rs 90.91 crore. Consequent to the nationwide lockdown, the company’s operations were scaled down in compliance with regulatory orders. Towards the end of April 2020, the company’s operations were scaled up in a phased manner, taking into account directive from various government authorities. This has negatively impacted the company’s revenues and profits for the nine months ended September 2020.

In CY 2021 and CY 2022, we expect the company to register an EPS of Rs 18.6 and Rs 22.7 respectively after an expected EPS of Rs 16.3 in CY20. The scrip trades at Rs. 298. P/ E on the CY 2022 expected EPS works out to around 8.8.

CONSOLIDATED PERFORMANCE INDICATORS (Rs. in crore)

TATA STEEL BSL

Tata’s entry will change form

Tata Steel BSL, as the formerly known as Bhushan Steel company acquired by Tata Steel’s subsidiary BNPL and the new entity has been styled as Tata Steel BSL. The company is the largest manufacturer of auto grade steel and fifth largest flat steel producing company in the country. Prospects for the company are highly promising.

Just Consider:

• As Bhushan Steel was plunged into a deep valley of debt with its consolidated debt standing at Rs. 56,022 crore, the RBI had sent Bhushan Steel to NCLT from where Tata Steel picked it up at a price of Rs. 35,200 crore i.e. at a literally throw away price of Rs. 6286 crore per million tonne. Now the Tata group has planned to more than doubled the capacity to 12 million tonnes. The company has four plants at present. The Sahbabad plant in UP has 91,700 million mt mill sheets in India which produces the widest sheets in the country for auto industry with highly automated systems. The Khopoli plant in Maharashtra has been producing colour-coated sheets, high tensile steel strampings, hardened and tempered steel strips for the first-time in India along with CRCA steel to cater to the needs of automobile industry. At its Meramandal, Dhenkanal plant in Odisa, the company manufactures hot rolled coils has also mills for cold rolling. Its forth plant is located at Hosur in Tamil Nadu which takes care of the southern market.
• Its merger procedure with Tata Steel is already on. The shareholders will get one fully paid share of Rs. 10 each against the 15 shares of Rs. 2 each of Tata Steel BSL. The association with Tata Steel will change the face of the company as the new parent company has its own coal mines and iron ore mines. TS BSL used to import costly scrap so far now it will get iron ore from Tata Steel itself. This will enable the TSBSL to bring down its cost of production and improve its margin.
• The first thing the Tata group did after its successful bid is to change the name of Bhushan Steel to Tata Steel BSL which was a part of the process to integrated the company’s operations within the Tata Steel fold and to align to the Tata brand and also to give the company a singular identity with the Tata group.
• Tata Steel is all set to expand the capacity of the TSBSL from the current level of 5.6 million tonnes. The company could expand the capacity to 8 million tonnes in the next three years. Tata Steel has also plans to riase it further to 12 million tonnes, with a capital expenditure of over a couple of hundred crore.
• The Tata group is seriously considering a move to reduce the consolidated debt from the current level of Rs. 16,627 crore. The move will improve the company’s margins and net the bottomline steadily going ahead.

As being an erstwhile bankrupt company, the share price of TSBSL had gone down substantially to just Rs. 15. But with the entry of the Tatas, the share price has started improving. But even now the valuation is very attractive.

PERFORMANCE INDICATORS (Rs. in crore)