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Tuesday, April 19, 2011

Sree Sakti Paper Mills - Invest for Decent Gains

Sree Sakti Paper Mills - Returns @ 15% in 1.5 month but still a lot of upmove is left:

Sree Sakhti Paper Mills was incorporated in the year 1991. It belongs to Sree Kailas group of Kerala, which has interests in logistics, construction and real estate, trading and biotechnology. The company manufactures various grades of kraft paper and duplex boards. It caters to the domestic and export markets. It exports to regions like Sri Lanka, Middle-East and Africa. The Company has its kraft paper unit at Edayar, Ernakulam and duplex board unit at Pariyaram, Thrissur in Kerala. It has an installed capacity of around 75000 MTA of kraft paper at Edayar Unit and 25000 MTA of duplex board at Pariyaram Unit. Some of the company`s clients include HLL, Britannia, Marico and Hindustan Newsprint, Tamil Nadu Newsprint and Papers, Godrej, etc. During February 2006, the Company started an international business division for concentrating on countries such as Sri Lanka, Bangladesh and Kenya and to explore exports to other countries. It has identified countries such as Nepal, Tanzania, Uganda, Ethiopia, Iran, Syria, Egypt and UAE as focus markets and is identifying business opportunities out there.

Company at a Glance:
  • Sree Sakthi Paper Mills Ltd is engaged in manufacturing of paper and paper boards
  • Catering to domestic as well as the export market
  • Exporting major part of the products(above 40%) various countries like Iran, UAE, Bangladesh, Philipines, Srilanka etc.
  • Incorporated in 1991 with an installed capacity to produce 4500 tpa kraft paper at its Edayar plant in Cochin
  • In 1995, it started a new unit for manufacturing duplex board at its Chalakudy Plant near Cochin
  • Consistently profit making entity
  • Undertaken a series of expansion and modernization programs
  • The company has gone public in 2006 to rise Rs.250 million for expansion
  • The new plant with 150 TPD commissioned in March 2007
  • Present installed capacity is 100,000 Ton per annum
  • Largest kraft paper producer in south India
  • Special emphasis on pollution control
  • Zero discharge from all its plants
  • Received awards for the best pollution control system from the Kerala State Pollution Control Board
  • Annual turnover above Rs.150 crores
Future Plans:

The Company has taken up the following 3 small hydro power projects for implementation through three separate companies:

Mukkuttathode (Kerala) - 3 MW
Alamparathode (Kerala) - 3 MW
Palchuram (Kerala) - 5.25 MW

The above projects are being implemented on BOOT basis for 30 years. Power can be sold either to Kerala State Electricity Board or to other consumers.

The company has also plans for expanding the capacity to more than one lakh MTA within next two years and the cost of the scheme is to be financed partly by Term Loans and partly by equity fund. However, scheme will be drawn up at appropriate time after reviewing the revival of economy and the potential growth rate. When this is completed the company will be one of the Big Players in this sector.

Capital Structure:

Present equity capital of the Company is at Rs 16.44 crores (Face Value Rs 10). The Company came out with a public issue of 83.33 lakh shares at a premium of Rs 20 in Feb.2006 for expansion of capacity. Promoters are holding 52.14% of the share capital. Remaining portion is held by Public (41.86%), Corporates/Institutions/Foreign bodies (6.00%). The Company’s shares are quoted only at BSE (Code 532701). Current market price is Rs 26 with 52 week range of Rs 32.20/19.25. Current market capitalization is only Rs 42.73 crores against projected sales of Rs 180 crores for FY 2010-11.

Last Quarters Results & Financial Projection:

The Company has declared excellent working results for the quarter ending Sep 2010 & Dec 2010.

Dec 2010: Sree Sakthi Paper Mills net profit rises 36.04%, sales rise 26.65% to Rs. 44.24 crore

Net profit of Sree Sakthi Paper Mills rose 36.04% to Rs. 1.51 crore in the quarter ended December 2010 as against Rs. 1.11 crore during the previous quarter ended December 2009. Sales rose 26.65% to Rs. 44.24 crore in the quarter ended December 2010 as against Rs. 34.93 crore during the previous quarter ended December 2009.

Sep 2010: Sree Sakthi Paper Mills net profit rises 65.85%, sales rise 26.89% to Rs. 43.79 crore

Net profit of Sree Sakthi Paper Mills rose 65.85% to Rs 2.04 crore in the quarter ended September 2010 as against Rs 1.23 crore during the previous quarter ended September 2009. Sales rose 26.89% to Rs 43.79 crore in the quarter ended September 2010 as against Rs 34.51 crore during the previous quarter ended September 2009.
Actual financial results for last 6 quarters upto Dec 2010 are furnished below:

For March 2011, we expect growth in revenue as well as profit by minimum of 25%. During first half of FY 2011-12, stock can move to 40 Rs levels based on project earnings and P/E ratio. Dividend yield of 7% makes this stock a strong safe bet candidate during stock market correction.


At the current market price of Rs 26, the share is quoting at a forward P/E ratio of 5.20, which leaves enough room for reasonable appreciation in the share price. The Company has paid a dividend of 18% for FY 2009-10. Dividend yield is very attractive at around 7%. The Company has already paid an interim dividend of 8% for FY 2010-11, which shows the optimism of the management. Long term debt to equity ratio is at 0.41 and there is ample scope for raising loan for further expansion.

Investment rationale:

The Company is in the sector of manufacturing various grades of kraft paper and duplex boards, which is booming. With a dividend yield of 6.92% and forward P/E ratio of less than 6, the scrip is an attractive buy for one year period. The Company has been a good dividend paying master since last 5 years. The scrip may reach Rs 39 within a year, giving an annual return of 50%.

Note: The stocks discussed in Saral Gyan through posts are neither a part of our "Hidden Gems" nor part of our "Value Picks" issue which we recommend to our paid subscribers only. These are just stock specific views by Saral Gyan Team; one must do the due diligence before doing any investment based on our recommendation.

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