Karur KCP Packaging is basically an integrated packaging company. This company manufactures paper bag and polypropylene bags. They have fully integrated operations, which means that they manufacture extensible sack kraft paper which is used for making paper bags. They have got four units in all. Two units are located in Pondicherry and two are located in Karur district of Tamil Nadu.
This company is going in for a FCCB issue right now. The proceeds of the FCCB issue will be utilized for taking over another paper unit, which is located in Pondicherry, for capital expansion. Since this company mainly caters to the cement industry, there is a structural change that is happening there. We are seeing consolidation happening in the cement industry now and with the entry of companies like Lafarge and Holcim into the Indian market, I believe there is going to be an increased strength towards the use of more paper bags in the Indian market. In India we only use polypropylene and a very small percentage of paper bags. With their entry, there is gong to be a shift in the use of paper bags and this company being the only manufacturer of extensible sack kraft paper and one of the largest converters of sack kraft papers into paper bags, is going to be the biggest beneficiary of the changing trend.
Besides the opportunity, which is available to the company, it has been performing well too. For the first nine months of the current financial year, they have done a turnover close to Rs 160 crore and they have done a profit of around Rs 6 crore. For the full year, we expect the company to do a turnover of close to Rs 225- Rs 240 crore and a profit close to Rs 8-Rs 9 crore, which means an EPS of Rs 8-Rs 9. At the current price, the stock is discounted at about 10 times and given the potential opportunity for the company and the fact that they are the largest manufacturers of paper bags in India, the opportunities can be good.
So at the current price earning ratio of 10, it does not seem to be fully discounted. Next year, after they complete the FCCB issue and after they takeover another paper company, the turnover and profitability can also go up.
Another thing is that this company has got a debt of around Rs 100 crore. This company is also thinking of ways to restructure that debt and there is a possibility of a decrease of about 4-5% towards the interest cost. So this would mean decrease of about Rs 4-Rs 5 crore on a debt of Rs 100 crore and this goes straight in the bottomline of the company.
one shld buy on decline.....a price for 75 -78 looks good for accumulating....my personal view
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