Seshasayee Paper and Boards (SPB) is engaged in the manufacture of printing and writing papers. The Company is also engaged in the manufacture of paper boards at its unit at Erode and Tirunelveli.

SPB produces a range of products, such as packing and wrapping papers, and specialty papers. SPB also has branded products, including SPrint, Colour Sprint, Index, SprintPlus and Success.

December 2018 quarter results

For the quarter, it registered 20% rise in sales to Rs 354.50 crore. OPM improved 730 basis points to 23.5% which saw OP rise 74% to Rs 83.18 crore. Other income grew 103% to Rs 4.20 crore and interest went up 3% to Rs 3.41 crore. After providing for depreciation (up 8% to Rs 9.00 crore), PBT went up 96% to Rs 74.975 crore.

EO gains were NIL against Rs 4.84 crore. Thus PBT after EO grew 74% to Rs 74.97 crore.

Tax grew 101% to Rs 24.45 crore (tax incidence went up from 28.2% to 32.6%), after which PAT went up 63% to Rs 50.52 crore.

Nine months results

For the nine months, it registered 27% rise in sales to Rs 960.55 crore. OPM improved 420 basis points to 22.1% which saw OP rise 57% to Rs 212.57 crore. PBT went up 77% to Rs 186.59 crore.

EO gains were NIL against Rs 4.84 crore. Thus PBT after EO grew 69% to Rs 186.59 crore.

Tax grew 87% to Rs 58.85 crore (tax incidence went up from 28.5% to 31.5%), after which PAT went up 62% to Rs 127.74 crore.

Writing and printing Paper (WPP) prices are on an uptrend

Due to problems at the largest paper manufacturer and favourable demand scenario, paper prices are on an uptrend. For SPB this means double advantage of better realizations as well as higher production.

Reduced threats from import

In FY 2018 the reduction of import duties (10% to Nil) on paper and paperboard from ASEAN countries posed a challenge to India paper industry.

However, due to recovery in global demand and rupee depreciation, paper imports in to India has reduced in the current year, which has led to better demand for domestic paper. Moreover rise in pulp prices has led to rise in paper prices globally. This has helped push paper prices in India also.

Outlook

The per capita consumption of paper in India is ~10 Kg as opposed to a global average of 56 kg. The management believes India is in the early stages of the demand cycle and expects continued growth in all paper segments. For the Indian paper industry, strong economic growth has been accompanied by equally robust demand for paper from education, publications, e-commerce, increased economic activity and consumerism.

As per the industry estimates, Printing and Writing segment demand is expected to grow at a CAGR of 4%, Paperboard at a CAGR of 9% and speciality paper at 8%.

Valuation

The stock trades at Rs 953.

Seshasayee Paper and Boards: Results