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Paper Products: Higher demand boosts bottomline - Views on News from Equitymaster
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Paper Products: Higher demand boosts bottomline
Jan 31, 2011

Paper Products Ltd. has announced its 4QCY10 results. The company has reported a 45.7% YoY and 89% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Sales for the company increase by 45.7% YoY during the quarter.
  • Operating (EBITDA) margins for the company fell by 0.6% during the quarter to end at 11.9%. The fall in operating margins is attributable to higher raw material costs, partly offset by fall in other expenditure (both as a percentage of sales).
  • Net profit increased by 89% YoY during the quarter. This fall comes on the back of higher operating income, fall in interest costs and in depreciation and lower effective tax rate.
  • Net profit for CY10 increased by 20.5% YoY while net profit margins remained flat. This performance came on the back of higher extraordinary income. When adjusting for one time gain the net profit fell by 16.3% YoY.

Rs (m) 4QCY09 4QCY10 Change CY09 CY10 Change
Net Sales 1,315 1,917 45.7% 5,843 7,105 21.6%
Expenditure 1,152 1,688 46.6% 5,065 6,359 25.5%
Operating Profit (EBITDA) 164 229 39.7% 778 747 -4.0%
Operating Profit Margin (%) 12.5% 11.9%   13.3% 10.5%  
Other Income 3 6 93.9% 25 18 -29.5%
Interest 2 1 -25.0% 11 6 -48.2%
Depreciation 83 79 -5.2% 312 324 4.0%
Profit before Tax 83 156 88.3% 480 435 -9.5%
Extraordinary item 8 16 84.5% 15 151 877.9%
Tax 19 34 83.9% 122 135 10.6%
Profit after Tax 72 137 89.0% 374 451 20.5%
Net profit margin (%) 5.5% 7.1%   6.4% 6.3%  
No. of Shares (m) 63 63   63 63  
Diluted earnings per share* (x)         7.2  
P/E ratio (x)         7.4  

What has driven performance during 4QCY10?
  • Sales of the company improved during the quarter on the back of strong demand for packaging from FMCG companies.

    Cost break-up
    4QCY09 4QCY10 CY09 CY10
    Raw material 864.2 1355.8 3825.4 4965.5
    Staff 100.1 142 493.3 591
    Other expenditure 187.2 189.8 746.1 802.2

  • Operating income grew by 39.7% YoY. This was lower than top line growth and was a result of sharp increase in raw material costs. Raw material costs increased by 57% YoY during the quarter. However, staff costs and other expenditure grew slower than sales and as a result, both fell as a percentage of sales during the quarter. This provided some support to the operating income.

  • Net profit margin increased by 1.6% to 7.1% during the quarter. This growth is due to increase in operating income, rise in other income, fall in depreciation and in effective tax rates. Effective tax rates fell from 22.5% to 22.0% during the quarter.

What we expect?
At a price of Rs. 53.6, the stock is trading at 7.5 times our estimated CY12 earnings (RPro subscribers click here. We shall revise our estimates shortly.

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