Friday, February 24, 2012

Voith Paper Fabrics India Ltd- Slow but Sure


The company’s primary business is supplying the Paper Industry  Paper Machine Clothing or Felt.
Paper Machine Clothing is used to produce all grades of paper from light weight tissue to heavy weight container board. These tailor made engineered fabrics are made up of synthetic.

History:
The company was incorporated in 1968 with major shareholding being with Porritts & SpencerUK which later became a part of Scapa Group of  U.K. In 1999 the majority of shares were acquisitioned by  VF Auslandsbeteiligungen  GmbH, Germany . The company got name of  Voith Paper Fabrics India Ltd. (VPFI) under the Voith Group in 2007.
 
Products:
The business commenced initially with the manufacture of woollen and cotton dryers for pulp, paper and board industry with technological support of Scapa earlier and now with Voith Group, while extending the range of clothing for use on paper machines as the main business, VPFI also started manufacturing textile felts, geo-textiles and filter fabrics.
Keeping the area of core competence in view, VPFI has continued to upgrade its products. Today the focus is on paper machine clothing (PMC), fibre-cement sheet making felts and hi-tech textile processing felts.
With the satisfactory entry into forming fabric business, VPFI is the only Indian manufacturer in a position to supply the entire range of machine clothing to paper manufacturers.
 
Manufacturing:
VPFI. has its registered office and the manufacturing facility on a 30 acre site in  Faridabad,  Haryana near New Delhi.
Number of employees: 124
Promoter holding: 74.04 % (VP Auslandsbeteiligungen GmbH Germany- a step down subsidiary of Voith Gmbh, Germany)

Promoter profile:
Founded in 1867, Voith, Gmbh and its group companies employ more than 40,000 people, generate  €5.6 billion in sales, operates in over 50 countries around the world and is today one of the biggest family-owned companies in Europe.
In 2010-11,Voith Group grew sales by 8% to €5. 594 billion (approx Rs.36,300 cr) & PAT of € 200 million ( approx Rs.1300 cr)

VPFI Financial snapshot:
Equity : Rs.4.39 cr
Debt : Nil
Investments ( Fixed Deposits in banks): Rs.67.13 cr ( approx Rs.153 per share)
Current Share price: Rs.282
Market Cap: Rs.123.7  cr
EV: Rs.56.57 cr

Year ended Sept 30, 2011:
Revenue: Rs.55.86 cr
Other income: Rs.5.64 cr ( income from FD’s)
Total income: Rs.71.50 cr
PBT: Rs.16.6 cr
PAT: Rs.11.5 cr
EPS: Rs.26.26
Dividend per share: Rs.3

1st quarter ended Dec 31, 2011:
Revenue: Rs.14.67 cr ( 3.5% growth yoy)
Other income: Rs.1.59 cr ( income from FD’s) ( 60%growth yoy)
Total income: Rs.16.26 cr
PBT: Rs.5 cr ( 26% growth yoy)
PAT: Rs.3.45 cr ( 34% growth yoy)

Some key negatives
Contingent liabilities NOT provided for  are at manageable level of Rs.16.5 lakhs
Current capacity utilization is close to 90% and some capex may be required in the not too distant future.
Average ROCE & RONW for the past 4 years have been a not too impressive 14% and 10% respectively mainly due to the huge cash component in the balance sheet which earns sub optimal returns.

Key information points:
The 20 year high & low of the stock price is Rs.350 ( in 2006 ) & Rs.21.90 ( in 2001) respectively.
This company is a virtual monopoly in the paper fabric industry in India
Operating margins have hovered between 28% & 32%  over the past 4 years.
VPF’s Faridabad property is worth about 120 cr at current market rates. Though there is absolutely no possibility of land monetization here, I’m mentioning this purely for information sake only.

Business prospects:

China and India have emerged as the largest drivers of demand growth for the paper industry. Asia accounts for
 about 40% consumption currently.  Estimates suggest that these two countries will contribute  to  59 % of global
 incremental demand from 2009 to 2020.  
India  is  the  fastest growing market for paper across the  globe  and  it presents  an exciting scenario; paper consumption estimated to touch  :
 14  million  tons by 2015/16
 20 million tons by 2020
Industry  view is that growth  in  paper consumption  would  be  in  multiples  of GDP  and  hence  an  increase  in consumption  by  one kg per capita would lead to an increase in  demand  of over  1 million tons.

Since,  a number of European and US paper mills are shutting down owing  to cost  and other factors, an
attractive export opportunity also  exists  for Indian   paper  mills.  This is likely to result  in enhanced demand 
for products of VPFI. 
Since,  Paper Industry in India is primarily dominated by small and  medium size  units; and less than a 
dozen mills account for almost 90%  production of  newsprint  in  the country, there is a growing need  to 
 modernize  the Indian mills, improve productivity and build new capacities, which would in turn result in 
demand for the products of VPFI. 
Further, due to enhanced awareness & consciousness, more and more items are now coming in market in 
 tetra-packs and paper-wraps. This would also give a boost to the packaging industry and is  likely to create
 additional demand in packaging & board paper, indirectly helping VPFI. 
 
Delisting play? 
Voith Gmbh’s Annual report says “ As a family owned company, Voith has the freedom to focus fully on
 implementing its medium to long term strategy.” 
Currently 11.40 lakh shares of VPFI are held by non promoter shareholders. Hypothetically speaking, lets look at
 various price points scenarios for delisting
 
Delisting Price
Resultant Outflow
Cash on books
Net cash impact on Voith gmbh
( Rs.)
( Rs.cr)
(Rs.cr)
(Rs.cr) positive / (negative)
280
31.92
67.13
35.21
320
36.48
67.13
30.65
360
41.05
67.13
26.08
400
45.61
67.13
21.52
440
50.17
67.13
16.96
480
54.73
67.13
12.40
520
59.29
67.13
7.84
560
63.85
67.13
3.28
600
68.41
67.13
-1.28
640
72.97
67.13
-5.84
680
77.53
67.13
-10.40
720
82.09
67.13
-14.96
760
86.65
67.13
-19.52
800
91.21
67.13
-24.08
 
It is clear from the above that, delisting ( if and when it ever happens – remember, we’re talking of a hypothetical
 scenario !) is unlikely to happen at a price less than Rs.600 per share.  
Voith paper fabrics India ltd has been largely a consistent performer and if one relies on past history, the net cash
 position in 2 years should not be less than Rs.72-75 cr ( assuming that the company will spend 12 to 15 cr
 towards capex in the coming 2 years)
 
All in all, an investment in the stock @ current price of about Rs.282 offers a good proxy to a growing market
 while parking one in the lap of a promoter with excellent pedigree.
 
Delisting, if it ever happens will be the proverbial cherry on top.
 
At the time of writing this report, the author /his family have an investment interest in the stock mentioned above. Under no circumstance does the information in this report represent a recommendation to buy or sell the above-mentioned stock.  This report has been prepared and issued on the basis of publicly available information, internally developed data & other sources believed to be reliable. This is just a suggestion solely for information purposes and does not constitute a solicitation to any person to buy or sell a security. While the information contained therein has been obtained from sources believed to be reliable, no responsibility (or liability) is accepted for the accuracy of its contents. Readers using the information contained herein are solely responsible for their actions and are advised to satisfy themselves before making any investments. 

4 comments:

  1. Dear Sir,
    What are your views on Titan Ind. If someone holding from very long (10 years+), is it a time/price for investment sell. OR titan can still give reasonable return for couple of more years from here onward. ( From CMP)

    Regards
    Kishor

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