Paper Products
This is another of those stable
and steady but relatively unknown MNC stocks. It is a 61% subsidiary of Huhtamaki Oyj, the
Finnish packaging major having 66 manufacturing units worldwide across 37
countries. PPL with facilities in Thane, Silvassa, Hyderabad and Rudrapur (a
tax incentive zone) is India’s No 1 consumer packaging company offering
complete packaging solutions across flexibles, films, holograms and labels
given its USP of innovation, flexibility and value for money. In the domestic
market, the entire range of marquee FMCG companies, from local majors such as Britannia,
Dabur, to MNC like HUL are all their clients. In the food processing sector
they have Kraft, Amul, Knorr, Kellogg etc as clients.
FMCG stocks, also called as defensives
for their ability to withstand falls as much as the markets, have been the
preferred choices of the markets over the last few years due to the inherent
stability and steady consumption-led growth. Rising incomes, nuclear families,
urbanization and a younger and more affluent population continue to be the key
drivers on the demand side. In addition to this, the rural marketing efforts of
FMCG manufactures have increased the size of the market. From packaged foods to
personal care products, almost every category has been clocking robust growth. Quite
a few of the FMCG majors in India, be it Godrej, Marico or MNC like HUL, have all
touched 52 week-highs in recent times, even in these markets. And if these
companies do well, it would follow that their major suppliers, especially on
the organized side like PPL, would significantly benefit, even if not in the
same measure.
NASP (New Applications,
Structures, Products and Processes) continues to be the Company’s flagship
programme to counter competitive pressures. And in this endeavor, PPL was
supported by the ‘global innovations team’ of Huhtamaki Flexibles Global. The company
is working on numerous projects with customers with a global footprint (most
MNCs with significant Indian operations) with active help and support from the
Global NPD team.
Products that affect the lives of
people every day present an opportunity for packaging. Children and young
adults influence family purchases besides being spenders themselves. Besides
normal channels, theme based promotions are additionally routed through
packaging. All this bodes well for PPL. They have recently completed capex at
Rudrapur given the tax benefits there.
At around 60, PPL trades at a PE multiple of
less than 10 with a dividend yield of about 4%. Considering the kind of brand
value and the clients this company has, the scope for growth led by FMCG
industry and undemanding valuations for an MNC company in a niche domain, this
should go places in times to come. The major risk to PPL is from the
unorganized sector who may leverage their better pricing power and low margins
to garner a greater share of a growing business. However, the support of its
parent in extending their global relationships with FMCG majors to PPL and quality products preferred by organized players and MNCs should
hold it in good stead.
From about 60 in May ’12, this has galloped to about 190 now, a compounded return of nearly 62% in slightly over 2 years. Couldn’t be better, could it? However, considering that the economic growth has not really started yet, I would expect better days are yet to come for Huhtamaki PPL (formerly known as The Paper Products or PPL).
ReplyDeleteRecently in July, it acquired Positive Packaging, a privately owned flexible packaging company with 9 manufacturing facilities in India, UAE, Kenya, Egypt, Nigeria, South Africa, Ghana, UK and the US. Positive Packaging Industries is part of Nigeria-based Enpee Group headed by N.P. Kirpalani. The acquisition cost was Rs2015-crore. The deal will allow Huhtamaki to double its India revenues, which stood at Rs.1000 crore as on 31 March 2014. It will also allow the Finnish firm to strengthen its presence in Africa. Huhtamaki serves top clients like Hindustan Unilever Ltd and Coca-Cola Company. Considering that the Indian business will be acquired for Rs.818 crore, the acquisition reflects parent company’s increasing interest in Indian operations.
This is a proxy play for FMCG companies. Considering that FMCG companies are trading at rich valuations of over 30, and this being an MNC stock (though not widely known, and hence covered here in my post Offbeat MNC-2), there is no reason it should trade much higher even from current levels.
The hike in holding by Huhtamaki in HPPL since Feb 2014 from 60.8% to 68.8% (till date), change in the name of the company recently from Paper Products to Huhtamaki PPL and the fact that Huhtamaki has complete control over almost all its other subsidiaries point towards HPPL being a probable candidate for de-listing over the medium to long term. While this event is unlikely to happen in near term, any progress on that front in the medium to long term could be a big positive trigger.
It appears that there is no stopping Huhtamaki PPL. From 60 in May '12, and 190 in Sep. '14, it has crossed 300 recently, going up 5-fold in 3 years (and even more than 50% in the last year alone) giving more than 100% annual returns compounded.
ReplyDeleteGoes on to show that form is temporary but class is permanent. And this company has all the good things going for it - a low equity base (about 14 cr.), a very high MNC promoter holding at more than 60% (hence a complete control) and a reasonably safe defensive sector of packaging which goes hand in hand with FMCG and related industries. So all the right flavors for a steady growth.