ASTRON PAPER and BOARD MILL
DETAILS OF THE DEAL
Astron Paper and Board Mill IPO details
15 – 20 December
Basis of Allotment
Transfer of shares
to demat accounts
INR 45 – 50 per
(INR 63 – 70 crore)
Offer For Sale
Total IPO size
shares (INR 63 – 70 crore)
Minimum bid (lot
INR10 per share
Listing Price on NSE
INR115 per share (up
130% from IPO price)
Closing Price on NSE
INR120.75 per share
(up 141.5% from IPO price)
Book running lead manager: Pantomath
Capital Advisors Private Limited
Promoters of Astron Paper
and Board Mill:
· Mr.Kirit G Patel
· Mr. Ramakant Patel
· Mr. Karshanbhai Patel
· Asian Granito India Limited
Valuation of Astron Paper and Board:
Earnings Per Share
14.70 – 16.33
Return on Net Worth
Net Asset Value
ABOUT THE COMPANY
Astron paper, setup in 2010, manufactured Kraft paper. They
mainly cater to the packaging industry and have been able to develop a loyal
clientele network consisting of various packaging companies and MNCs Currently they
are operating in domestic markets with the products being supplied on PAN India
basis. They are also in the process of exploring export markets. They believe
that they are one of the major Kraft paper manufacturers in Gujarat with the
manufacturing facility having an installed capacity of 96,000 mt p.a. as on the
date of this RHP. The manufacturing facility is situated at Halvad, Gujarat and
is well equipped with requisite plant and machineries and other facilities. They
also have in house testing laboratory for quality control checks and testing of
the products. They endeavor to maintain safety in the premises by adhering to
key safety norms. With increasing environmental awareness, the Company has since
its inception adopted the use of waste paper as raw material instead of
traditional usage of wood. The process of manufacturing Kraft paper involves
recycling of waste paper and with many organizations, now supporting the Go
Green Campaign, it increases the demand of FSC certified Kraft paper as the
same is eco-friendly. They have been environmentally conscious and the products
have been certified as meeting relevant FSC Standards since 2014 by SGS South
Africa (Pty) Ltd. The product Kraft paper is used by packaging industry for
manufacturing corrugated boxes and liners, corrugated sacks and composite
containers. They offer varied products like High RCT, Kraft Liner, and Liner to
Corrugated Medium Paper, ranging mainly from 140 GSM to 350 GSM and 22-35 BF. They
endeavor to serve the customers, each having different requirements of Ring
Crust test (RCT), Gram square meter (GSM) and weight pressure. The Company
mainly imports raw material for ensuring better quality of output. They have
also been accredited with Authorized Economic Operator- T1 Certificate
(Importer and Exporter
The Individual Promoters manage and control the major affairs
of the business operations. With their dedication and commitment, the Company
has shown an increasing trend in the business operations which is evidenced by
the growth in the total income from Rs. 267.27 million in FY 2012-13 to Rs.
1,845.89 million in FY 2016-17. They believe that the market position has been
achieved by adherence to the vision of the Promoters and senior management and
their experience. Geographical Customer Presence for FY 2016-17.The registered
office is situated at Ahmedabad. They have a dedicated marketing team who
continuously interacts with customers to understand their requirements and
analyse the market dynamics. They have also been actively participating and
associated with the Federation of Corrugated Box Manufacturers of India and
Indian Corrugated Case Manufacturers Association. They aim to establish the
brand as a distinguished name in industry. From FY 2013-14 to FY 2016-17, as
per the Restated Financial Statements, i) the total revenue has shown growth
from Rs. 1,061.98 million to Rs. 1,845.89 million, representing a CAGR of
14.82% ii) the EBITDA has shown growth from Rs. 113.32 million to Rs. 230.06
million, representing a CAGR of 17.95% iii) the profit after tax has shown
growth from Rs. a loss of Rs. (30.21) million to a profit of Rs. 99.59 million
and iv) the Return on net worth has shown a growth from (12.78)% to 21.98%. The
restated total revenue, EBITDA and profit after tax for the six months ended
September 2017 was ` 1,109.61 million, 146.20 million and ` 94.55 million
respectively, with an EBITDA margin of 13.18% and PAT margin of 8.52%
OBJECTIVE OF THE ISSUE
They intend to utilize the Net Proceeds towards the following
setting an additional facility of Kraft Paper with low GSM range and low B.F ranging
from 80 to 180 GSM and ranging from 12 B.F to 20 B.F respectively
of unsecured loan taken by company.
meet the working capital requirement of the company
general purpose related to corporate
the listing will help the company to enhance its corporate image, brand name
and create public market.
The following figures show a brief
overview of utilization of funds.
IS IT THE RIGHT TIME FOR IPO
Market Trend in favour of IPOs
· The risk appetite has
increased and the year 2016-2017 is term the year of IPO
· IPOS have risen from IPOs,
which were only 15.8% to 46.9% share (2016-17) of all equity issues in 2013-14.
In terms of net worth, the size of the IPO market has expanded (96%) to Rs
· The companies coming out with
IPOs where from diverse and unconventional section unlike in olden times where conventional
sectors were dominant like l banking, finance and IT in the IPO market since
2000.This clearly indicates the gradual rise of capital market as a mode of
finance among large and small corporate,
· Three fold growths in Mutual
Funds is another reason for upsurge.
the Mid-cap and small-cap companies are seeing better opportunities for a good
valuation, given current market conditions. Market is flooded IPOs and the
market is totally ready to pay a premium.
The Sips are putting money in the mutual funds
market if Rs5000 crore month on month thereby providing incentives for the
company to go public
Growing Indian Economy
India is the fastest growing economy in the world as Real GDP
growth of the Indian economy is expected to be in range of 6.75% to 7.5% for FY
2017-18. Even under this forecast, India would remain the fastest growing major
economy in the world.
Growing Demand Paper
The paper industry in India accounts for about 3% of the
world’s paper production.
The estimated turnover
of the industry is INR 50,000 crore (USD 8 billion) approximately and its
contribution to the exchequer is around INR 4,500 crore.
The industry is
providing job to as many as 0.5 million people formally and 1.5 million people
The paper mill is in
exist from a long time hence present use technology of have a wide loop ranging
from oldest to the most modern. The mills use wood, bamboo, recycled fibre,
bagasse, wheat straw etc for its raw material.
The global per capita paper consumption is 57 kg whereas in
India is a little bet over 13 kg.
Thus in this scenario India is the fastest growing market and
paper consumption is expected to grow in future with the current economic
The view is that the growth in the paper consumption will be
in multiples of GDP and hence an increase in consumption by one kg per capita
would lead to an increase in demand of 1 million tonnes.
PAST TRENDS IN PAPER
Operating profit margin is improving since second half of
2016.the major source of cost is raw materials approx. 50 percent of the net
sales and fuel and power costs which is 16% net sales
Because of lower costs and better price realized which is also
supported by good demand the operating margin were in the range of 15 % during
fiscal year 9 to 11 but increase in raw material cost, fuel and power the
margin reduced significantly in FY13 to 11%.
The fall in margin was arrested in FY15 and H2FY16 witnessed
improvement in margins due to declining RM costs and power & fuel cost.
Consumption & Production: Indian Paper Industry in 2015 – 16: Though
digitization has taken the Indian Paper industry for a ride, India’s demand for
paper is expected to rise 53 per cent as the educational demand for paper is
constantly on the rise. Although India’s per capita consumption of paper is
quite low compared to global countries, the demand is set to rise from the
current 13 million tonne (MT) to an estimated 20 MT by 2020. As per industry scene,
India’s per capita paper consumption at nine kg, against 22 kg in Indonesia, 25
kg in Malaysia and 42 kg in China. The global average stands at 58 kg. India’s
paper demand is set to rise 53% by 2020.
During 2011-15, consumption grew by 6.3%, higher than the
global average. The index of industrial production (IIP) recorded a decline of
0.1% in FY14. Paper and paper products industry saw growth of only 0.1% y/y. However,
the industry saw a revival in FY15 with a growth of 3% y/y. In 8MFY16, it
recorded a growth of 3.2% y/y. In the last five years, the Indian paper sector
has invested about Rs.20000 crore on capacity enhancement, technology upgrade
and acquisitions. The raw material prices for the paper industry soared in
FY15-16. This together with slug of cheap imports from China and other
Southeast Asian nations negatively impacted the profit margins of most paper
producers. In 2015, global wood pulp prices have risen beyond the previous peak
since 2011, which was the highest point in more than 30 years. Unfortunately
for manufacturers who rely on the material as input, especially paper packaging
manufacturers, higher prices for wood pulp have increased their production
costs. According to IBIS World, the price of wood pulp is forecast to increase
further at an annualized rate of 5.1% in the three years to 2019. The increase
in the price of wood pulp will also be reflected in the domestic price of
paper, will grow at an annualized rate of 3.2% over the next three years.
The raw material consumption pattern has drastically changed
in the recent years with the pulp & paper industry witnessing a rise in the
use of waste paper. This shift has been mainly brought about for purpose of
environmental compliance. Presently, the consumption of wood, agro and waste
paper is 20 %, 10% and 70 % respectively. Till about a few years ago, the
consumption of wood, agro and waste paper was 31%, 22% and 47% respectively.
Figure below illustrates the changing raw material consumption pattern of the
Indian Paper Industry
PERFORMANCE OF THE IPO
Shares of Astron Paper and Board Mills saw a
bumper listing on Friday as the stock debut with a premium of 141 percent.
The stock traded at a high point of Rs 120.75 on the NSE.
The initial public offer (IPO) was oversubscribed 243.20
times so far on the last day of bidding.
The IPO to raise Rs 70 crore received bids for
3,40,48,47,040 shares against the total issue size of 14000000 shares (data
available with the NSE showed).
Qualified institutional buyers (QIBs) – oversubscribed
Non institutional investors- 396.99 times
Retail investors- 76.26 times
The IPO opened at a 141 percent premium thereby showing that the
company left lot of money on the table, after that it hit circuit breaks for a
week thereby following a correction in price in the next few days thereby
trading about its opening price. Still the stock is a good buy due to
utilization for expansion rather than for selling promoters shares
As they can see through the working capital requirement the
company needed 239 million rupees for the fiscal year 2018 which is to be
utilized for funding the working capital.
The financials of the
company which is the income statement of the company clearly shows the increase
in profits of the company . Company enjoys strong Financial
performance and stable cash flows
The P/E ratio of the listed amount was in comparison with the
industry peers but the return on net worth is the highest, hence it is a well-placed
company in terms of relative valuation.
OPINION OF THE DEAL
If we take the upper
price band (Rs 50), and the EPS of 2.9 in FY17, we see that P/E ratio comes out
to be ~17 times. And if we take EPS of last 3 years (2.3), the P/E ratio comes
out to be ~21 times.
Thus we can say that the
stock was undervalued, thus the investors could see future gains, and thus the
IPO got oversubscribed.
The industry average
price to earning is 22.8 times, and if we compare it with its competitors,
South India Paper (P/E 15 times), Genius Paper (P/E 36 times), we can say it
was decently priced.
Further looking at the
company’s financials, in the last 5 years it’s revenues multiplied 7 times, and
the profits look good in the future as well, at least in the short term.
However, on a
conservative outlook, we see that the company’s profits have been dependant on
a few customers, the loss of one or more could impact profits, in turn
affecting revenues, future cashflows and operations.
Also, it is import
dependant for its raw material. Thus, any global impact could impact the
company as well.
All past cashflows were
negative, be it operating, financing or investing activities. If this trend
continues, it could be problematic for the company, impacting growth.
On the positive outlook,
the company is expanding facility to increase its product range. It is also
planning to explore export markets, as well as increasing domestic reach with
more marketing strategies. On an operational level, it wants to increase
efficiency, using advanced technology.
Overall, the IPO was
rightfully oversubscribed as there was a positive outlook towards its future