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Comapny:Tamil Nadu Newsprint and Papers Limited (10-10-2010)
NSE Symbol: TNPL
CMP: 140
Target: 170
Company Background
Tamil Nadu Newsprint and Papers Limited (TNPL) was established by the Government of Tamil Nadu during early eighties to produce Newsprint and Printing & Writing Paper using bagasse, a sugarcane residue, as primary raw material.Over the years, TNPL has increased its capacity to 245,000mtpa and has emerged as the largest bagasse based Paper Mill in the world consuming about one million tonnes of bagasse every year.
TNPL exports about a fifth of its production to more than 30 countries including Australia, Indonesia, Nigeria, Singapore and South Africa.It is the market leader in computer stationary and the largest exporter of wood-free paper.
Investment Rationale
Capacity Expansion to Boost Top-line and Margins: TNPL is under the process of mill expansion for increasing the production capacity from 245,000mtpa to 400,000mtpa by adding a new paper machine (PM 3), with an outlay of `1,000 Crore. The expansion is scheduled to be completed by October 10 while the additional production will be available from November 10. This would certainly drive the volume for TNPL leading to increase in revenue in coming years.
After the above expansion, manufacturing cost would go down while paper production would increase significantly leading to increase in margins.
TNPL is expecting to increase the output of its branded copier paper which enjoys demand in domestic and international market.It also plans to introduce a new line of packaged paper namely double folio examination paper
Rise in international pulp prices would be beneficial for TNPL:Earthquake in Chile which disrupted pulp supplies, and withdrawal of subsidy by the US Government (USD125-150 per mt) for the treatment of black liquor generated during pulp manufacturing, has pushed up the pulp prices leading to rise in international markets. Since TNPLs pulp demand is mostly met by its own production, rise in pulp prices would be beneficial for TNPL.
Availability of Bagasse to Improve:
Sugarcane production is expected to rise this year on account of good monsoon. With increased production of sugarcane, availability of Bagasse, the key raw material for TNPL, will improve leading to improved margins for the company.
New Projects to Improve Margins: The Company has taken up implementation of three new projects during the current year with a total capital outlay of `385 Crore. On competition (expected by December 11), these projects will boost up the margins for the company. The projects include: a) Installation of a 300tpd De-inking pulp plant to produce pulp from waste paper; b) Revamping of Steam & Power System to improve the energy efficiency; c) Installation of 600tpd cement plant for managing mill generated wastes - lime sludge and fly ash.
JV for Setting up Precipitated Calcium Carbonate (PCC) Plant: TNPL has entered into a long term agreement with M/s. Omya International AG,Switzerland for setting up an on-site PCC plant in TNPL premises on Built, Own & Operate (BOO) model. The Plant will have a capacity to produce 60,000 of PCC per annum. The Project is scheduled to go on stream by December 2011.
Industry opportunities: Paper industry is expected to grow at a CAGR of 8% during FY10-14 on back of healthy growth in the economy.
Governments thrust on education and growing economy will also act as a catalyst for the industry growth.On account of its low cost printing industry, India became a favorable destination for printing out sourcing projects.
The paper consumption in India is expected to increase as the per capital paper consumption is only 8kg as against world average of 56kg.
Recommendation
TNPL is expected to see a growth in its sales volume from third-fourth quarter this fiscal on account of significant capacity expansion scheduled to begin production in November this year. At CMP 140.80,the stock is trading at a forward P/E and Cash P/E of 6.7x and 3.5x on FY11E earnings. In addition, TNPL paid dividend of 45% in FY10 resulting in a dividend yield of 3.1%. The stock can be bought for a medium term target of 170 .
NSE Symbol: TNPL
CMP: 140
Target: 170
Company Background
Tamil Nadu Newsprint and Papers Limited (TNPL) was established by the Government of Tamil Nadu during early eighties to produce Newsprint and Printing & Writing Paper using bagasse, a sugarcane residue, as primary raw material.Over the years, TNPL has increased its capacity to 245,000mtpa and has emerged as the largest bagasse based Paper Mill in the world consuming about one million tonnes of bagasse every year.
TNPL exports about a fifth of its production to more than 30 countries including Australia, Indonesia, Nigeria, Singapore and South Africa.It is the market leader in computer stationary and the largest exporter of wood-free paper.
Investment Rationale
Capacity Expansion to Boost Top-line and Margins: TNPL is under the process of mill expansion for increasing the production capacity from 245,000mtpa to 400,000mtpa by adding a new paper machine (PM 3), with an outlay of `1,000 Crore. The expansion is scheduled to be completed by October 10 while the additional production will be available from November 10. This would certainly drive the volume for TNPL leading to increase in revenue in coming years.
After the above expansion, manufacturing cost would go down while paper production would increase significantly leading to increase in margins.
TNPL is expecting to increase the output of its branded copier paper which enjoys demand in domestic and international market.It also plans to introduce a new line of packaged paper namely double folio examination paper
Rise in international pulp prices would be beneficial for TNPL:Earthquake in Chile which disrupted pulp supplies, and withdrawal of subsidy by the US Government (USD125-150 per mt) for the treatment of black liquor generated during pulp manufacturing, has pushed up the pulp prices leading to rise in international markets. Since TNPLs pulp demand is mostly met by its own production, rise in pulp prices would be beneficial for TNPL.
Availability of Bagasse to Improve:
Sugarcane production is expected to rise this year on account of good monsoon. With increased production of sugarcane, availability of Bagasse, the key raw material for TNPL, will improve leading to improved margins for the company.
New Projects to Improve Margins: The Company has taken up implementation of three new projects during the current year with a total capital outlay of `385 Crore. On competition (expected by December 11), these projects will boost up the margins for the company. The projects include: a) Installation of a 300tpd De-inking pulp plant to produce pulp from waste paper; b) Revamping of Steam & Power System to improve the energy efficiency; c) Installation of 600tpd cement plant for managing mill generated wastes - lime sludge and fly ash.
JV for Setting up Precipitated Calcium Carbonate (PCC) Plant: TNPL has entered into a long term agreement with M/s. Omya International AG,Switzerland for setting up an on-site PCC plant in TNPL premises on Built, Own & Operate (BOO) model. The Plant will have a capacity to produce 60,000 of PCC per annum. The Project is scheduled to go on stream by December 2011.
Industry opportunities: Paper industry is expected to grow at a CAGR of 8% during FY10-14 on back of healthy growth in the economy.
Governments thrust on education and growing economy will also act as a catalyst for the industry growth.On account of its low cost printing industry, India became a favorable destination for printing out sourcing projects.
The paper consumption in India is expected to increase as the per capital paper consumption is only 8kg as against world average of 56kg.
Recommendation
TNPL is expected to see a growth in its sales volume from third-fourth quarter this fiscal on account of significant capacity expansion scheduled to begin production in November this year. At CMP 140.80,the stock is trading at a forward P/E and Cash P/E of 6.7x and 3.5x on FY11E earnings. In addition, TNPL paid dividend of 45% in FY10 resulting in a dividend yield of 3.1%. The stock can be bought for a medium term target of 170 .
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