HUHTAMAKI INDIA

Riding consumer yen for packaging

Huhtamaki India (Huhtamaki-PPL), acquired by Huhtamäki Oyj of Finland in 1999, is a leading provider of innovative and sustainable flexible packaging and labelling solutions, catering to the food and beverages, home and personal care, healthcare and other speciality segments. Parent Huhtamaki holds a 66.94% equity stake in HPPL as on September 30, 2020. HPPL has 18 manufacturing facilities in Maharashtra, Dadra & Nagar Haveli, Telangana, Uttarakhand, Sikkim, Assam, Karnataka, Daman and Himachal Pradesh. Prospects for the company are robust.

Consider:

• HPPL is a part of global packaging giant Huhtamäki Oyj that has a presence in more than 40 countries with 50-plus years of association with leading FMCG MNCs. This has helped HPPL (India) in product launches, R&D and customer acquisitions. HPPL has increased its presence in India via organic as well as inorganic expansion. It currently has one of the largest capacities in flexible packaging with 18 plants spread across India and 2 R&D centres.
• Interestingly, the lockdown has increased demand for packaged foods and other products. HPPL is well placed to capture this demand as all its customers are in the FMCG and pharma sectors. The Indian flexible packaging industry is expected to reach a value of Rs 64,038 crore by 2022- 23, up from Rs 37,500 crore in 2017-18, growing at a CAGR of 10% from 2017-2018 to 2022-23. The growth of the industry is due to the increased use of flexible packaging at food service outlets, along with higher demand for packaged beverages. Consumers prefer flexible packaging over rigid packaging since they are lighter, easily disposable and their impact on the environment is significantly less.
• Additionally, the informal retail sector too is contributing significantly to the growth in demand for flexible packaging. Many brands are offering their products and services in small and affordable sizes, such as sachets, to tap the lower-end market.
• As the demand for premiumization of products from FMCG and other user industries improves, the demand for premiumization of packaging solutions (a forte of HPPL) will improve further. A continuous growth in consumption spending in India, along with product upgradation, will lead to higher value and volume growth for HPPL.
• Huhtamaki PPL’s net sales rose 6% to Rs 685.9 crore in Q3CY20 compared to Q3CY19. The company’s operating margins increased 110 bps to 11.3%, leading to a 17% increase in operating profits to Rs 77.43 crore. The acquisition of Mohan Mutha Polytech Private Limited, Sri City, Andhra Pradesh on a slump sale basis was completed on January 10, 2020. Accordingly, the results of the acquired business have been included in the results from January 10, 2020. PAT was up 16% to Rs 36.88 crore.

For nine months ended September 2020, net sales fell 1% to Rs 1,904.99 crore. The company’s operating margins decreased 140 bps to 10.4%. Net profit fell 11% to Rs 90.91 crore. Consequent to the nationwide lockdown, the company’s operations were scaled down in compliance with regulatory orders. Towards the end of April 2020, the company’s operations were scaled up in a phased manner, taking into account directive from various government authorities. This has negatively impacted the company’s revenues and profits for the nine months ended September 2020.

In CY 2021 and CY 2022, we expect the company to register an EPS of Rs 18.6 and Rs 22.7 respectively after an expected EPS of Rs 16.3 in CY20. The scrip trades at Rs. 298. P/ E on the CY 2022 expected EPS works out to around 8.8.

CONSOLIDATED PERFORMANCE INDICATORS (Rs. in crore)

GARDEN REACH SHIPBUILDERS & ENGINEERS

Shipbuilder of choice to the Navy

Garden Reach Shipbuilders & Engineers (GRSE) is a public sector premier shipbuilding company under the administrative control of the Ministry of Defence, primarily catering to the shipbuilding requirements of the Indian Navy and the Indian Coast Guard. The Centre holds a 74.5% stake in the company. GRSE has created a record of delivering 105 warships to maritime forces till date, which includes delivery of the 4th and last ship of the prestigious Anti-Submarine Warfare Corvette (ASWC) programme of the Indian Navy in February 2020. It has also built fleet tankers, offshore patrol vessels, hovercraft, inshore patrol vessels, water jet fast attack craft and fast interceptor boats.

In addition to the shipbuilding products over the years, GRSE has also supplied various boats, pontoons, barges, sailing dinghies, fishing trawlers, fire floats, tugs, dredgers, passenger ferries, motor cutters, deck whalers, launchers, etc., to various other customers. In view of the growing defence requirements, the prospects for the company are highly promising.

Consider:

• The indigenization achieved on board the Kamorta class ASW Corvettes built by GRSE, the first warship built in the country with indigenously developed warship grade steel DMR & 49A, has eventually earned the distinction of achieving 90% overall indigenous content. The Landing Craft Utility (LCU) ships, designed in-house by GRSE, have also achieved a similar distinction of over 90% indigenous content. The company has delivered 7 such LCUs Mk IV ships to the Indian Navy, and the 8th and last is getting ready for delivery very soon.
• The company’s engineering division develops and manufactures portable steel bridges, deck machinery equipment and marine pumps across two units in Kolkata. While the Tarantula Unit is engaged in production, assembly, test and trials of all types of deck machinery equipment and naval pumps, the ‘61 Park Unit’ produces portable steel bridges. The engine division has a diesel engine plant at Ranchi for assembly, testing, servicing and repair of various models of diesel engines used for marine propulsion and power generation in a collaboration with MTU of Germany.
• Though the company has 3 business divisions, shipbuilding contributes the lion’s share of the topline. In FY20, about 94% of the revenue was accounted for shipbuilding, with the other two divisions accounting for the balance 6%. The shipyard has a strong order book. Its order backlog at the end of September 2020 was Rs 26,183 crore, which is about 18.3 times its FY20 revenues. The pending order book comprises orders for construction of 15 warships over the next 6-7 years for the Indian Navy, pertaining to 3 projects, i.e., Stealth Frigates (P17A), Survey Vessels (Large) and ASW Shallow Water Craft (ASWSWC).
• Having won major orders in competitive bidding for Survey Vessels (Large) and ASW-SWC projects of the Indian Navy in recent years, GRSE’s technical and commercial competitiveness should help the company do well in future bids as well. However, being a public sector shipyard under the Ministry of Defence, the company will also get nominated orders in case of strategic importance to the nation.

The overall pick-up in execution, facilitated by enhanced capacity/labour as well as easing of supply constraints, is expected to drive the profitability of the company in FY22. We expect the company to register a consolidated EPS of Rs 11.6 for FY21 and Rs 18.4 for FY22. The scrip is trading around Rs 2,006, which discounts the FY22 EPS by around 10.9 times.

PERFORMANCE INDICATORS (Rs. in crore)