Astron Paper ticks the right boxes for valuation, growth

ET Intelligence Group: Astron Paper and Board Mills plans to raise Rs 70 crore from the primary market to increase capacity and repay a portion of its debt. After the intial public offer ( IPO), the holding of its four promoters will reduce to 46 per cent from over 66 per cent.

Given the sustained growth in revenue and profit, growth potential in the kraft paper segment and reasonable valuation compared with peers, long term investors may consider the IPO.

BUSINESS AND FINANCIALS
Ahmedabad-based Astron was incorporated in 2010. It manufactures kraft paper (paperboard) used by the packaging industry mainly in the manufacture of corrugated boxes.

It has an installed capacity of 96,000 metric tonnes per annum (mtpa). The company will use Rs 23 crore from the IPO proceeds to increase the capacity to 1,29,000 mtpa.

The end users are mainly textile, consumer and e-commerce companies. Due to steady growth in these sectors, Astron’s revenue grew by 20.2 per cent annually between FY14 and FY17 to Rs 185 crore. The operating profit before depreciation (EBITDA) doubled to Rs 21.7 crore during the period while EBITDA margin rose from 10.3 per cent to 11.7 per cent.

In the first half of the current fiscal, revenue was ?111 crore and EBITDA was ?14.5 crore. Net profit was ?9.5 crore compared with the Rs 10 crore in FY17.

After the IPO, the total debt will reduce to ?54 crore from ?86 crore as of September 2017. This will in turn lower the debt-equity ratio to 0.4 from 1.6. However, increase in equity after the IPO will lower the return on equity which was 22 per cent in FY17.

RISKS
There are several promoters in the company, including listed company Asian Granito. Any friction amongst them could affect the company’s performance.

VALUATIONS
On the basis of annualised net profit for the first half of FY18, the company demands a price-earnings (P/E) multiple of 12.2. With lower debt and higher production from increased capacity, the growth could be higher in FY19.

Its peer Shree Ajit Pulp and Paper trades at a forward P/E of 12.5 while another paper company, Genus Paper and Borads is available at a P/E of 25. This makes Astron’s valuation reasonable.