Astron Paper & Board Mill IPO Review: Out of Woods

Astron Paper & Board Mill IPO
Astron Paper and Board Mill Limited IPO (Astron Paper IPO) comprises of an offering up to 140 Lac equity shares of face value of Rs. 10 each with a price band of Rs. 45-50. Astron Paper and Board Mill Limited (APBML)is engaged in manufacturing of kraft paper, which serves as raw material for manufacturing of corrugated boxes.

Astron Paper IPO Details:
Issue Date 15 Dec 2017 – 20 Dec 2017
Price Band Rs 45 – Rs 50
Face Value Rs10
Issue Size  14 million Equity Shares
 issue size (Rs.) Rs 70 crore
BRLM Pantomath Capital Advisors Private Ltd.
Registrar Link Intime India Private Limited
About Astron Paper & Board Mill
  • Astron Paper and Board Mill Limited was incorporated in 2010 and is engaged in manufacturing of kraft paper, which serves as the a raw material for manufacturing of corrugated boxes.
  • The company offers various range of products like high RCT, kraft liner, liner to corrugated medium paper etc.
  • Company makes paper from imported waste paper in place of wood.
  • Astron Paper & Board Mill plant  is situated at  Halvad, Gujarat and is well equipped with plant and machinery, computer system and in house testing laboratory for quality control checks and testing the products.
  • It has Triple Wire Machine with a daily capacity of 350 MT along with daily pulp mill capacity of 400 MT. It is ISO 9001-2008, ISO 14001, UKAS Management systems and is  FSC certified.
  • APBML proposes to set up an additional manufacturing facility  in the existing unit.  
Rs. In Crore
HY18 FY17 FY16 FY15 FY14 FY13
Net Sales 110.95 183.27 157.49 151.91 105.84 26.59
Sales Growth 16.37% 3.67% 43.53% 298.04%
Operating Profit 14.62 21.68 19.49 19.1 10.97 1.23
OPM % 13.18% 11.83% 12.38% 12.57% 10.36% 4.63%
Other income 0 1.32 0.36 0.22 0.36 0.13
PBDIT 14.62 23.01 19.85 19.32 11.33 1.37
Interest 5.82 11.3 10.7 10.7 9.54 2.96
Depriciation 1.71 3.25 2.79 2.66 3.19 1.01
Profit bef Tax 7.09 8.47 6.36 5.97 -1.41 -2.6
Tax (includes deferred Tax) -2.36 -1.49 0.27 1.84 1.62 2.09
Profit After Tax 9.46 9.96 6.08 4.13 -3.02 -4.69
NPM % 8.53% 5.43% 3.86% 2.72%    
Equity 32.5 32.5 32.5 32.5 31 27
Post Issue Equity 46.5
Face Value 10
NAV 11.6 9.7 7.6 6.3 5.1
EPS (FY17) 2.14
EPS (annualized FY18E) 4.07
IPO Price 50
PE Ratio (Fy17) 23.34
PE  (annualized FY18E) 12.29
CAGR Sales 3 Yrs 20.08%
CAGR Net Profit 2 Yrs 55.29%
Market Cap 232.5 crore
Objectives of Astron Paper IPO:

(i) Setting up of additional facility for manufacturing of Kraft Paper with lower GSM ranging from 80 to 180 GSM and lower B.F ranging from 12 B.F to 20 B.F., (ii) Part repayment of unsecured loan, (iii) Funding the working capital requirements of the Company and (iv) General corporate purposes.

Rationale for Investment: Astron Paper IPO 
  • While company was in loss in earlier years it has shown sustained recovery in performance. It is operating at around 75% of the installed capacities as on Sept 2017.
  • Astron Paper & Board Mill is setting up of additional manufacturing facility to increase product range.
  • At present APBML is selling its products in the domestic market, Astron Paper & Board Mill plans to use IPO proceeds for setting up additional facility for manufacturing  lower GSM kraft paper with an eye on exports.
  • Astron Paper & Board Mill’s raw material is mostly imported waste paper. • Latest ban by China on imports of waste paper on  environment concerns has led to drop in prices of waste paper which is beneficial to the company. However any similar move by Indian Government can spell trouble for the company. 
  • Astron Paper & Board Mill also plans to diversify  into packaging sector 
  • Company has maintained consistent OPM in range of 11-12% for last few years and increasing revenues should increase its profit figures proportionately. 
Concerns: Astron Paper IPO 
  • Company was earlier a loss making unit
  • There have been instances of delayed payments by Astron Paper & Board Mill..
  • Low entry barrier in the industry
  • Environment pollution laws are getting stricter
  • Company is dependent on import of waste paper and any change in goverment regulations can have a bad impact. 
  • Volatility in raw material prices & exposed to  Exchange fluctuations
Assessment: Astron Paper IPO 
  • Astron Paper & Board Mill uses waste paper as a raw material instead of  wood and in that sense it is eco friendly. Management claims that though starch powder and some chemicals are used in the manufacturing, it recycles the wastage water  leading to very low discharge of effluents.
  • Company was turned out encouraging performance in last few years and half yearly results (HY FY18) are quite encouraging. Profit margins have been consistent and are in double digits.
  • Recent international developments have led to positive investor sentiments towards paper sector
  • On the flip side, Astron Paper & Board Mill has been incurring losses in the past and its NAV stood at 9.7 at the end of FY 2017 and stands at 11.6as on HY ended 2018. The Company Debt/Equity ratio has been moving down and stood at 1.5 in HY 2018 and will be ~0.7 after the IPO.
  • Astron Paper & Board Mill is totally dependent on imported waste paper as raw materials and any change in Government regulations and duty could heavily impact its performance. 
  • Shree Ajit Pulp and Paper engaged in similar business is trading at a PE of 16.67 (FY17). 
  • Astron Paper IPO has been priced at a P/E multiple of 23.3x based FY 17 financials and at 12.3x (based on FY18E annualized EPS of Rs 4.1 ). 
  • I intend to apply in Astron Paper IPO despite a bit unhealthy past (loss making unit earlier). Given the small issue size, allotment is likely to be poor.

Standard disclaimer: I am not a SEBI registered analyst and above analysis is for educational purpose only. I may have vested interest in every stock I discuss and my views may be biased. Please do your own due diligence as stock market investments have high degree of inherent risk.

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