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Ruchira Papers Ltd.: Future Ready!

By Valuepick
(Code: 532785 | NSE: RUCHIRA) (CMP: 133.15)
Source: Screener

Source: BSE INDIA

Open Low Close Deliverable

Date High Price WAP
Price Price Price Quantity
29-Dec-23 134.3 134.3 132.1 133.9 133.3 10,448
28-Dec-23 134.5 136.0 131.9 132.2 133.3 8,932
27-Dec-23 130.1 135.3 130.1 134.8 134.8 16,543
26-Dec-23 128.2 131.7 128.2 131.3 130.3 8319.0
22-Dec-23 132.5 133.9 127.4 128.2 128.8 34327.0
21-Dec-23 126.1 131.7 126.1 131.7 130.6 4440.0
20-Dec-23 131.8 138.5 128.7 129.6 132.4 34417.0
19-Dec-23 133.7 133.7 130.3 130.5 131.0 3462.0
18-Dec-23 129.0 132.0 126.0 130.0 129.7 7481.0

Executive Summary:

Promoted by Mr. Umesh Chander Garg, Mr. Jatinder Singh and Mr. Subhash Chander Garg, Ruchira
Papers Ltd. (RPL) manufactures Kraft Paper and Writing & Printing Paper (WPP). The company
manufactures Paper only from agriculture waste and wastepaper maintaining a very low carbon
footprint.

We consider Ruchira Papers for medium-term due to its confidence in favourable industry trends.
Additionally, RPL is a highly efficient player poised to capitalize on the unfolding opportunities in the
market. It has steadily expanded capacity without opting for major expansion consistently
maintaining margins despite the industry’s commodity nature.

Lastly, promoters have continuously raised their stake in the company through preferential
allotments and open market purchases. Over the last 12 years, the promoters have increased their
stake by 13.85% from 54.82% at the end of December 2011 to 68.67% at the end of September
2023.

RPL manufactures and markets different grades of kraft paper and writing & printing paper
establishing its strong presence and leadership in North India, where the majority of its products are
distributed.

In Writing & Printing Paper (WPP), the company has expanded from manufacturing ordinary paper
varieties to value- added products. The introduction of coloured paper in 2011 enhanced the
proportion of the Writing & Printing paper revenue. It is important to note that WPP commands
higher realization than Kraft Paper. Despite lower tonnage sales, WPP now accounts for over 60% of
the company's sales in 2023, compared to 0% before 2008.

RPL has a manufacturing capacity of 250 tonnes per day (TPD) of kraft paper and 150 TPD of WPP.
Its strong market position and countrywide marketing and distribution network is evident by the
scale of its operations. The company has operated its plants at over 100% capacity utilization when
needed.

RPL continues to focus on debottlenecking its manufacturing capacity to generate higher output,
which will help the company amortise fixed costs more effectively while enhancing revenues.

It also operates a 6.1 MW captive power plant at its Kala Amb facility meeting 100% of its power
requirement for writing & printing paper. Over the years, the company upgraded the turbine of its
legacy boiler adding an incremental 0.5 MW (total output now 6.1 MW). RPL has also invested on an
effluent treatment plant and protect its business relevance.

The world is now witnessing a new trend: agro-based paper replacing plastic packaging. The focus
on replacing single-use plastic with environment-friendly and renewable packaging paper is gaining
momentum. Higher retail-driven demand is expected to boost the demand of environmentally
friendly packaging boosting the prospects of paper companies in this segment.

Company Overview:

Ruchira Papers Ltd. (RPL) founded by Umesh Chander Garg, Jatinder Singh and Subhash Chander
Garg, and remain actively involved began manufacturing paper in 1980. In the past 15 years, the next
generation of the promoter families has taken over the routine work of producing Writing & Printing
Paper (WPP) and Kraft Paper. WPP is used for printing and stationery while Kraft Paper is used in
the packaging industry particularly for making corrugated boxes / cartons and other packaging
needs.

The Writing & Printing Paper is made from agricultural residues like wheat straw, Bagasse, Sarkanda,
Softwood Pulp and other fillers. Kraft Paper, on the other hand, is manufactured using wastepaper
and agricultural residues such as bagasse, wheat straw, sarkanda etc. Until recently, the leftover
straw after harvesting cereal crops in Himachal Pradesh, Haryana, and Punjab had no economic use.
About 90% of the stubs were burned to clear the fields for the next harvest but this caused immense
pollution. RPL has proactively invested in chemical recovery, effluent treatment and power co-
generation plants. Simultaneously, it has increased the use of renewable agro-based raw material.

Manufacturing paper from agricultural residue has several benefits:

• Promotes the use of renewable crop, reducing the demand for wood-based fibre.
• Reduced the cost of transportation of wooden raw materials to a lighter, stronger alternative
• Reduced CO2 emission by 25% compared to conventional wood fibre pulp.

RPL’s manufacturing facility situated in Kala-Amb in Himachal Pradesh is strategically positioned

along the Chandigarh-Dehradun highway. Situated close to its raw materials and consumption
markets, it helps minimize the company's logistical carbon footprint. As of 31st March 2023, the
company employs 1025 individuals. It began operations with a production capacity of 7 TPD of kraft
paper and expanded the capacity over time. In FY23, RPL manufactured 1,46,758 MT of kraft paper
and writing & printing paper, establishing itself as a moderately sized paper manufacturer in North
India. Its process and product stability are validated through certifications like IS 14490:2018 issued
by the Bureau of Indian Standards for plain copier paper, ISO 9001:2015 and FSC.

The writing and printing paper is used in various products like notebooks, writing materials,
wedding cards, shade cards, colouring books and bill books. It expanded its presence in this segment
by introducing three new products - ‘Leher’ and 'Neer'- a type of cup stock paper to manufacture
disposable cups and 'Mogra' - a premium paper variety crafted for wedding cards, invitations and
announcements. These additions address unique market needs, and the company's copier paper is
widely adopted by offices and copying service providers.

The kraft paper is widely utilised in the packaging industry, specifically for the production of
corrugated boxes, composite cans, fibre drums, textile cones/ream wrappers, food packaging and
various other packaging applications.

Product Range
RPL’s access to agro-resource is advantageous with 50% of its requirement sourced within 50 km
radius. Additionally, all kraft paper is marketed in North India.

The introduction of Mogra significantly boosted its production in FY23. Besides, the manufacture of
wedding card paper (Mogra) resulted in increased tonnage due to a higher grammage per square
metre (GSM).

Financials: (Rs. in crore)

TTM
Particulars FY21 FY22 FY23 (Trailing)
Sales 415 613 803 722
Expenses 390 549 694 612
Operating Profit 25 64 109 110
Other Income 1 1 2 1
Depreciation 14 14 15 16
Interest 6 6 5 4
Profit before tax 6 45 91 92
Tax 1 11 23 23
Net profit 5 33 68 68
EPS 2 12 23 23
Price to earning 30 9 4 6
Price 56 105 93 131
RATIOS:
Dividend Payout 48.0% 15.2% 22.1%
OPM 6.1% 10.4% 13.6% 15.3%

• RPL achieved a turnover of over Rs. 800 crore reflecting its strong market presence, expanded
customer base and effective marketing. Aggregate sales stood at Rs. 803 crore in FY23 as against
Rs. 613 crore in FY22, marking a 30.98% growth on improved demand, production, and
realization.
• RPL’s EBITDA stood at Rs. 109 crore in FY23, a growth of 71.5% on account of higher sales and
realisation. Net profit witnessed a substantial 104% growth in FY23, which is attributed to
higher production, sales, and realizations, coupled with effective cost management.

• The company reported 22.87% return on capital employed during FY23 compared to 14.18%
return on capital employed during FY22.

• The improvement was partly due to 4.31% increase in the company’s output in the last financial
year, providing a larger operational base to enhance the product mix for higher profitability.
Revenues were generated with 60.68% from the white paper business and 39.32% from the
kraft segment (compared to the previous year's 48.02% and 51.98%, respectively). Average
realizations in the writing and printing (white) segment strengthened by 48.32% to Rs 83,618
per MT, while average realizations in the kraft segment declined by 2.53%. Overall, the
company's average realizations strengthened by 24.30% to Rs 54,619 per MT, validating its
strategic focus on value-addition in each segment.

Balance sheet

Particulars FY21 FY22 FY23

Equity Share Capital 24.25 25.20 29.85
Reserves 245.88 281.40 350.63
Borrowings 76.23 66.28 41.87
Other Liabilities 67.87 86.90 85.99
Total 414.23 459.78 508.34

Net Block 235.15 250.82 296.29

Capital Work in Progress 29.72 26.60 3.60
Investments - - -
Other Assets 149.36 182.36 208.45
Total 414.23 459.78 508.34

Working Capital 81.49 95.46 122.46

Debtors 64.93 69.34 83.41
Inventory 73.15 93.95 87.55

Debtor Days 57.05 41.30 37.93

Inventory Turnover 5.68 6.52 9.17

Return on Equity 2% 11% 18%

Return on Capital Emp 4% 14% 24%

With just Rs. 6.92 crore in long-term debt, compared to its net worth of Rs. 381 crore (as of 31st
March 2023), the company showcases a stable financial approach. This is emphasized by the fact that
only a small portion of the company's working capital requirement was borrowed from banks,
highlighting its effective financial management. This success is also evident in the company's
inventory days, now at 35 days of turnover equivalent (down from 56 days in FY21-22). RPL’s credit
rating has improved from A (Minus), Outlook Stable to A (Minus), Outlook Positive, confirming its
progress.
Cash Flow

Narration FY21 FY22 FY23

Cash from Operating Activity 34.02 34.97 61.93
Cash from Investing Activity -38.09 -25.60 -36.00
Cash from Financing Activity 3.02 -9.41 -25.67
Net Cash Flow -1.04 -0.03 0.25

There is a consistent positive trend in cash generated from operating activities, rising from Rs. 34
crore in March 2021 to Rs. 62 crore in March 2023. This indicates that the company is generating
more cash from its core business operations over time.

Shareholding

Mar Mar Mar Mar Mar Mar Sep

Shareholding 2018 2019 2020 2021 2022 2023 2023
Promoters + 61.1% 64.1% 64.1% 64.1% 65.4% 68.7% 68.7%
FIIs + 0.7% 0.6% 0.6% 0.6% 0.6% 0.9% 1.1%
DIIs + 0.2% 0.1% 0.1% 0.5% 0.0% 0.0% 0.0%
Public + 38.0% 35.3% 35.2% 34.9% 34.0% 30.4% 30.2%
No. of
Shareholders 16338 18220 18148 18370 20841 27847 28046

In small cap companies, it is important that the promoters hold a reasonably high stake, In the case
of Ruchira Papers, the promoters own over 68% stake of the company.

What's even more noteworthy is how the promoters have increased their stake over the last 12
years. The promoters have increased their stake by 13.85% from 54.82% at the end of Dec’11 to
68.67% at the end of Sep’23. Promoters increasing their stake in their own company is usually a
positive sign for the company’s prospects.

Acquisition of shares:

• In 2018-19, Ruchira Papers allotted 18,30,000 equity shares of Rs. 10 each at a premium of
Rs. 130.50 per share to the Promoter / Promoter Group on conversion of warrants, nearly at
the same price as today. Following the allotment, the company's paid-up share capital rose to
Rs 24.25 crore. The shareholding of the Promoter/Promoter Group rose from 61.14% to
64.07% of the enhanced paid-up share capital.

• In 2021 (during the Covid era), Ruchira Papers allotted 28.80 lakh share warrants
convertible into equity shares at Rs. 62 per warrant to the promoters/promoter group
entities. Upon conversion, this increased their shareholding from the current level of 64.07%
to 67.88%.

• In Dec 2022, the promoter acquired total 2,28,698 shares at an average purchase price of ~
Rs. 128. This further increased the promoter’s holding to 68.67% in Dec’22 from 67.88% in
Sept’22.
 Open Market Purchase

Acquisition
Promoter Name Quantity
price
Atul Garg 10000 116
Daljeet Singh
Mandhan 25630 134
Deepan Garg 10000 132
Jagdeep Singh 29868 125
Jatinder singh 23000 137
Lucky Garg 10000 130
Radhika Garg 18750 122
Ruchica G Kumar 18750 122
Shaloo Gupta 18750 127
Shashi Garg 7700 136
Umesh Chander Garg 37500 128
Vaishali Viral Jhaveri 18750 130
Wt. Average Price in Dec 2022 Rs 128.3

Industry Growth Drivers

WRITING AND PRINTING PAPER

• Increased stationery demand: The Indian school stationery supplies market size reached USD
2,240 million in 2022. According to the IMARC group, the sector is expected to reach USD 3,205
million by 2028 at a projected CAGR of 6.06% during 2023-2028.

• Office stationery demand: The office stationery supplies market is valued at USD 75.2 billion in
2022 and is anticipated to rise to USD 80.16 billion by 2028 at a CAGR of 6% in the next six years.
The surge in remote and hybrid work models along with the adoption of creative and
personalised stationery for branding is propelling the growth of the office stationery market.

• Wedding market: India's wedding market is gearing up for dynamic growth. The numbers
speak volumes: an anticipated rise from 2.5 million to 3.2 million events between November
2021 and February 2022 and November 2022-February 2023, marks an impressive 28% growth.
This vibrant trend indicates a world of opportunities with the spotlight on Ruchira's unique
'Mogra' brand - the epitome of elegant wedding cards.
(Source: IMARC group, Market data forecast, Times of India)

KRAFT PAPER
• Growing packaging industry: The market size of the Indian packaging industry was USD 71.90
billion in 2023 and is expected to reach USD 130.14 billion by 2028 at a CAGR of 12.6% during
the forecast period (2023-2028). The company's kraft paper product is used in corrugated
boxes, composite cans, and other packaging applications. Therefore, the growth of the packaging
industry will drive the company's growth in the kraft paper segment.
(Source: Mordor Intelligence)
 CUP STOCK PAPER

• Growing demand for beverages: Sales of Indian beverages are expected to reach USD 47.6
billion by 2026 from USD 41.4 billion in 2021 at an average growth rate of 2.3% y-o-y. The
ban on plastic cups and carry bags is leading to a higher demand for eco-friendly alternatives.
The growing demand for hot and cold beverages is anticipated to boost the demand for the
company’s ‘Leher’ and ‘Neer’ brands.
(Source: Report linker)

Introduction of cup stock to be a business driver.

The global paper cup market has surged from the growing product consumption. In 2022, global
consumption exceeded USD 10.8 billion and is expected to rise to an estimated USD 13.3 billion by
2028, with consumption growing at a CAGR of 3.5% between 2023 and 2028.
Demand for hot beverages: The global demand for hot beverages is expected to grow at a CAGR of
6% during the estimated period (2023 to 2033). As a result, the global hot beverages market is
expected to increase from USD 771 billion in 2023 to USD 1,390 billion by the end of 2033.
Demand of chilled processed food: The net worth of the total sales of chilled processed foods are
estimated to be around USD 803 billion in 2023 and are expected to reach a value of USD 1,133
billion by 2033. Cup stock serves as a container for chilled food and beverages, contributing to
market growth.
Expansion of food delivery services: The food delivery industry, which witnessed the largest
growth in five years in 2020 due to the coronavirus pandemic, is expected to grow to USD 165
billion by 2029.
Hygienic outlook: The rising awareness of cleanliness and hygiene has shifted consumer preference
from reusable cups to disposable cups, catalysing the market expansion of cup stocks.
Environmental consciousness: With higher environment consciousness, consumers are selecting
biodegradable cups over disposable containers made of non-biodegradable materials like cup stock,
leading to an increased demand.

(Source: Expert Market Research, GlobeNewswire, Future Market Insights)

Valuation

In terms of return ratios, the Ruchira Papers has consistently achieved ROE and ROCE exceeding
15%.

Overall, we view the promoters favourably, recognizing their efficient management of operations. We
appreciate their focus on various aspects of the business such as water conservation, working capital
management, power and fuel consumption efficiency and value addition. Since FY10, they have
consistently reduced debt while gradually expanding the manufacturing capacity. Presently, the
company is almost debt-free with total debt of ~Rs. 29 crore and Debt: Equity of 0.07x. We believe
Ruchira Papers is progressing well to become a more efficient player in both business operations and
financial parameters.

At the current price of Rs. 134, RPL’s market capitalization is Rs. 400 crore, and its enterprise value is
~ Rs. 427 crore. Over the last few years, RPL’s absolute debt has reduced from around Rs. 140 crore
to Rs. 29 crore and the debt: equity ratio has improved from 2.4 to 0.07.

For the trailing twelve months (TTM), the stock has recorded PAT of Rs. 68 crore and EBIT of Rs. 92
crore. The stock trades at 5.8 times trailing twelve months EPS, Market cap: sales ratio of 0.55x and
price to book value of less than 1x and EV/EBIT multiple of 4.6x. Also its trading at around 3.2x its
FY25 estimated EV/EBITDA.
We believe the current valuations on an absolute basis are reasonable, although the sustainability
depends on the earnings trajectory over the next few quarters. The stock offers 3.73% dividend
yield.

Way forward

Instead of big bang expansion, the management now seems more focused on gradual expansion
through de-bottlenecking, efficiency enhancement exercises and technological improvements.

RPL’s outlook for FY24 is focused on maintaining and enhancing production volumes through
consistent debottlenecking in the manufacturing process. By continuously improving production
efficiency, it aims to meet the growing market demand and strengthen its position as a reliable paper
manufacturer. Its commitment to adopting the latest manufacturing technologies and best practices
is expected to drive sustainable growth.

Risk & Concerns

The paper manufacturing industry is highly competitive. While Ruchira Papers has shown good
resilience in maintaining margin, they could face challenges in the short term if there’s significant
fluctuation in raw material prices or a substantial increase in imports.

Water is an essential ingredient in the paper manufacturing process. Any restriction on the usage of
water can adversely impact its production.

Effluent treatment is also vital in the paper manufacturing process; any negligence on this front
could lead to issues for the company.

References:

1. Company’s Annual Reports.

2. Company’s Concalls & Presentations.
3. Linkedin – Company Page
4. Stock screener.
5. Company website
6. BSE Website.

Disclaimer:

I am not a SEBI registered advisor and this report is solely for educational purposes. The information
provided does not constitute any form of recommendation. Therefore, please conduct your own
analysis before engaging in any trades or consult your financial advisor. The writer holds no
responsibility for your intended decisions and any resulting financial losses.

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