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Rising Enhanced capacity to drive volume and better product-mix to drive value: SIL has just completed its capacity expansion program under which the company has doubled its capacity from 1,05,000 TPA to 2,05,000 TPA by investing Rs.500 cr. The new capacity commenced production in February, 2022 and already achieved capacity utilization of 63% by end of March, 2022. Furthermore, the new capacity has capabilities to produce higher GSM paper which is likely to drive the margins up.

Backward integration and locational advantage to support margins: SIL has developed integral flexibility and sufficient capacity to make pulp using all three types of raw materials; agricultural residues (wheat straw and reed), wood chips/veneer waste, and, waste paper & pulp substitutes. The total in-house pulp processing capacity is 400 TPD; out of which 200 TPD is Agro based, 120 TPD is wood pulp processing and 80 TPD is waste paper processing. In addition, the company’s locational advantage in the wheat belt of India ensure year around availability of raw material at a competitive price as there is no other paper mill in the vicinity of 100 kms

Rising demand for stationery paper and packaging to benefit & changing industry dynamics: The paper industry is seeing a structural shift from the demand viewpoint, with demand for packaging paper is outpacing the demand for newspapers, reading books and magazines due to surging demand for packaging from e-Commerce, food, FMCG and the pharmaceutical sector. Accordingly, SIL has also entered into an agreement with US based global brand ‘Zume’ engaged in sourcing of packaging products.

OUTLOOK & VALUATION

SIL is one of the leading wood and agro-based paper manufacturers in the country with total capacity of 2,05,000 MTPA. The company has completely integrated manufacturing setup with four paper machines, 100% in-house power generation, soda recovery plant and one of the best effluent treatment facilities. The company has 540 acres of eucalyptus plantations, developed as per Karnal Technology, which consumes total treated water discharge. SIL operates through a distribution network with 70+ dealers and 3 branch offices located in Delhi, Chandigarh & Jaipur. It has a long-standing relationship with state text-book corporations that helps in maintaining a healthy order book. Going forward, we expect SIL to deliver an EPS of Rs.14.5 in FY24; assigning a target multiple of 11x we arrive at a target price of Rs.160 showcasing an upside potential of 40.4% from current levels with an investment horizon of 18-24 months.

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