Hello Sir,

Hope you are doing well.

Sometime back, I came across a stock Satia Industries.

While the company is involved in the so called boring business of paper manufacturing, what’s interesting is that is has grown sales at a consistent pace of 20% annualized over the years.

The company recently doubled the capacity in 2022 and planning further expansions.

Looking at the overall growth and the quality of numbers, we decided to look at the company in greater detail.

Below, we have shared interesting insights from the Q2 FY 24 con-call of Satia Industries to understand the current situation and the outlook for the company.

 

Before that, a few days back, we released our new stock recommendation for our Alpha and Alpha + Members

Company’s main growth and profit driving segment has grown more than 10x in terms of sales and profit in the last 10 years. We believe it has the potential to double its PAT in the next 3 yrs

For details on the stock click HERE

 

Satia Industries – Insights from Q2 FY 24 con-call of the company

– General Details

  • Q2 presented formidable challenges for the sector with paper prices witnessing a notable decline and cost of raw materials, especially wood chips, surged
  • Consequently, our revenue saw a year-on-year decrease of 19% amounting to Rs 373.4 crore
  • Despite our scheduled renovation shutdown on two of our paper machines, our production volume was slightly more than that of H1 FY 23
  • Thanks to our strong relationship with state textbook boards and we have got good orders which are under execution in the current quarter

– Realization

  • In Q1 it was above Rs 90,000 and in Q2 it was almost less than Rs 75,000 a tonne. So, the prices were down by almost 20%

– Production and Capacity

  • Last year we did almost 2,10,000 tonne; another 5% to 6%, we may be increasing this year in the volume
  • Management is looking to add minimum 100 tonne per day additional capacity
  • If we look at the figure of 2,20,000 tonne, if we achieve anywhere near this, this comes to almost 600 tonnes which is our present finished paper capacity

– Products

  • Our main focus is on the photocopier paper, which we have been selling earlier, but the percentage was very low
  • Photocopier has very consistent demand in the open market and it can give a consistent tonnage
  • Our target is to have minimum 15% to 20% in our total production from the photocopier segment, because price realization in the photocopier is on the higher side
  • We are also adding some other high-end printing paper which we have already introduced and done successful trials. So, that will be 100% wood based paper

– Raw material

  • We use more than 50% agro pulp and 35% +/- wood pulp on total tonnage and 5% to 10% imported hardwood or softwood pulp
  • Whenever there is economy in using imported wastepaper then we use the option of reducing our in-house wood pulping capacity, and we use imported pulp substitute, good quality wastepaper pulp also

– Customer mix

  • Our textbook board, because our overall production will increase, so it will come down to almost 30%, 35% and open market will increase to almost 65% to 70%

– Export

  • Exports prices, as is the normal trend, are almost always 5% to 10% lower than the indigenous market
  • So, we have some liabilities also to export. So, our exports will remain within the range of 5% to 10% for the year

– CAPEX

  • We have successfully completed the initial phase of the wood pulping CAPEX, which entailed the installation of DDS in four wood pulping digesters to reduce steam consumption and enhance wood pulping capacity
  • Looking ahead to FY 25, we have planned two major CAPEX initiatives which include the upgradation and modernization of PM3 to enhance its production capacity and optimize energy consumption and a new soda recovery boiler

– Debt

  • We proactively prepaid Rs 28.4 crore during Q2 FY 24 and Rs 62.6 crore in H1 FY 24
  • Presently our long term debt is just Rs 305 crores only and I think another two to three years we can pay that debt

– Guidance

  • We anticipate a volume upswing in the second half of FY24 and we remain confident in our ability to achieve our stated guidance of 5% to 7% volume growth for FY 24 over FY 23
  • Normal EBITDA in the paper industry with integrated units is anywhere between 20% to 25%, which is considered to be a good EBITDA margin
  • Our guidance is that EBITDA will remain within the range of 25% plus minus for the whole year

(End)

 

Disclaimer: This is not a recommendation to buy/sell Satia Industries. The securities quoted are for illustration only and are not recommendatory.

 

Best Regards,

Ekansh Mittal
Research Analyst
Web: https://www.katalystwealth.com/

 

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