Showing posts with label capitalstars. Show all posts
Showing posts with label capitalstars. Show all posts

CapitalStars News Update: Demand of import duty gives pricing power to paper industry; 3 stocks could give 20-23% return



Manali Bhatia

China being the major consumer of paper worldwide at 106 million tonnes, followed by the US at 71 million tonnes and India sharing the same scale of population as in China consumes a very little share which makes us understand the fact that India has a lower penetration rate and enjoys a greater scope of growth.

Talking particularly of the packaging sector, around 55 percent of the global consumption of paper is in wrapping and packaging. India is still behind in this particular segment. Plastic used to be the first choice of manufacturers for packaging.

In the recent past, state governments have taken a series of measures to ban plastic and ensured strict compliance in plastic industry. This move has helped gain traction for paper packaging industry, though not fully scaled up yet, and would increase its demand in the coming years. Also, a robust demand in food industry, mono cartons in the pharma sector, and multiple orders online is expected to drive substantial demand for paper packaging.

Secondly, China has banned import of certain waste grade of paper owing to environmental concerns resulting in decrease of waste paper prices. India which imports around 40 percent of waste paper stands to benefit out of the same. As already India has scarcity of Pulp wood, the raw material used for manufacturing paper, and in the coming years owing to environmental concerns this scarcity is expected to shoot up further, giving pricing power to this industry. Attributes to this pricing power is also due to limited production (68.58 lakh tones) and increase in consumption (109.27 lakh tones).

Thirdly, there is a demand by major players to increase import duty on paper products, currently at 0 percent as per FTA. If it does, it would also provide benefit to this sector.

Also, the “Going digital” slogan was expected to be major slowdown in the paper sector. But, nevertheless, it should be known that paper packaging would be a boon for this industry.


JK Paper 


The last quarter has been the best for FY19. A surge in price of paper has contributed to an upside in revenue. Moreover, most of the pulp is derived from plantations close to their manufacturing units attributing to reduction in material costs and expansion of margins.


The company is having two large integrated paper manufacturing units with combined capacity of 4,55,000 TPA and is already running at 100 percent capacity utilization. At the Sirpur plant, two machines will start producing from the second quarter and the other two machines will be ready for production by September-October 2019. Thereby, the full capacity will be used for production purposes by October.

This additional expansion will help grow by at least 20 percent in volume terms. Furthermore, an expansion plan is in line for new packaging board machine and pulp mill in Gujarat, awaiting environmental clearance where an additional new board machine of 1.7 lakh tone or two lakh ton would be added.

Also, it would be putting up a pulp mill of almost 1.5 lakh ton capacity in the next two years.

The company has a healthy financial profile; the net debt has been brought down significantly to Rs 700 crore in fiscal 2018-19 and the surplus cash being generated in going ahead will be used for repaying the debts.

Huhtamaki PPL

Being having strong legacy, a unique client base and relative inelasticity of FMCG sector (derives 80-90 percent of revenue) to economic cycles, coupled with global footprint of parentage, and deep market penetration; aids company to make profits in long run.

In 2018, it suffered from extra provisioning on account of income tax and interest. However, from Q4 CY 18, most issues have been settled down and delivered vigorous Q1 CY19 results. Forthcoming, it expects topline to grow at 10-12 percent and likely to see 60-80 Bps ramp up in operating margin in the next two years. But, the margin growth depends on upcoming monsoon, scenario of FMCG sector and volatility in crude oil prices.

Increasing capacity utilization to a maximum of 80-85 percent, improving demand for flexible packaging, and NASP initiatives would enable to improve its volume growth and boost revenues as well as profits ahead. In addition, the acquisition of PPIL and Ajanta Packaging (India) would help consolidating its position in pressure sensitive label business, and is likely to be EPS accretive as well, which could help to expand strong foothold and growth too.
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Wipro buyback likely to increase EPS, investors may tender their shares




Wipro has approved buyback of 32,30,76,923 fully paid-up equity shares of face value Rs 2 each, representing up to 5.35 percent of the total number of equity shares. The buyback is fixed at a price of Rs 325 per equity share for an aggregate amount of up to Rs 10,500 crores via tender offer.

The record date for the said purpose is set to be June 21, which translates June 19 for participation in buyback. Wipro is buying back its shares at a premium of 10 percent to the current price of Rs 296.

Buyback Strategy

Wipro has always been providing rewards to its shareholders. With this buyback being fancy and retail participation hiking up further, we have estimated that the eligibility ratio would be 60-65 percent. Taking into consideration the least number of retailers that would not participate, the real acceptance ratio has been assumed higher only by 15-20 percent. So, the estimated acceptance ratio could be around 70-75 percent.

CASE A

Hedging through future not advisable

As per calculations, the estimated acceptance ratio is around 70-75 percent at the most. The retail holding (individuals holding up to Rs 2 lakh equity share capital) in Wipro is only 1.89 percent (as in March). The buyback amount being high, there is no doubt that many more investors are expected to participate in this buyback. Moreover, the low base of retail holding provides cushion for higher eligibility ratio.

We have estimated 640 as the maximum shares that can be bought at CMP at Rs 296, keeping the limit of Rs 2 lakh (as stated by SEBI). This represents the total value of around Rs 1,89,440 as the margin set aside or any price rise before record date.

The acceptance ratio being high, the remaining 25 percent shares would be hedged through future, which translates in to 160 shares (640*25 percent) that needs to be tendered in 20 accounts to match the future lot size of 3,200 shares. To have 20 different accounts for a retail investor is quite not possible. Thus, hedging is not advised in Wipro Buyback.

CASE B

Gain through tender offer - direct market purchase

Investors looking for a short-term gain can buy 640 shares at CMP at Rs 296 in the open market and give them in the tender offer. Also, one has to monitor that shareholders’ holding value should be less than the amount of Rs 2 lakh on the record date to qualify for this buyback.

As per SEBI regulations, 15 percent of the offer size will be reserved for retail shareholders (holding amount less than Rs 2 lakh). Therefore, Rs 1,575 crore (15 percent of 10,500 crore) is set for retail Investors.

Expected returns and conclusion

Though the company’s Q4FY19 performance missed estimates, the guidance growth stated by the management is not very lucrative. However, this being the third buyback for Wipro, we believe it would help increase the EPS and support the company’s share price.

The estimated acceptance ratio as per calculations is also reasonable at 70-75 percent, which makes the buyback attractive. Thus, investors may tender their shares (case B stated above) to enjoy return up to 13 percent (within two months) through this buyback opportunity, and the remaining quantity (not been accepted in buyback) may be sold in the open market.

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MCX MORNING NEWS UPDATES @capitalstars 3 May 2018

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Gold demand posts weakest start to the year since 2008: WGC -  


Gold demand posted its weakest start to the year in a decade, the World Gold Council said on Thursday, as prices of the metal stagnated and the threat of rising interest rates led investors to seek better returns elsewhere. Global gold demand totaled 973.5 tonnes in the January to March period, down 7 percent year on year and the weakest first quarter since 2008. That coincided with a period of calm in the gold market, which saw prices hold within their narrowest range of any quarter in more than a decade. "It works both ways - for people in the retail space, a price drop can be an entry point, and if the price is rising, people want to take advantage of that momentum." The biggest drop in demand came from the investment sector, with bar and coin consumption down by 15 percent and buying of gold-backed exchange-traded funds two-thirds lower year on year.


Zinc dropped tracking weakness in LME prices closed down 0.2 percent at $3,047 a tonne after prices seen supported after a report showed a resilient economy -  


Zinc on MCX settled down -0.66% at 204.20 tracking weakness from LME Zinc which closed down 0.2 percent at $3,047 a tonne since U.S. President Donald Trump has postponed the imposition of steel and aluminium tariffs on Canada, the European Union and Mexico until June 1, and has reached agreements for permanent exemptions for Argentina, Australia and Brazil, the White House said. European zinc premiums were largely flat in the week to May 1 despite significant deliveries of ingots into London Metal Exchange-approved warehouses in Antwerp; meanwhile, worries over disrupted Iranian lead supply have pushed up lead premiums in India which is a traditional importer of Iranian units. While earlier in the day prices got some support as Chinese steel prices soared and a private survey showed growth in China’s manufacturing sector unexpectedly picked up in April. 


Oil prices fall on rising U.S. crude inventories, record production -


 Oil prices dipped on Thursday, weighed down by swelling U.S. crude inventories and record weekly U.S. production that is countering efforts by producer group OPEC to cut supplies and prop up prices.Prices were pulled down by a report from the U.S. Energy Information Administration (EIA) on Wednesday showing U.S. crude inventories jumped by 6.2 million barrels to 435.96 million barrels in the week to April 27, the highest level in 2018. "The (EIA) report showed a much larger than expected crude build for last week as well as an unexpected build in gasoline inventories," said William O'Loughlin, investment analyst at Australia's Rivkin Securities.


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Market Fluctuation News

Today's Market News


Even as broader markets reflected positive sentiments, over 60 stocks hit fresh 52-week lows on NSE. 

Equity benchmarks erased losses of the opening session and were trading in the positive terrain on the back of buying in bank, financial, telecom, healthcare and oil stocks. 

Around 11:10 am (IST), the NSE Nifty50 index was 39 points up at 10,460, while the BSE Sensex was 105 points up at 34,023. 



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Among the 50 stocks in the Nifty pack, 38 were trading up, whereas 12 were down. 


Investors welcomed positive macroeconomic data. India's industrial production grew at a robust pace for the third straight month, at 7.5 per cent in January, while retail inflation slowed for the second consecutive month to 4.4 per cent in February, signalling that the economy may be set on a strong recovery path. 


Dhanlaxmi Bank, Electrosteel Steels, Gitanjali GemsBSE -4.98 %, GTL Infrastructure, Jubilant Industries, UCO Bank, Orchid Pharma and LML were among the stocks that hit fresh 52-week lows on NSE. 



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Plunges of the wall street


BSE Sensex suffered a 1,275-point


As the stock market fell on Monday, the White House said the fundamentals of the US economy are strong. US economic growth was running at a 2.6 annualised rate in the fourth quarter last year and the unemployment rate is at a 17-year low of 4.1 per cent. 



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With Monday's declines, the S&P500 erased its gains for 2018 and is now down 0.9 per cent in 2018. The Dow is down 1.5 per cent for the year. 

At one point, the Dow fell 6.3 per cent or 1,597 points, the biggest one-day points loss ever. Even with the sharp declines, stocks finished above their lows touched during the session. 


The question now for investors, who have ridden a nearly nine-year bull run, is whether this is the long-awaited pullback that paves the way for stocks to again keep rising after finding some value, or the start of a decline that leads to a bear market. 

"A lot of people who have been in this market for the past three or four years have never seen this before," said Dennis Dick, a proprietary trader at Bright Trading LLC in Las Vegas. "The psychology of the market changed today. 



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