Buy Shetron Ltd.

The Indian Packaging Industry is growing at more than 15% per annum. India stands at the 11th position in the world packaging industry and with the rising consumer demand and new technologies, it is expected to grow at 18-20 per cent and it is expected that annual turnover of Indian packaging industry will touch $32 billion by 2025. At the expected growth pace Indian Packaging Industry will soon climb up to the 4th position in the world packaging industry. There will be ten times increase of middle class population by 2025 in India which will further trigger the consumption of packaging material and thus, the packaging industry will grow further.

With packaging industry sector being the flavor of the season, let us look at Shetron Ltd.

Shetron Ltd. was incorporated in 1980 and is engaged in manufacturing of Metal Packaging, Printed Metal Sheets and Dry-cell Battery Jackets and Components. Company caters to Food and Beverage sector through products like Metal Cans, Can Ends, Laminated Composite Cans, General Purpose Cans, Lug Caps.

The packaged food industry is still in nascent phase in India and there is going to be a huge growth in the future in line with the western world.  Just go to any hyper market and one would definitely  see imported packaged foods from US / Europe / Middle East. The demand for such products is going to increase in future.

In Industrial sector it supplies, paper core, micro finish tubes and Fiber drums for bulk packaging. The Company is also the largest integrated Producer of Dry Cell Battery Jackets in the South East Asian region and Europe. It enjoys a market share of around 80% in the domestic dry cell battery jacket / components.  The company supplies dry cell battery jackets to Panasonic, Duracell, Energizer Battery, Budget Battery etc.

Company supplies Fiber Foil through Fibre Foils Technology Ltd. and manufactures Composite Cans, Fibre Drums, Paper Cores, Tubes, Film Cores and Paper Sleeves. It caters to Food Industry, Pharmaceutical Industry, Pesticide Industry, Consumer Goods Industry and Metal & Engineering.

Company’s subsidiary Sansha System Limited is involved in the Design and manufacturing of Press Tools And Sheet Metal Components, and Precession Spare Parts for the Battery and General Engineering Industries. It caters to companies like HP, Godrej, Eveready, IFB, Siemens, Maruti, Hero Honda, TVS Motor Company, BEML, ISRO etc.

Company’s has almost 44% raw material through imports which is primarily tin plate and rupee depreciation also impacted the company however it also benefitted from 30% exports. Company was facing problem on account of slowdown in economy, stretched working capital cycle and high debt. Company had issues servicing its debt due to which its fitch downgraded its rating to “D”. Link here 

Things however started turning for good with increase in its topline and financials which is also demonstrated by upgrade in fitch ratings to “BB-“ Link here  in 2013.

Now lets look at the improving financial position of the company. Company's sales are consistently increasing and PAT is gradually increasing as compared to FY 11.

              

The only concern which I see is the high debt which I  feel would be mitigated by the consistently increasing topline. Company’s operating margin are good at 17% however interest cost impacting the PAT margin. As company grows and debt reduces yoy, things will improve further.

Recommending to buy at cmp for decent upside backed by overall increase in demand in this sector, established business model, improving financials,  presence of funds like JP Morgan Special Situations (Mauritius) Ltd and India Max Investment Fund Ltd. I feel it can be a turnaround story.

Also it is trading at a discount to book value of Rs 44 and available at a market cap of Rs 20 Crs as against sales of Rs 130 Crs.

Disc: I am invested in this company.