VALUE PICK - SHILP GRAVURES LTD. - RARE GEM

About The Company

  Shilp Gravures Ltd established in 1993 is a leader in elector-mechanical engraving, with a market share of exceeding 40% for flexible packaging industry in India.

 The company is headed by the technocrat Patel's, Headquartered in Ahmedabad the company also has offices in Mumbai,Delhi & Chennai.

 

About Business

The company is engaged in the manufacturing of gravure cylinders which are used for roto-gravure printing, Roto-gravure printing is vastly used by flexible packaging sector.

It's also used in various applications beside flex packaging including pvc flooring, speciality coatings and etc.

The company also has a flexo plate processing unit equipped with DuPont Cyrel 2001P one of worlds finest digital plate processor producing plates of up to 42x60 inch / 106x152cm - The first to produce this size which is the largest available in South Asia.

The company uses technology provided by ESKO and AGFADOTRIX for pre-press that helps designing and creating rapid repeats of matching designs.

The company has strong 300+ clientele which includes giant companies/brands like "HUL, Britannia, Amul, Nestle, Cadbury, Tata Tea, Pepsi, Haldiram, Lehar Foods, Reliance, P&G, Colgate, ITC, Mcdowell's etc".

 The Ace Investor – Value Pick

(BSE:513709) SHILP GRAVURES LTD.

This company is the market leader and only directly listed player in this high-entry barrier industry.

Trading around Rs 43 with a market cap of under 30 crores.

Current P/E is around 6 considering the half yearly nos and promoter holding is strong at 59.91%.

Earnings have been stable, Though after FY12 the company has not shown any sharp increase in the top and bottom line but at the same time there was great growth reported by the company in the recession years which is a great factor when looking at any stock for long-term. The annual results summary is attached below.

Narration	Mar 05	Mar 06	Mar 07	Mar 08	Mar 09	Mar 10	Mar 11	Mar 12	Mar 13	Mar 14
Sales	20.49	24.58	26.18	35.33	38.28	48.80	49.99	57.44	54.44	53.90
Operating Profit	6.21	8.41	9.93	14.33	13.02	16.11	12.51	14.92	15.32	14.56
OPM	30.31%	34.21%	37.93%	40.56%	34.01%	33.01%	25.03%	25.97%	28.14%	27.01%
Other Income	0.32	0.14	0.12	0.13	0.32	0.10	0.78	0.26	0.39	0.49
EBIDT	6.53	8.55	10.05	14.46	13.34	16.21	13.29	15.18	15.71	15.05
Interest	1.01	0.89	1.03	1.11	2.31	2.56	2.31	2.01	1.87	2.25
Depreciation	3.12	3.23	3.28	3.96	4.42	5.74	6.32	5.79	6.22	6.46
Profit before tax	2.40	4.44	5.74	9.39	6.61	7.92	4.66	7.38	7.62	6.34
Tax	1.00	1.41	1.56	3.27	3.72	3.91	1.38	2.26	2.13	2.11
Net profit	1.40	3.03	2.93	5.88	1.46	5.12	3.34	5.27	5.49	4.23
Adjusted EPS in	2.30	4.97	4.80	9.64	2.39	8.39	5.48	8.64	9.00	6.93
Dividend Payout	68.57%	31.35%	31.40%	18.20%	34.93%	12.50%	19.16%	14.61%	14.03%	14.42%

The company as seen above is consistently paying dividend, Actually its paying dividend since FY 2002.

The packaged food industry is the 5th Largest sector in India. The Indian packaged food industry is worth $ 39.7 billion and is expected to more than double by 2025. India presently is ranked 5th in the world and 2nd in Asia and with per capita consumption of 24 kg per year the market is yet to boom and is only at the early stage. India is also the 4th largest market for beverages in Asia with a consumption of 22 bn litre of drinks (soft/hard).

With the new Food Safety & Standard Regulations focusing on the quality of packaging, It is set to boost the sales of reliable flexible packaging.

With the New Govt. at centre, Weakening inflation and Make In India plans there are hopes that soon there will be a rise in the disposable income among young Indians which will boost the sales of packaged foods.

  Recently the shares of packaging companies have witnessed great movement and still a lot of buying is going on at these higher levels (e.g. Mold Tek Packaging was trading in the 40s at FY14 end with an EPS of 8.03 the P/E was around 5.60 and now it has appreciated to 260 and trading at a P/E of 23) Similar is the case with TCPL Packaging and whole lot of other packaging sector stocks.

While packaging stocks are over the moon already India's largest and only listed player in it's packaging related industry "SHILP GRAVURES LTD" is trading at a P/E of under 6,

 Not to forget that SHILP's clientele includes one of India's largest FMCG player.

While gathering data, We found something common between MOLD-TEK Packaging, TCPL Packaging and SHILP GRAVURES LTD, That is Mr Anil Kumar Goel the seasoned value investor who got covered in the Business Standard and is often noticed along with Dolly Khanna in shareholding patterns of various companies, Mr Goel and his wife "Seema Goel" are holding 3.25% in SHILP, They also bought Mold-Tek in the past and booked extremely huge profits, Their success in value investing is not limited to the Packaging space they also have holding in many companies including "MM FORGINGS" and most of their holdings have shown capital multiplying returns. Mr & Mrs Goel have acquired the 3.25% stake in SHILP around 40-50 levels.

  With high entry barrier in the industry and being India's only listed player in this industry, SHILP is a compelling value pick, At current levels of 43 it is no where near where it should be trading at, Being a market leader and trading at a P/E of 6 does not make any sense and promoters have already noticed it, that's why they have increased their share holding by more than 1% (YOY) to 59.91%, If we even completly ignore the growth factor and assume that SHILP's topline will remain around 50s and the EPS will remain around 7 then also the stock deserves the valuation of 30 p/e because of the fact that it is the only directly listed company in this industry and is also the market leader, a 30 p/e will workout to a price of Rs 210 for the stock (388% price appreciation prospect) and if we consider the growth prospects already discussed above then it can give further returns.

Hope above inputs have made it clear that SHILP GRAVURES LTD is an excellent value pick and extremely undervalued rare gem.

Note: The volumes in SHILP are very thin and only those who are reading the blog live as soon as posted will get a chance to buy in the 40s, I personally will not mind buying this stock till the level of Rs 100 which leaves atleast 100% price appreciation prospect without over ambitious growth expectations, Though we always say one should not be chasing a stocks here we are clearly saying one can go for the chase.