CMP- 142

Market Cap- 1,400 cr

Industry- Paper Manufacturing

Business Overview

Satia Industries Limited (SIL), is one of the largest Wood and Agro-based paper manufacturers in India. SIL was incorporated by Dr. Ajay Satia in 1980. The company started producing paper in 1984 with a tiny capacity of 4,950 MT per annum. Over the years, as the company grew its manufacturing operations.

The plant facility is located in Muktsar, Punjab. This belt is considered to be the wheat belt of Punjab which has abundant availability of wheat straw, wood chips, and veneer waste. 

SIL supplies 50% of its production to State textbook boards with the balance sold in the open market through pan-India network of 80+ dealers.

The company successfully commissioned their Paper Machine 4 (PM4) in February, 2022 and with the augmentation of PM4, the total installed capacity is elevated to 205,000 MTPA from 1,05,000 MTPA.

The Narrative

Revenue Model

Supplies to State boards: 40-50% of Revenues

• SIL supplies high quality watermark paper to various state text-book boards.

• Consolidated demand from all Text-books board is approximately 5,00,000 TPA of paper. By    supplying ~50-55k TPA to various state boards, SIL boasts of a 10-12% market share in this vertical.

• The State text-book orders are tender driven business funded under ‘Sarva Shiksha Abhiyaan’ of Govt. of India and payment cycle averages in range of 45-60 days.

• Orders from text-book boards command higher operating margins as compared to open market, attributing to higher GSM and less finishing loss due to single size and more fillers in the paper.

Open market supplies:50-60% of Revenues

• SIL supplies to retail traders through its strong Pan-India distribution network of 70+ dealers and 3 sales office located in Delhi, Chandigarh & Jaipur.

• A variety of paper grades are manufactured for this vertical such as exercise book paper, snow white paper, SS Maplitho paper, Ledger paper, copier paper, colour printing paper and paper cup stock introduced recently.

Sustainable Environmental Initiatives

• SIL has 540 acres of eucalyptus plantations (leased & partly owned), developed as per Karnal Technology, which consumes total treated water discharge.

• The plantation not only gives multi-fold benefits one the Karnal Technology & two raw material for future requirements. All effluents are treated with best standards & nothing is discharged into State water bodies.

Fully Integrated & Self Sustainable Facility

Raw Material: SIL has developed inbuilt flexibility and sufficient capacityto make pulp using all three types of raw materials.

1. Agricultural Residues (Wheat Straw and Sarkanda)

2. Wood chips/veneer waste

3. Waste paper and pulp substitutes

The plant facility is located in Muktsar, Punjab. This belt is considered to be the wheat belt of Punjab which has abundant availability of wheat straw, wood chips, and veneer waste.

• 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.

Power Generation: Total power requirement for current operations is 20-21 MWs i.e. approx. 5,00,000 units per day.

• SIL has invested and achieved self-sufficiency in power over a period of time, by establishing cogeneration power plants based on biomass as its fuel. SIL has 4 turbines with total capacity of 41.95 MW

Rice husk is being used as fuel and is abundantly available at a competitive price in the area. In its new boiler, SIL proposes to use rice straw, waste cotton sticks and mustard straw available at half the cost of rice husk.

Benefits: cost saving and income generation significant reduction in fuel costs: SIL’s power unit costs around 2 per unit whereas, withdrawing power from the grid would costs approx 7.50 /unit

Additional income generation: SIL has managed to consistently generate additional income of  10cr p.a. by way of trading of RECs on the power exchange.

Value Added Segment & E- Commerce boom

• SIL has also entered in a formal association with Zume, a US-based global brand in sourcing of packaging products used for meal boxes, beverages and face masks, etc. The expected average realization is expected to be between 250 -300 per kg, which is higher compared to non-value added realization at 55-65 per kg.

• SIL has installed two Table cutlery machines with an annual capacity of plus 2,400 MTPA. The erection and installation work is in progress and production are expected to begin by the end of current quarter- Q1 FY21.

• The management estimates a peak revenue of 60 cr from this new vertical on a full year basis, post commercialization of the project on full scale. With in-house pulping capacity and low cost power generation, the EBIDTA margin is estimated to be in the range of 35%-40% from Paper Cups & Cutlery Segment.

• SIL is also exploring opportunities in manufacturing specialised food packaging (pizza box) and bio-degradable table cutlery, which finds market with players like Dominos, Swiggy, Zomato etc.

Doubling Capacity & Diversified Products

•Volume Expansion: SIL currently has 3 machines with a total installed capacity of 1,05,000 MTPA. This is expected to double (2,05,000 TPA) by Q3 of FY22. The capex is ready & commissioned. 

The diversified product portfolio include: Super snow white paper, Snow white paper, Maplitho paper, Coloured paper, Ledger paper, Cartridge paper, Bond paper, Duplicating paper & Copier paper. These products are extensively used in printing of books, directories, envelopes, diaries, calendars, computer stationery, copier papers, annual reports and high-grade printing segment for domestic as well as exports.

The Numbers

P&L Consistent improvement in Operating Margins over last 5 years. In spite of COVID19 which were the worst 2 years for paper sector.

Revenues over same period has moved 3x since 2018, taking advantage of operating leverage, massive cost saving initiatives in fuel & power cost & value added products PAT has moved up a whopping 8x in last 5 years.

Cashflows One of the best cash conversion cycles (CFO/EBIDTA) in the industry, an impressive 85-90% plus in the past 5 years. One of a rare sights we can find in Paper Industry.

SATIA INDUSTRIES has doubled capacity from 1lac to 2.05 lac ton in last 3 years. Gross block has more than doubled showing impressive revenue visibility in next 3 years.

Its interesting to note, in spite of such a massive capex the company hasn’t significant taken on debt & leveraged its balance sheet. With existing inflow of cash flows & no capex in next 3 years. Satia can pare down its debt in the next 3-4 years.


Recipe for a winner

New Initiatives & Value Added- Foray into E commerce, Paper Cutlery & online food ordering even from a low base can add significant delta to bottom line & command higher premiums vs peers.

Capacity Expansion– Capacity doubled & commercial production started.

Attractive Valuation- FY24-25 we expect SATIA to clock 1700-1800 cr revenues at 17-18% operating margins ie 300 cr EBIDTA & 10% PAT margin.

We expecting significant de leveraging to happen over next 3-4 years. At 1,400cr market cap SATIA is available at an attractive 7x EV/EBIDTA (not factoring in debt payment which can trigger a significant re rating)


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