Introduction
As part of this blog, I share where I have invested my savings in the last quarter. Q3 FY2017–18 will end by this month. While researching for investment ideas in this bull run, I found one pretty cheaply priced and nice quality packaging multinational company’s stock, Huhtamaki PPL. Huhtamaki PPL is an Indian subsidiary of Huhtamaki Oyj, Finland. Huhtamaki Oyj is the specialist and one of the top manufacturer of packaging products globally.
Huhtamaki PPL’s history dates back to 1935. It started the production as “Paper Products Ltd.” In last 80 years, company expanded at multiple locations in India. Since 2011, the parent company is investing significant amount in packaging businesses in India in the form of inorganic growth. Huhtamaki PPL has 14 manufacturing plants in India. It also started new plants in this year in North-Eastern states of Sikkim and Assam. This makes pan-India presence for customers with flexible packaging materials.
Business model
Huhtamaki PPL provides aesthetic and sustainable packaging for FMCG and Pharmaceuticals companies across the country. It has many products in its portfolio. Looking at the portfolio of packaging solution, I strongly believe that Huhtamaki PPL touches lives of every Indian. That’s the reason, Huhtamaki PPL can be described as simple and awesome business.
This company derives most of the revenues (96–98%) from FMCG sector. The key clients include Britannia, Cadbury, Castrol, Coca Cola, Dabur, Emami, Eveready, GSK, Godrej, Hindustan Unilever, ITC, Marico, Nestle, Pepsi, Perfetti, P&G, Tata Tea, TTK-LIG, Wipro etc. 80% of the revenue is derived from domestic market while 20% is derived from exports. This company has presence across 4 continents (South Asia, Africa, Middle East and Central America) catering 50 clients.
Let’s do SWOT analysis for Huhtamaki PPL.
Strengths
- Huhtamaki PPL enjoys a unique client base in FMCG sector. All these companies are doing really good in the market because of deep penetration of them. Hence, it is continuous stream of revenues for Huhtamaki PPL.
- While FMCG sector has direct association with spending power of population of the country. Considering inflation cooling off since 2014, the increased spending power is set to rise. So, packaging industry is going to be stable for considerable amount of time.
- Superior technology and strong parental support provides competitive advantage.
Weaknesses
- Any slowdown in FMCG and pharmaceuticals industry will affect this company as the company is dependent on these two sectors for revenue.
- Company has done expansions (organic and inorganic) in last few years. This may result into rise in debt.
Opportunities
- Strategic acquisitions of Positive packaging : This company was a competitor to Huhtamaki PPL. This acquisition will push market penetration.
- Capacity expansion in North-East areas is going to boost the revenue and profits.
Threats
- 60% of revenue is generated from 10 clients only. The growth prospect can be hampered in case of untoward business incidences.
- Competition from unorganized players may hamper profits.
Management quality
68.8% of the company is owned by its parent subsidiary. The management could grow this company to multi-billion dollar company over the period. I believe this management is hungry to make expansion in Indian market. It pays consistent dividend over last 5 years. The strong promoter’s holdings enhances confidence of minority shareholders. The management had a clear vision for the company. ( You can watch Video.)
Investment rationale
Given the huge size of India and improved standard of living of people, FMCG sector poised to make lot of money. To cater to such humongous demand, packaging businesses like Huhtamaki PPL are certainly going to thrive.
Additionally, major stake in this subsidiary is held by parent company. That means, this company can provide niche technology and lot of investment to its Indian subsidiary. This is going to augur well for the company in the long term. Management of the company is awesome, hungry for the expansion and shareholder friendly. Unique products and deep market penetration is going to help company make profits in the long run.
I bought shares at Rs. 243 on an average price. The share was trading at P/E < 20. It has moved ahead of Rs. 300 within 2 months. So, the company’s stock was cheap, company has debt under its control and making profits. I strongly believe that if an investor has long term holding period for this company, this company can give very good returns and dividends.
References
- http://www.moneycontrol.com/
- http://www.huhtamaki.com/web/flexible-packaging-india#/
- Annual reports from 2012 through 2016.
- Management’s presentations
Call to action
If you like the article, please share and comment. Next stock will be shared in the month of Feb-2018. So, please stay tuned. Happy New Year 2018 to all of you.
Disclaimer
Investment in equity market is subject to risk. Please analyze annual reports carefully. Views expressed in this article are personal. Views should not be treated as recommendations to buy or to sell stock.
Originally published in https://medium.com/@cpaithane/huhtamaki-ppl-this-mnc-has-an-awesome-story-to-tell-6cf725b8ff3f
