The Most Important Things per my understanding:
-
Business has no entry barriers: Oversupply [addition of new lines] is a norm as soon as industry sees good times [margin improvement as and when new capacity is consumed by the future growth.
-
Earnings are cyclical: Due to overcapacity most of the times and crude price linked raw material (RM) cost. Hence, margins are never stable and revenue growth remains unpredictable [finished good prices increase and decrease along with RM cost].
-
80% portfolio speciality: It’s an aspiration for many years and will remain so because additional capacity starts with commodity and slowly graduates towards speciality in order to become commodity in the long run. This requires non-stop capex to keep pace with the changing times [innovation/technology/sustainability/scale etc.]
-
Actual production capacity is ~75% of total paper capacity.
-
Payback period [basis Operating Profit] of up to 3.5 Yrs. motivates capex for new lines.
For anyone looking to buy the stock, it requires an immense timing element [Elevated PEs for all listed players, mainly due to stock price increase even when earnings look bad in a foreseeable future].
Subscribe To Our Free Newsletter |