Strong Buy Reco Of Huhtamaki India Ltd By SMIFS

A proxy play on domestic FMCG and Pharma consumption

Huhtamaki India Ltd. (HIL), is a leading provider of innovative and sustainable primary consumer flexible packaging and decorative labelling solutions, catering to food & beverages, home & personal care, healthcare and other speciality segments.

HIL offer unique pack designs and formats through a comprehensive portfolio of packaging solutions, including a) barrier and recyclable laminates, b) specialised pouching, such as shaped, 5 and 6 panel pouches, c) thermoforms, d) decorative labels, e) digitally printed laminates for pack personalisation and f) tube laminates.

Established in 1935 as The Paper Products Limited (PPL), HIL was later acquired by the Finland-based global food packaging major Huhtamäki Oyj in 1999, which currently owns ~66.94% in the company.

HIL employs 3675 people and has a pan-India presence with 18 manufacturing sites, 2 R&D centres and 5 sales offices.

We initiate coverage on HIL with a “Strong Buy” recommendation and a price target of Rs 407 over a period of 12-18 months, valuing the stock at PE of 15x on its CY22E EPS of Rs 27.2.

 Proxy play on FMCG and Pharma consumption: HIL’s volume is highly co-related with FMCG and Pharma sector (CY18 Volume Growth% at ~9%; In-line with growth reported by industry majors). Indian FMCG sector is expected to grow at a CAGR of ~15% to reach USD220 billion by 2025E. Covid-19 pandemic has lead to increase in demand for FMCG and Pharma products. We expect continued growth in demand for FMCG and Pharma, leading to increase in demand for flexible packaging.

 Focus on Innovation to improve margins: HIL offers range of innovative products with unique and customized offerings as per client needs. HIL has extended its role from just being a supplier to a major contributor in the growth of consumer products. The innovative products contributes ~25% to total sales (CY2018). HIL has focus on increasing share of premium innovative products, which will help to increase realizations and margins.

 Exports provide geographical diversification, higher margins: HIL derives ~20% of its revenues from exports to countries like, Africa, Middle East, SEA, North and South America, LATAM. HIL to focus on increasing export share, which is more lucrative , provides geographical diversification and natural forex hedge.

 Strong foot prints across the country: HIL has a pan-India presence with 18 state of the art manufacturing plants (installed capacity of ~1,58,000 MT) across the country. Many of them are strategically located near client’s manufacturing site, which facilitates quick turnaround, irrespective of logistical issues.