It is not difficult to understand that why even an ardent value investor like Radhakishan Damani is willing to pay 80 times earnings for Snowman Logistics. The reason is sheer potential that he sees in logistics sector in light of the current E-commerce boom (Flikpkart’s “billion” sale!!!). Now being a superinvestor, our objective to search for the next sunrise sector. And investments of superinvestors like Damani point us to a particular direction. Going by Damani’s direction, we at Superinvestors of India believe that Paper and Pulp sector in India is going to be one such sunrise sector.
Currently, the sector’s complexion is just like that of logistics’ one year ago. There are not lot of companies in the sector with deep pockets but have huge potential to be great investments once they come in the purview of insitiutional investors.
This is the reason that US’ International Paper bought 75% stake in Andhra Pradesh Paper in 2010 for $250M and they are doubling down on this investment. We have already drilled down on more such opportunities and one of them we really like is Ruchira Papers.
Ruchira is a typical free cash flow generator trading half of its book value and diligently reducing debt. Juicy dividend yield of 5% provides a good cushion against any downside. TTM P/E is 4. A business which is generating annual net profits of Rs.15 crore is being valued at Rs.50 crores. Not that’s what we call a Ben Graham kid waiting for adoption! Not surprisingly, promoters are hiking their stake for last 12 months. They have increased their holding by 6% through open market purchases. We can go on and on to convince you about why this is a great investment but we don’t need to because we want you to do your own research and decide. It’s your money. We can only direct you to the right direction.
superinvestors of india 
What happens after they run out of excise duty exemption in HP? Won’t all of that duty they need to pay directly hit the profits? I have a small holding in this stock, but this is the worry for me.
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Hi NR,
That is a very good question and a valid concern. Our team did consider that and we believe that the excise duty expiration in 2018 is not a big concern considering more than 50% reduction in Ruchira’s debt in last 5 years. This will greatly reduce the annual interest cost (which we are already seeing) and thus protect company from future loss of subsidies. Below are the major exemptions to Ruchira from HP and as you can see some of the subsidies are already gone whereas some are permanent ones. Also, with 5% dividend yield and 0.5X book value, there is enough margin of safety. Good Luck!
1. 100% excise duty exemption upto June 09, 2013 subject to Government notifications issued from time to time for Kraft unit. Also 100% excise exemption for Ten Years from 30.03.2008 for Writing & Printing Unit.
2. 100% income tax exemption for first five years with effect from Assessment year 2008-09 and there after 30% exemption for next five years.
3. Concessional rates of central sales tax at 1% against 2% in other states.
4. Capital Investment subsidy @ 15 % of investment in Plant and Machinery, subject to a ceiling of Rs. 30 Lacs.
5. Power Tariff in Himachal Pradesh is cheaper comparatively than neighboring states.
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