By: Yawar Uz Zaman, Invest Capital Markets Ltd.
• Efficient management, the Purpose behind
• Production facility of Bulleh Shah Paper Mill
• Turnaround for PKGS ahead?
In today’s Value Seeker, we discuss the consideration of hiving down of Paper & Board and Corrugated business of Packages Ltd. into a 100% owned subsidiary Bulleh Shah Paper Mill Pvt. Limited against issue of shares in its 59th AGM held on April 30, 2012.
Efficient management, the purpose behind
Packages Ltd. is interested to hive off its Paper & Paperboard division as a separate business entity to manage efficiently. P&B division is highly capital intensive segment of PKGS which faced several challenges (High cost of raw material and energy) during CY11. The company had completed the rebuild project of PM-6 during CY11. With this capacity enhancement, the company is expected to further increase the production of high value added products of liquid packaging board and bleached board going forward. The competitiveness of P&B division was relatively low during CY11 due to increased consumption of high cost furnace oil because of non-availability of natural gas. Meanwhile, the writing and printing paper produced on (PM-7), faced unfair competition from imported paper which was available at low price. However, the performance of other division of the company which includes packaging and consumer products posted relatively better results.
Production facility of Bulleh Shah Paper Mill
Bulleh Shah Papermill is located near Kasur, Punjab with an installed production capacity of 300,000 tons per annum and capacity utilization of around 60%. The development works on production plant was completed in two phases, In first phase Brown Paper Machine PM-6 was installed during 2007, while the second phase was completed in 2009 with installation of writing and printing Paper machine PM-6. P&B division contributes 46% in total revenue and 71% of the total asset base of the company during 9MCY11. The major products manufactured by P&B division includes liquid packaging board, liner and fluting paper, white duplex board, white bleached board, writing & printing paper and photocopying paper for both internal and external usage. After separation from Packages Limited, Bulleh Shah Paper Mill will work as an independent private limited company.
Turnaround for PKGS ahead?
The expected outcome of this proposed separation is to exclusively focus on P&B market with the efficiently managing resources to make P&B division as a separate profitable entity. Therefore, we believe the separation of the P&B division (if accepted in AGM) will beneficial for PKGS as a whole, and Bulleh Shah Paper Mill in particular. However, on valuation perspective, the detailed accounts of PKGS for CY11 is yet to come. Therefore, after the incorporation of CY11 results, we will come up with the new TP for CY12.