Voith Paper

 

A: This is a paper company. It makes the products which are used for paper manufacturing. It is a 74% subsidiary of Voith Group of Germany. Now Voith Group has got worldwide sales of close to 5 billion euros and employees about more than 40,000 people and about 200 locations all across the world. Now it is said that one-third of world's paper production is carried out in machines which is made by Voith Paper. So it is a fairly large company specialized in the paper sector.

Coming to the Indian subsidiary, Voith Paper Fabric make industrial feel which are used for paper manufacturing. The primary customers for this company are the paper and cement sector. Now if you look at the financials of the company for FY09, the company achieved sales of about Rs 47 crore made a profit after tax of about Rs 7.11 crore. In the first six months, in fact the financial year for the company ends in the month of September upto March 2010, the company has managed sales of about Rs 26 crore, which is up by about 5% over the same period last year. The profit after tax is up by close to 38% to about Rs 4 crore.

If you look at the valuations of the company, at the current market price, the marketcap of the company is just about Rs 80-81 crore. It is a totally debt free company having cash in hand of close to Rs 42 crore which makes the enterprise value of the company at just about Rs 40 crore. So you have a multinational company available at enterprise value of Rs 40 crore. There are various possibilities which exist in this company. One is that in case Voith decides to expand their operations in India, they may introduce a number of other products for the Indian market which will definitely scale up the business of Voith Paper.

The other opportunity for the shareholders exists in the form of a possible delisting. In case the management decides to delist the share, it can lead to value accretion for the shareholders of the company. Now if these things do not happen, you still have a company which is growing at the reasonable rate and available at very attractive valuation of about enterprise value of just about Rs 40 crore and making a profit after tax of about Rs 8 crore every year and also paying dividends for the past 12 years, last year they paid a dividend of 40%.

So under the first scenario, in case they want to scale up the operations or in case they decide on the delisting then you may have big value created in Voith Paper. In the second scenario, the company decides to go the way they have been going for the past couple of years, grow at about 8-10-12% every year, you still have a company available at an enterprise value of Rs 40 crore and making profit after tax of about Rs 7-8 crore and also paying dividends on a regular basis. So that downside from these levels look extremely restricted upside would depend a lot upon the future course of action which the management wants to do with the company.