Sirpur Paper

 

Actually for a lot of people who look at Sirpur from a P&L perspective there is no story. The company has not being doing well for the last couple of years and they have very erratic performance every since they expanded, ever since they modernised the mill. But Sirpur is not a P&L story as much as it is a balance sheet story. I say this very deliberately because you have a company, which is integrated pulp and paper, they have a capacity of nearly 1,38,000 tonne, replacement cost if you had to set up an entire plant from scratch with facility in place, I think it would cost you around Rs 2,000 crore. Sirpur today is available at market cap of just about Rs 75 crore. So I think it is more of a balance sheet story and a balance sheet perspective into Sirpur rather than a P&L perspective into Sirpur.

It is important to get into a P&L perspective some time or the other because at the end of the day whatever fundamentals you have must reflect in your earnings. I have a feeling that Sirpur, which is struggling to gets its capacity utilisation right, it is not that they are not producing paper, they are, they are just not getting up from a level from where your capacity utilisation starts translating into high margins. We are not at yet at that point.

I have a feeling that the management will sooner or later resolve this. The moment they do, you have a capacity of 350 tonne per day. The big money is as per Pareto's Law make only after you cross 300-310. They are not at 310-320, not on a consistent basis. I think the consistency will reflect hopeful over the next quarter. When it does I think the market capitalization will immediately correct itself because you are getting a plant with a replacement cost of Rs 2,000 crore at only Rs 75 crore and at time when paper is on an upswing. So I would back this penny stock in the paper industry a very-very long way.