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Sunday, May 8, 2011

Mid Cap Stock To Buy - Paper Products Limited

Paper Products Limited is a Mumbai based leading consumer packaging company. It is a high dividend yield stock with very good fundamentals and growth. This is what makes it a mid cap stock to buy.

Paper Products Limited (PPL) is consumer packaging company with product offerings such as Flexible Packaging, Labeling Technologies, Specialized Cartons, Packaging Machines, Holographic Options, Gravure Cylinders, Polyethylene Films and Coated Materials. Offerings from company also includes decoration technologies that includes Shrink Sleeves, Heat Transfer Labels, Pressure Sensitive Labels, Metalized Paper and Wrap Around Labels. Products such that can act as inputs to finished packaging materials and may also be offered as stand-alone products that include gravure cylinders, high-barrier metalized films and co-extruded blown films.

Company has good set of clientele such as Britannia, Cadbury, Castrol, Coca-Cola, Dabur, Emami, Eveready, GSK, Godrej, Hindustan Unilever, ITC, Marico, Nestle, Pepsi, Perfetti, P&G, Tata Tea, TTK-LIG and Wipro. Paper Products limited has a joint venture since long time with the global packaging major, Huhtamaki Oyj that owns nearly 60% of its equity. Huhtamaki Group is Finland-based top 10 consumer packaging multinationals in world.

Growth Potential
Growth of the company is completely dependent on growth of consumer goods industry. Economic growth and rising personal disposable income are growth drivers for the consumer goods sector. This would create a very good growth potential for the future of the packaging industry. Paper Products Limited is looking for growth through expansion of capacities and increasing it's productivity.

Stock Valuation
Paper Products Limited has recorded annual CAGR growth of ~9% steadily for past few years. Earnings per share (EPS) has been on growing path continuously. EPS was Rs3.40 for FY08, Rs5.96 for FY09, Rs7.67 for FY10.

At current stock price of Rs70, the stock trades at P/E ratio of 10.4 for trailing four quarters earnings. It's dividend yield at current stock price stands at 3.11% which is good. It is a steady business with good growth potential. It is a consumer industry related business that links it to FMCG sector which is considered as less volatile business vertical.

To conclude, Paper Products Limited is a steadily growing, relatively safe stock that can fetch good returns over the long period of time with lesser risk. Long term investors may buy stocks of Paper Products around Rs.60 for steady growth of their investment portfolio. While considering it for your portfolio, do not forget this is a mid cap stock, so allocate appropriate portion (not more than 5%) of your total investment corpus.

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