Key concerns to keep in mind

• Debt has increased over past years and is expected to increase even more as the company keeps on expanding and taking on more capex. However we find it quite sustainable as Debt to equity currently stands at 0.46x.
• Promoter holding is less than 50%
• Promoters have pledged 85% of their holdings.
• All ideas are suggested for long term that is atleast 2-3 years. Business cycles take longer term peak when they hit trough.
• Some ideas will fail, no matter what. Therefore avoid overexposure to any stock in specific.
• And most important thing, markets can be very choppy therefore put only that money in markets which should not make a difference in case of loss.

Yash Pakka

Current Market price on the date of publishing this report-: 106 Rs.

Introduction

Incorporated in 1983 the company was set up as a paper manufacturing unit company gradually increase the capacity from 1940 per annum to 6000 turns per annum by 1992.

By 1991 YPL had established a strong presence over low grammage kraft market. In 1995 company set up power plant to produce electricity from steam. This power plant was fueled by rice husk— and now YPL is the only compostable tableware business in the world that supplies all our own energy from bio-fuel.

Later YPL started exporting the paper. It not only delivers its paper all over India, but also to happy customers all over the world. Apples in Iran, gyros in Greece, surgical Gloves in South Africa – all are wrapped using YPL’s paper. Today Company’s paper is exported to 30+ countries, used primarily as coloured bag paper for fruit and vegetable packaging.

Later on YPL evolved into a speciality grade paper for food and pharmaceutical products. Any sugar sachet at Cafe Coffee Day or eaten at McDonald’s would have used YPL’s paper.

In 2007 company set up a new modern pulp mill thereby doubling its capacity. Today YPL is the only pulp-2-product manufacturer in the world for compostable tableware.

In 2014 company started brand called CHUK.

Manufacturing Facility

The company’s manufacturing site is in Ayodhya, Uttar Pradesh, a major sugarcane belt. Its combined operations include:

• A pulp mill with a capacity of 130 TPD that produces both bleached and unbleached pulp grades
• 3 paper machines with a total capacity of 39,100 MTPA
• Two extraction-related power plants -cum- condensing turbines and FBC boilers based on rice husk
• A chemical recovery facility with a capacity of 145 MT.
• Capacity for 14-TPD moulded items over 11 lines

Yash Pakka was awarded Great Place to Work certification in 2021 and then again in 2022.

Thus today Yash pakka has 40+ partners and has its presence spread across 40+ countries all over the globe.

Business Products

Agriculture pulp

There is a plenty of agricultural fibre available. Instead of discarding or burning these remnants, the firm purchases sugarcane trash and pulps it. Our wet lap pulp is used to make specialty papers such as greaseproof, glassine, release base, parchment, tissues, and even moulded items.

Features of Bleached agro pulp are**:**

• Fully renewable resources
• 100% biodegradable
• Available in wet form
• Consistent quality
• Food grade

And its uses are:

• Paper making
• Tableware / moulded products
• Packaging mould
• Replacement of Styrofoam
• Growth media for Mushroom cultivations

Flexible packaging

Compostable flexible packaging is a difficult challenge since it requires an engineering technique. YPL Following more than 10 years of collaboration with experts from across the world, was finally able to develop a substrate that can efficiently perform the job for non-aromatic goods. These packets must preserve their contents from moisture and oxygen while also being biodegradable. This material is heat sealable and can be operated on typical conversion machines.

Food carry materials

The company makes all of its carry bags from agricultural waste acquired locally. They are FDA-approved and food-safe. The company’s paper has a natural sheen on one side, allowing brand’s printing to stand out. YPL has developed materials that are strong enough to handle the job after extensive R&D and over 40 years of trial and error. Its materials are now utilised for McDonald’s takeaway, food supermarket bags, bakery bags, Myntra e-commerce bags, and many more applications.

Molded food serviceware

Food may be served without providing a dosage of carcinogens and bleach with a variety of food service items derived from sugarcane pulp. The modular form of YPL allows users to save money while customers appreciate the distinctive look. YPL received the highest design honours from Red Dot Germany, Good Design Japan, India Design, and NCII.

CHUK BRAND

CHUK is an initiative cum brand launched by YPL which are compostable delivery containers. The company has already established itself in the compostable tableware space, with brands such as Haldiram’s, Bikanervala, Chaipoint, etc. relying on Chuk for their food service requirements. With the launch of delivery containers, the company aims to help check the use of single-use plastic for food delivery.

These are 100% compostable delivery containers which have been manufactured using bagasse – the agri-residue of sugarcane. About 90% of the raw material is sourced locally. Once discarded, the products turn into compost within 180 days.

The delivery containers are be available in four different sizes – 350 ml, 500 ml, 750 ml, and 1000 ml. They come with snug-fit lids, and are spill-proof and leak-proof. These are also microwavable, freezable, and ovenable. They are also free of artificial chemicals, making them food-safe, the company said.

The company said the delivery containers have already found some takers in brands such as Shri Mata Vaishno Devi Shrine Board, FabCafe, Salad Point, Greenit, and Basil Box. Chuk will also cater to quick service restaurants, cloud kitchens, and takeaway restaurants with its latest range.

Clients

Starbucks, Pizza Hut, KFC, Café Coffee Day, McDonald’s, Social, Flurys, Haldiram’s, Chai Point, Blinkit, etc.

Financials

For the year ended March 22

• Operative Revenue stood at 291 crs in FY22 on a consolidated basis. The Consolidated Profit after tax in FY22 was at 35 crs.
• Company’s revenue from operations increased by 58.49% YoY and net profit expanded by 128.46% YoY.
• Debt for the company stood at 94 crores.
• Company had cash and equivalents of 9 crs.
• ROCE stood at 26% for the company as of March 22.

For Q3 FY23

• Net Sales stood at Rs 114.88 crore in December 2022 up 46.39% from Rs. 78.47 crore in December 2021.
• Quarterly Net Profit stood at Rs. 14.18 crore in December 2022 up 66.66% from Rs. 8.51 crore in December 2021.
• EBITDA stood at Rs. 27.07 crore in December 2022 up 55.75% from Rs. 17.38 crore in December 2021.
• For the current quarter company achieved highest quarterly profit as well as revenue.

Management’s comments & future outlook

• Company is planning 210 MT expansion.
• Company is also close to finalization of new country and the new site.
• Company has created a separate subsidiary called tech, Pakka Impact Limited Which is focused completely on innovations and it is now setting up a lab in the IAC facility in Bangalore. It would be a state of the art lab for creating Compostable packaging materials.
• Management expects significant increase in the capacity over the next few quarters.
• As per the management company is on track for 2X the revenue growth of last fiscal as well as the Operational breakeven is also on cards.
• On various outsourcing front Bangalore site for delivery containers stable and output increasing, New site in Kolkata under trials: Slated to produce Chuk products in March and company is under negotiations for Overseas manufacturing partners – 3 sites with varying available.
• Management is committed on its international strategy, where they have begun to finalise overseas expansion and will be closing in on a site for a minimum 400 TPD bagasse pulp plant for producing similar products as manufactured in India.
• Management is also investing towards building more collaborations through rolling out GCAhub platform and building partnerships in the innovations domain for better bio-materials research.

Sectorial Outlook

As the food delivery industry grows, brands are looking for in packaging as there is a looming danger of an exponential increase in non-biodegradable waste as the commonly used materials for delivery are plastic, thermocol, aluminum, etc. The availability of effective alternatives to single-use plastic is also limited. Many companies are, however, working to find sustainable alternatives, the beneficiaries of which are restaurants, cafes, cloud kitchens, etc.

India produces about 3.4 million tonnes of plastic waste every year. Even if recycling is taken into account, only about 30% of all plastic waste is recycled. The online food delivery market in India is worth approximately $5 billion and is expected to grow to nearly $20 billion in the next five years, the company said citing various reports.

Conclusion

Yash Pakka is a 40-year-old firm that manufactures specialty packaging items and trades in specialty papers and moulded table wear products. The company’s business was severely harmed as a result of covid 19. Yet, after covid, the company’s revenue from operations climbed by 58.49% year on year, and net profit increased by 128.46% year on year. In addition, the company had the best quarterly revenue and net profit in q3fy23. As more businesses focus on decreasing plastic waste, their reliance on biodegradable products will increase. The Indian food sector is expected to grow significantly in the next years. YPL has a significant presence in the Indian market and is prepared to grow a significant market share of food serviceware. With the management’s ambitious development goals, “Chuk” is poised to benefit significantly in the next years. As a result, YPL is worth exploring.