Brief India: India’s Paper Industry Ready for a Hangover? and more

In this briefing:

1. India’s Paper Industry Ready for a Hangover?
2. Bharat Hotels Pre-IPO – Catching up with Peers
3. Zee Entertainment- Present Mess Seems to Be of Short Term in Nature
4. Farm Loan Waiver: Tractors an Anonymous Beneficiary

1. India’s Paper Industry Ready for a Hangover?

We recently met a second-generation entrepreneur, operating in the paper industry for over two decades dealing with companies in India, UAE, China, Egypt, Turkey, Europe, South Korea & African countries.  The discussion was aimed at understanding the key trends that have shaped the paper Industry in India and China for the last two years in order to answer the question: will the dream run in stock prices continue? Our discussions are focused on Jk Paper Ltd (CPM IN) , West Coast Paper Mills (WCPM IN) & International Paper Appm (IPAP IN) along with possible implications for Nine Dragons Paper (2689 HK) covered by David Lepper & Nicolas Van Broekhoven. 

We maintain a cautious to negative view on the sector, we shall review our stance on the Industry post Q3 earnings releases. We would like to endorse the long view on Nine Dragons Paper (2689 HK)

2. Bharat Hotels Pre-IPO – Catching up with Peers

Bharat Hotels (BHOT IN) plans to raise around US$150m in its Indian IPO in order to pay down debt. The company owns and operates 12 luxury hotels under “The LaLiT” brand and two mid-market hotels under “The LaLiT Traveller” brand. 

BH has been reporting a steady improvement in operations led by a pick-up in occupancy levels. This has resulted in 30% EBITDA CAGR over FY14-18. 

However, only three out of its 12 hotels seem to be performing consistently and have been increasing their contribution to EBITDA, which was at 76% by FY18. In addition, a comparison with its peer group seems to imply that the company still has some more catching up to do.

3. Zee Entertainment- Present Mess Seems to Be of Short Term in Nature

Zee Entertainment Enterprises (ZIN) in the last two trading sessions has corrected by almost 13% over an allegation by a media house that has suggested a link of the Essel Group, the parent company with a firm that is being probed by Serious Fraud Investigation Office over deposits worth Rs. 32 bn during demonetization.

However, the company has denied any link with the firm and has blamed some “negative forces” that are behind the fall to hinder the strategic sale of Zee Entertainment, the crown jewel of the group, so that the parent, Essel group can reduce the debt burden that has accumulated over the years due to some bad calls.

We provide the details in this report.

4. Farm Loan Waiver: Tractors an Anonymous Beneficiary

Farm loan waivers have been a key driver in the pre-election polls as well as 2019 Lok Sabha polls. Apart from monsoons, the overall agriculture sector is affected by any incentive from the government such as farm loan waivers, infrastructure creation, or other initiatives taken for increasing income of small and marginal farmers.

Farm loan waivers not only impact the banks and financial institutions but also have a major influence on the revenue of various agricultural related industries. One such impact can be seen in the sales of tractors. It has been historically seen that whenever there is an announcement of incentivizing the income of farmers like the farm loan waiver, there has been an uptick in the demand of tractors.