The Power of Optionality at a Bargain Price: Investing in Creative Graphics
Investment thesis behind a market leader with diversified revenue streams and untapped potential
In investing, few concepts are as powerful as optionality—the ability to capitalize on multiple growth opportunities from a single investment. Optionality allows businesses to pivot, scale, and innovate, unlocking exponential value in the process. However, this potential only translates into outsized returns when paired with prudent investing principles. One of the most important is buying at a reasonable price, particularly when sentiment-driven mispricing creates an opportunity to enter a promising company at a steep discount.
Creative Graphics Solutions India Limited (Creative Graphics) fits this narrative perfectly. After debuting on the NSE SME platform in early 2024 with an IPO that was oversubscribed 200 times, the stock price has since fallen 40-50% from its highs. This offers a golden opportunity for discerning investors to acquire a leader in the flexographic printing and pharmaceutical packaging industries at an attractive valuation. Let’s dive into the investment thesis.
Creative Graphics is India’s largest manufacturer of flexographic plates—essential tools for the fast-growing packaging sector, driven by sustainability and efficiency. Beyond flexography, the company is expanding aggressively into pharmaceutical packaging through its subsidiary, Wahren India, in addition to providing design services via CG Premedia. These segments add layers of optionality, creating a diversified revenue mix. Let’s explore each of these segments in detail.
Flexography: Revolutionizing the Packaging Industry
Before diving into Creative Graphics’ approach, let’s first understand what flexography is. Flexography, or "flexo," is a versatile and efficient printing process that uses flexible relief plates to imprint on a wide range of materials, including paper, plastic, metal foils, and corrugated cardboard. This method has become the preferred choice for industries like packaging, labelling, and consumer goods due to its adaptability and cost-effectiveness.
Flexography offers distinct advantages over traditional printing methods like offset and gravure:
Eco-Friendliness: It uses water-based and UV-curable inks, which are non-toxic and dry quickly, making it suitable for food and pharmaceutical packaging.
Efficiency and Speed: The process supports high-speed printing, significantly reducing production time while maintaining consistent quality.
Material Versatility: Flexo can print on both rigid and flexible materials, ranging from paper to stretchable films, enabling innovative packaging solutions.
Cost-Effectiveness: Due to faster setup times and lower ink consumption, flexography reduces overall production costs without compromising on output quality.
Flexography at Creative Graphics
Creative Graphics Solutions is the leading player in India's flexographic printing plate industry, leveraging cutting-edge technologies like the Kodak Flexcel NX system. This advanced technology enhances precision, reduces waste by 20%, and increases plate capacity to accommodate larger formats. The company’s focus on automation and AI-driven error reduction ensures superior output and scalability. Its extensive end-use client base includes industry giants like Unilever, PepsiCo, and Tata Chemicals, showcasing its strong market position.
Currently in India, Flexography constitutes about 18-20% of the print medium market Vs. a global average of 50-60%. However, going forward Flexography’s adoption is expected to surge as it is more environment friendly. From April 1, 2025 Govt of India has mandated use to recycled content in flexible packaging, which again should lead to higher use of flexographic printing.
With capacity utilization currently at 50-60%, the company has significant room for organic growth without the need for substantial capital expenditure. This segment is poised for sustained expansion as Creative Graphics continues to attract marquee clients and expand its export footprint.
Medicine Packaging: Wahren's Competitive Advantage
Wahren India, a wholly-owned subsidiary of Creative Graphics, is quickly becoming a leader in pharmaceutical packaging. Launched in 2023, the division has emerged as a game-changer by combining operational efficiency with cutting-edge technology, focusing on high-value packaging solutions like Alu Alu foils. These foils play a critical role in extending the shelf life of medicines and combating counterfeit drugs—a significant challenge in India, where an estimated 10-30% of branded drugs are counterfeit.
Why Wahren Has a Right to Win
Wahren’s success is fueled by several key advantages:
Anti-Counterfeit Technology: By integrating security features into its packaging, Wahren offers an essential solution for pharmaceutical companies dealing with counterfeiting issues. This gives Wahren a competitive edge in securing long-term partnerships.
Strategic Client Relationships: Wahren already serves over 230 clients, including major domestic players like Cadila, Zydus, and Ajanta Pharma. Facility audits have been completed with potential clients such as Sun Pharma, Lupin, and Alkem, paving the way for future contracts.
Export Readiness: Wahren has already participated in expos in Jordan, Dubai, and Russia, and with international markets in its sights, exports are expected to significantly contribute to its revenue mix in the coming years.
Wahren reached breakeven within its first year, showcasing its operational efficiency. The company has already achieved 50% capacity utilization of its 8,000-tonne production capacity and is on track to expand to 20,000 tonnes annually by FY25. With such scalability, Wahren is well-positioned for substantial growth, and the market opportunity is so large that the company could easily 5x its enhanced scale over the next five years.
While the CG Premedia business offers value, its scale and significance are relatively smaller compared to the other segments, so we are not focusing on it in this post.
New Optionality: PVDC Line Acquisition
In a strategic move to expand its pharmaceutical packaging business, Creative Graphics recently acquired a PVDC line at a highly competitive price through an NCLT process. The company paid only Rs 2.6Cr for a capacity of 8000 tonnes. This acquisition is expected to add significant value, with the PVDC line projected to generate a turnover of ₹200-250 crore annually at company level margins. The company will compete the acquisition in FY25 itself with commercialisation in FY26. The clientele for this segment is expected to overlap significantly with the company’s existing pharmaceutical clients, creating synergy and enhancing cross-selling opportunities. This new addition solidifies Creative Graphics' position as a leader in the high-growth pharmaceutical packaging space while unlocking another lucrative revenue stream.
Other Optionality and Valuation
Creative Graphics Solutions is well-capitalized, with over 75% of its IPO proceeds still unutilized, providing ample resources to explore strategic inorganic acquisition opportunities that could further accelerate growth. The company in its PPT mentioned evaluating opportunities in synergetic products in Wahren line of business. PVDC and PVC layers in pharma can even be bigger opportunity than alu-alu foil. Even without factoring in inorganic growth, we believe the company presents a compelling investment case. Based on our FY27 projections, prepared with conservative assumptions and not accounting for PVDC business, the stock is trading at less than 10x PE, a significant discount to its intrinsic value. This valuation offers a rare opportunity to invest in a high-growth, industry-leading player with a diversified portfolio, robust financials, and strong growth drivers across its business verticals.
Important Note and Disclaimer: The above note was shared with our clients in December 2024 and the price metrics given in the note pertain to the stock price at that point of time. Please note that this note is shared only for the education purpose and in no way, it constitutes any buying or selling recommendation.
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