Orient Paper & Industries-Cement division hurts profitability: Emkay

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Orient Paper & Industries

Cement division hurts profitability

BUY

CMP: Rs 65                                       Target Price: Rs 77

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n     Net profit at Rs5mn (-98.8% yoy) below estimates, led by poor performance of cement division. Revenues at Rs4.25bn (+8%), electricals (+26%) & Paper division (+15%)

n     Though EBITDA declined by 74%, led by 91% decline in cement EBIT, paper division surprised positively, showing signs of turnaround. Electricals margins saw dip of 658 bps to 5.2%

n     Downgrade earnings by 11.9% for FY11 (EPS of Rs6.5) and 6.8% for FY12(EPS of Rs8.8) led by lower cement realizations and margin pressure in electricals segment

n     OPIL on the verge of earnings recovery led by recent cement price hikes in its key markets and turnaround of paper division. Upgrading TP to Rs77 by rolling over to FY12 nos

Revenues grow by 8% - revenues from Electricals segment grow 26%

Revenues for the quarter at Rs4.25bn grew by 11.1% yoy, driven by 26% and 15%

growth in electricals (Rs1.26 bn) and Paper division (Rs0.69bn) respectively. Cement

revenue declined by 3.3% to Rs 1.26bn as 31% growth in volumes was negated by

26.2% decline in cement realizations. Revenues from the paper division reported a

growth of 15% as the Amlai paper plant, which was shutdown last quarter due to acute

water shortage, started production post monsoon and is expected to see full recovery by

Q4FY11.

EBIDTA decline by 73.6% led by 91% decline in cement EBIT

EBIDTA for the quarter at Rs188 mn , registered a decline of 73.6%yoy, below

estimates (Rs398 mn) on account of lower than expected profit from cement division

(Rs54 mn v/s est of Rs303 mn - down 91.2%). Overall EBIDTA margins at 4.9% eroded

by a massive 1524bps yoy and 1135bps qoq. Margins of electricals division declined

658 bps to 5.2% Though paper division still continues to report losses, the performance

was better than our expectation estimates (Rs34mn vs est of Rs122mn) as the Amlai

paper plant production has started post monsoon. We are positively surprised by earlier

than expected production ramp up of the segment and as guided by the management

the division is expected to see full recovery by Q4FY11.

Net profit nosedives 98.8%

Dragged by lower profitability from cement division and electricals segment, OPIL’s net

profit at Rs 4.98mn (-98.8%% yoy and -98%qoq) came in below estimates (Rs105 mn).

Interest charges increased 4.7% whereas depreciation increased by 83.4% yoy.