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Orient Paper and Industries -High cement realisation improves margin…
Orient Paper reported net sales of | 438.4 crore and net profit of | 30.9
crore, which was higher than our respective estimates of | 401.1 crore and
| 18.9 crore. This was on account of higher than expected profitability
from cement and paper business. During the quarter, cement sales
increased ~7% YoY (~23% QoQ) to | 229 crore (our estimate: | 206.1
crore) aided by 24% YoY (29% QoQ) increase in realisation to | 2969 per
tonne. It also helped in a significant improvement of ~1752 bps QoQ in
the cement EBIT margin to 20.4% (our estimate: 15%). Paper business
reported EBIT margin of 2.7% (our estimate: -2%) implying EBIT of | 2.4
crore against incurring losses in the last seven quarters. The fan business
showed margin improvement of 66 bps YoY and 319 bps QoQ to 8.5%.
ƒ Cement volume declines 14% YoY; realisation improves 24% YoY
The company reported sales of | 228.6 crore in the cement segment in
Q3FY11, which increased by ~7% YoY and ~23% QoQ. This was on
account of improvement in realisation by ~24% YoY and ~29% QoQ
to | 2969 per tonne. However, the cement sales volume declined
~14% YoY and ~5% QoQ to 0.77 MT. The EBIT margin has improved
by ~1752 bps QoQ to 20.4%.
ƒ Paper business starts showing revival
At the EBIT level, the company has reported a profit of | 2.4 crore in
the paper segment during the quarter against incurring losses during
Q4FY09-Q2FY11. Sales from the segment increased ~23% YoY and
~29% QoQ to | 89.1 crore. The revival in the business was on account
of stabilisation of the Amlai unit, where the company was facing
production related issues due to destabilisation of the paper unit and
unavailability of water.
Valuation
At the CMP of | 50, the stock is trading at 9x and 5.9x its FY11E and FY12E
earnings, respectively. The stock is trading at an EV/EBITDA of 5.2x and 3.6x
FY11E and FY12E EBITDA, respectively. On an EV/tonne basis, the stock is
trading at $40 and $33 its FY11E and FY12E capacities, respectively. We are
valuing the cement business at $45 per tonne (64% discount to the current
replacement cost of $125 per tonne) at its FY12E capacity of 5 MTPA. We
are maintaining our BUY rating on the stock with a revised target price of |
59 per share.
Cement business
Net sales of the cement segment increased ~7% YoY to | 228.6 crore on
account of an improvement in realisation by ~24% YoY to | 2969 per
tonne. However, the sales volumes of cement declined ~14% YoY to 0.77
MT. Sequentially, net sales from the segment increased ~23% on the
back of ~29% increase in realisation. The cement volume has declined
~5% QoQ. The realisation improvement was on account of an increase in
cement prices during the quarter in the southern region, where the
company sells ~65% of its cement output. A drop in the cement volume
was on account of a demand slowdown in the region due to prolonged
monsoons and political issues in Andhra Pradesh.
Paper business
In the paper segment, the company reported sales of | 89.1 crore, which
increased ~23% YoY and ~29% QoQ. At the EBIT level, the company has
reported a profit of | 2.4 crore in Q3FY11 against losses during Q4FY09-
Q2FY11. The revival in the business was on account of stabilisation of the
Amlai unit, where the company was facing production related issues due
to destabilisation of the paper unit and unavailability of water.
For the full year FY11E, we expect the paper segment to report loss of |
20.9 crore at the EBIT level against sales of | 279.7 crore. However, we
expect the operating margin to improve in FY12E on account of an
increase in paper volumes on stabilisation of the units and increase in
paper prices. We have estimated an EBIT margin of 6.1% in FY12E, which
implies EBIT of | 19.6 crore against sales of | 320.1 crore.
Electrical business
Net sales from the electrical division increased ~43% YoY to | 120.7
crore in Q3FY11 on account of better realisation and increase in fan
volumes. Sequentially, net sales from the segment declined ~6%. At the
operating level, the company reported EBIT of | 10.3 crore during the
quarter, which is an increase of ~55% YoY and ~51% QoQ. The EBIT
margin has improved by 66 bps YoY and 319 bps QoQ to 8.5%.
For FY11E, we expect an EBIT margin of 7.3%, implying EBIT at | 38.1
crore against sales of | 523.6 crore. For FY12E, we expect sales of | 633.6
crore and EBIT of | 51.4 crore
Valuations
As cement realisations are expected to improve in FY12E coupled with an
increase in cement sales volume, we expect sales from the cement
segment to increase ~35% YoY in FY12E to of | 1317 crore. Also, with
expectations of a revival of the paper business and sustainable margins in
the fan business, we estimate net profits will increase by 53% YoY to |
164.4 crore in FY12E from | 107.2 crore in FY11E.
At the CMP of | 50, the stock is trading at 9x and 5.9x its FY11E and
FY12E earnings, respectively. The stock is trading at an EV/EBITDA of 5.2x
and 3.6x FY11E and FY12E EBITDA, respectively. On an EV/tonne basis,
the stock is trading at $40 and $33 its FY11E and FY12E capacities,
respectively. We have valued the cement business at $45 per tonne (64%
discount to the current replacement cost of $125 per tonne) at its FY12E
capacity of 5 MTPA. We are maintaining our BUY rating on the stock with
a revised target price of | 59
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Orient Paper and Industries -High cement realisation improves margin…
Orient Paper reported net sales of | 438.4 crore and net profit of | 30.9
crore, which was higher than our respective estimates of | 401.1 crore and
| 18.9 crore. This was on account of higher than expected profitability
from cement and paper business. During the quarter, cement sales
increased ~7% YoY (~23% QoQ) to | 229 crore (our estimate: | 206.1
crore) aided by 24% YoY (29% QoQ) increase in realisation to | 2969 per
tonne. It also helped in a significant improvement of ~1752 bps QoQ in
the cement EBIT margin to 20.4% (our estimate: 15%). Paper business
reported EBIT margin of 2.7% (our estimate: -2%) implying EBIT of | 2.4
crore against incurring losses in the last seven quarters. The fan business
showed margin improvement of 66 bps YoY and 319 bps QoQ to 8.5%.
ƒ Cement volume declines 14% YoY; realisation improves 24% YoY
The company reported sales of | 228.6 crore in the cement segment in
Q3FY11, which increased by ~7% YoY and ~23% QoQ. This was on
account of improvement in realisation by ~24% YoY and ~29% QoQ
to | 2969 per tonne. However, the cement sales volume declined
~14% YoY and ~5% QoQ to 0.77 MT. The EBIT margin has improved
by ~1752 bps QoQ to 20.4%.
ƒ Paper business starts showing revival
At the EBIT level, the company has reported a profit of | 2.4 crore in
the paper segment during the quarter against incurring losses during
Q4FY09-Q2FY11. Sales from the segment increased ~23% YoY and
~29% QoQ to | 89.1 crore. The revival in the business was on account
of stabilisation of the Amlai unit, where the company was facing
production related issues due to destabilisation of the paper unit and
unavailability of water.
Valuation
At the CMP of | 50, the stock is trading at 9x and 5.9x its FY11E and FY12E
earnings, respectively. The stock is trading at an EV/EBITDA of 5.2x and 3.6x
FY11E and FY12E EBITDA, respectively. On an EV/tonne basis, the stock is
trading at $40 and $33 its FY11E and FY12E capacities, respectively. We are
valuing the cement business at $45 per tonne (64% discount to the current
replacement cost of $125 per tonne) at its FY12E capacity of 5 MTPA. We
are maintaining our BUY rating on the stock with a revised target price of |
59 per share.
Cement business
Net sales of the cement segment increased ~7% YoY to | 228.6 crore on
account of an improvement in realisation by ~24% YoY to | 2969 per
tonne. However, the sales volumes of cement declined ~14% YoY to 0.77
MT. Sequentially, net sales from the segment increased ~23% on the
back of ~29% increase in realisation. The cement volume has declined
~5% QoQ. The realisation improvement was on account of an increase in
cement prices during the quarter in the southern region, where the
company sells ~65% of its cement output. A drop in the cement volume
was on account of a demand slowdown in the region due to prolonged
monsoons and political issues in Andhra Pradesh.
Paper business
In the paper segment, the company reported sales of | 89.1 crore, which
increased ~23% YoY and ~29% QoQ. At the EBIT level, the company has
reported a profit of | 2.4 crore in Q3FY11 against losses during Q4FY09-
Q2FY11. The revival in the business was on account of stabilisation of the
Amlai unit, where the company was facing production related issues due
to destabilisation of the paper unit and unavailability of water.
For the full year FY11E, we expect the paper segment to report loss of |
20.9 crore at the EBIT level against sales of | 279.7 crore. However, we
expect the operating margin to improve in FY12E on account of an
increase in paper volumes on stabilisation of the units and increase in
paper prices. We have estimated an EBIT margin of 6.1% in FY12E, which
implies EBIT of | 19.6 crore against sales of | 320.1 crore.
Electrical business
Net sales from the electrical division increased ~43% YoY to | 120.7
crore in Q3FY11 on account of better realisation and increase in fan
volumes. Sequentially, net sales from the segment declined ~6%. At the
operating level, the company reported EBIT of | 10.3 crore during the
quarter, which is an increase of ~55% YoY and ~51% QoQ. The EBIT
margin has improved by 66 bps YoY and 319 bps QoQ to 8.5%.
For FY11E, we expect an EBIT margin of 7.3%, implying EBIT at | 38.1
crore against sales of | 523.6 crore. For FY12E, we expect sales of | 633.6
crore and EBIT of | 51.4 crore
Valuations
As cement realisations are expected to improve in FY12E coupled with an
increase in cement sales volume, we expect sales from the cement
segment to increase ~35% YoY in FY12E to of | 1317 crore. Also, with
expectations of a revival of the paper business and sustainable margins in
the fan business, we estimate net profits will increase by 53% YoY to |
164.4 crore in FY12E from | 107.2 crore in FY11E.
At the CMP of | 50, the stock is trading at 9x and 5.9x its FY11E and
FY12E earnings, respectively. The stock is trading at an EV/EBITDA of 5.2x
and 3.6x FY11E and FY12E EBITDA, respectively. On an EV/tonne basis,
the stock is trading at $40 and $33 its FY11E and FY12E capacities,
respectively. We have valued the cement business at $45 per tonne (64%
discount to the current replacement cost of $125 per tonne) at its FY12E
capacity of 5 MTPA. We are maintaining our BUY rating on the stock with
a revised target price of | 59
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