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Stellar performance, maintain Buy
Orient Paper & Industries (OPIL) reported higher-than
expected Q3FY11 results led by strong recovery in
cement business and better performance of its electrical
division. Blended realization/tonne of cement increased
22.8% YoY against our expectations of 8.2% YoY
increase, which resulted in much higher EBIT of Rs 466
mn from this division against our expectations of Rs 280
mn. We are introducing FY13E financials for the
company wherein we expect 11% YoY growth in profits
over FY12E. Considering the attractive valuations and
strong recovery in cement business, we maintain Buy
recommendation on the stock with a target price of Rs
76 (upside of 54.5% from its CMP).
Results above expectations: EBITDA and PAT
increased 10.1% YoY to Rs 741mn and 2.5% YoY to Rs
309 mn, ahead of our estimates by 30.5% and 35.2%,
respectively. Strong 22.8% YoY growth in cement
division’s blended realization/tonne resulted in EBIT of
Rs 466 mn from this division against our estimates of Rs
280 mn.
Sharp turnaround in paper division: Revenues from
the paper division increased 22.6% YoY and 28.9% QoQ
to Rs 891 mn. This segment posted an EBIT of Rs 24 mn
after suffering losses for seven consecutive quarters.
EBIT margin of the paper segment was up 430 bps YoY
and 759 bps QoQ to 2.7%.
Valuation attractive, maintain Buy: The stock trades
at 5.5x FY12E EPS, 3.7x EV/EBIDTA, and EV/tonne of
US$44.5. In the light of attractive valuations and
multiple triggers, we maintain a Buy, with a target price
of Rs76 assigning EV/tonne of US$70 to the cement
business.
Q3FY11 result above estimates
OPIL posted higher revenue than our expectation due to 8.9% and 21% higher than anticipated
revenues in cement and electricals segments respectively. The paper division’s revenue was Rs
891 mn against our expectation of Rs 825 mn. The electrical division’s revenue was at Rs 1,189
mn against our expectation of Rs 983 mn. The cement division’s revenue at Rs 2,286 mn was
8.9% above our estimates of Rs 2,102 mn. EBITDA at Rs 741 mn was 30.5% above our estimates
due to stellar performance of the cement business. Cement business’ EBIT at Rs 466 mn was
66% above our estimates of Rs 280 mn.
Q3FY11 result review
Net sales improved 18.5% YoY to Rs 4,384 mn driven by an increase of 40.6% in electrical
business’ revenue, 22.6% YoY increase in paper business’ revenue and 7.4% YoY increase in
cement business’ revenues. Cement division’s revenue grew 7.4% YoY and 22.9% QoQ to Rs
2,286 mn. Blended realization of cement increased 22.8% YoY and 27.1% QoQ to Rs
2,920/tonne. Sales volume was down 12.5% YoY and 3.3% QoQ to 0.78 MT. EBITDA increased
10.1% YoY and 294.7% QoQ to Rs 741 mn driven by an increase in cement realizations. EBITDA
margin declined 129 bps YoY to 16.9% due to increase in raw material, freight and other
expenses. On a sequential basis, there was an improvement of 1200 bps in EBITDA margin.
Depreciation was up 27.1% YoY to Rs 208 mn. PAT increased by 2.5% YoY and 228.6% QoQ to
Rs 309 mn. PAT margin declined 110 bps YoY to 7%, however, on a sequential basis, there was
an improvement of 692 bps.
Segmental Results
Cement division: - Steep increase in realizations leads to strong sequential recovery
Revenue from the cement division increased 7.4% YoY and 22.9% QoQ to Rs 2,286 mn. Total
despatches during the quarter were down 12.5% YoY and 3.3% QoQ to 0.78 MT. Blended
realizations per tonne increased by 22.8% YoY and 27.1% QoQ to Rs 2,920 per tonne. EBIT from
the cement division declined 6% YoY to Rs 466 mn (up 769.6% QoQ). EBIT margins declined 291
bps YoY to 20.4%. EBIT/tonne of cement improved 7.5% YoY and 799.6% QoQ to Rs 595.7.
Electricals division
Revenue from the Electrical Consumer Durables division increased by 40.6% YoY to Rs 1,189
mn; however, there was a QoQ decline of 5.9%. EBIT from the division increased by 51.1% YoY
and 51.3% QoQ to Rs 100 mn. EBIT margins from this division improved 59 bps YoY and 319 bps
QoQ to 8.4%.
Paper division
Revenue from the paper division increased 22.6% YoY and 28.9% QoQ to Rs 891 mn due to
better monsoons which resulted in improved water supply. The paper division reported a profit
of Rs 24 mn against a loss of Rs 11 mn in Q3FY10 and Rs 34 mn in Q2FY11. As expected, this
division has shown an EBIT profit after posting losses for the last seven quarters. The
Brajrajnagar unit, which is closed due to operational issues, reported an EBIT loss of Rs 11.7 mn
against Rs 17.5 mn in Q3FY10.
Paper and electrical businesses to continue posting better results
The paper business has shown signs of revival and reported EBIT of Rs 24 mn against a loss of Rs
11 mn in Q3FY10 and Rs 34 mn in Q2FY11. This division has been posting EBIT losses for the last
seven quarters due to water shortage. The plant was shut down for 81 days in FY10, which
impacted the performance and resulted in EBIT loss of Rs 431 mn. In Q1FY11, EBIT loss from this
division was Rs 233 mn, which had declined to Rs 34 mn in Q2FY11. The paper segment’s
performance is expected to improve, as OPIL has constructed two reservoirs of 250 million
gallons aggregate capacity to ease water shortage.
OPIL’s electrical division’s performance improved during the quarter with topline growing by
40.6% YoY to Rs1,189 mn. EBIT increased 51.1% YoY and 51.3% QoQ to Rs 100 mn, with margins
improving 59 bps YoY and 319 bps QoQ to 8.4%. We expect the margins of this segment to
improve going forward (when the major sale season starts) by passing on the cost hike to
customers.
Multiple triggers ahead
Catalysts for re-rating the stock include: robust growth in electrical business on the back of
strong brand, turnaround in paper business and value unlocking from the Brajrajnagar asset
(850 acres of land at a defunct paper mill, where the management is planning a power unit).
Attractive valuations; maintain Buy
At the CMP of Rs 49.4, the stock trades at 5.5x FY12E earnings, 3.7 x EV/EBIDTA and EV/tonne of
US$44.5. In the light of attractive valuations and multiple triggers, we maintain a Buy with a
target price of Rs76, valuing the cement business at US$70/ton, paper business at 0.4x FY12E
sales and electrical division at 2.5x FY12E EBITDA. At our target price, the stock would trade at
8.5x FY12E earnings, 4.4x EV/EBIDTA and 1.5x P/BV.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Stellar performance, maintain Buy
Orient Paper & Industries (OPIL) reported higher-than
expected Q3FY11 results led by strong recovery in
cement business and better performance of its electrical
division. Blended realization/tonne of cement increased
22.8% YoY against our expectations of 8.2% YoY
increase, which resulted in much higher EBIT of Rs 466
mn from this division against our expectations of Rs 280
mn. We are introducing FY13E financials for the
company wherein we expect 11% YoY growth in profits
over FY12E. Considering the attractive valuations and
strong recovery in cement business, we maintain Buy
recommendation on the stock with a target price of Rs
76 (upside of 54.5% from its CMP).
Results above expectations: EBITDA and PAT
increased 10.1% YoY to Rs 741mn and 2.5% YoY to Rs
309 mn, ahead of our estimates by 30.5% and 35.2%,
respectively. Strong 22.8% YoY growth in cement
division’s blended realization/tonne resulted in EBIT of
Rs 466 mn from this division against our estimates of Rs
280 mn.
Sharp turnaround in paper division: Revenues from
the paper division increased 22.6% YoY and 28.9% QoQ
to Rs 891 mn. This segment posted an EBIT of Rs 24 mn
after suffering losses for seven consecutive quarters.
EBIT margin of the paper segment was up 430 bps YoY
and 759 bps QoQ to 2.7%.
Valuation attractive, maintain Buy: The stock trades
at 5.5x FY12E EPS, 3.7x EV/EBIDTA, and EV/tonne of
US$44.5. In the light of attractive valuations and
multiple triggers, we maintain a Buy, with a target price
of Rs76 assigning EV/tonne of US$70 to the cement
business.
Q3FY11 result above estimates
OPIL posted higher revenue than our expectation due to 8.9% and 21% higher than anticipated
revenues in cement and electricals segments respectively. The paper division’s revenue was Rs
891 mn against our expectation of Rs 825 mn. The electrical division’s revenue was at Rs 1,189
mn against our expectation of Rs 983 mn. The cement division’s revenue at Rs 2,286 mn was
8.9% above our estimates of Rs 2,102 mn. EBITDA at Rs 741 mn was 30.5% above our estimates
due to stellar performance of the cement business. Cement business’ EBIT at Rs 466 mn was
66% above our estimates of Rs 280 mn.
Q3FY11 result review
Net sales improved 18.5% YoY to Rs 4,384 mn driven by an increase of 40.6% in electrical
business’ revenue, 22.6% YoY increase in paper business’ revenue and 7.4% YoY increase in
cement business’ revenues. Cement division’s revenue grew 7.4% YoY and 22.9% QoQ to Rs
2,286 mn. Blended realization of cement increased 22.8% YoY and 27.1% QoQ to Rs
2,920/tonne. Sales volume was down 12.5% YoY and 3.3% QoQ to 0.78 MT. EBITDA increased
10.1% YoY and 294.7% QoQ to Rs 741 mn driven by an increase in cement realizations. EBITDA
margin declined 129 bps YoY to 16.9% due to increase in raw material, freight and other
expenses. On a sequential basis, there was an improvement of 1200 bps in EBITDA margin.
Depreciation was up 27.1% YoY to Rs 208 mn. PAT increased by 2.5% YoY and 228.6% QoQ to
Rs 309 mn. PAT margin declined 110 bps YoY to 7%, however, on a sequential basis, there was
an improvement of 692 bps.
Segmental Results
Cement division: - Steep increase in realizations leads to strong sequential recovery
Revenue from the cement division increased 7.4% YoY and 22.9% QoQ to Rs 2,286 mn. Total
despatches during the quarter were down 12.5% YoY and 3.3% QoQ to 0.78 MT. Blended
realizations per tonne increased by 22.8% YoY and 27.1% QoQ to Rs 2,920 per tonne. EBIT from
the cement division declined 6% YoY to Rs 466 mn (up 769.6% QoQ). EBIT margins declined 291
bps YoY to 20.4%. EBIT/tonne of cement improved 7.5% YoY and 799.6% QoQ to Rs 595.7.
Electricals division
Revenue from the Electrical Consumer Durables division increased by 40.6% YoY to Rs 1,189
mn; however, there was a QoQ decline of 5.9%. EBIT from the division increased by 51.1% YoY
and 51.3% QoQ to Rs 100 mn. EBIT margins from this division improved 59 bps YoY and 319 bps
QoQ to 8.4%.
Paper division
Revenue from the paper division increased 22.6% YoY and 28.9% QoQ to Rs 891 mn due to
better monsoons which resulted in improved water supply. The paper division reported a profit
of Rs 24 mn against a loss of Rs 11 mn in Q3FY10 and Rs 34 mn in Q2FY11. As expected, this
division has shown an EBIT profit after posting losses for the last seven quarters. The
Brajrajnagar unit, which is closed due to operational issues, reported an EBIT loss of Rs 11.7 mn
against Rs 17.5 mn in Q3FY10.
Paper and electrical businesses to continue posting better results
The paper business has shown signs of revival and reported EBIT of Rs 24 mn against a loss of Rs
11 mn in Q3FY10 and Rs 34 mn in Q2FY11. This division has been posting EBIT losses for the last
seven quarters due to water shortage. The plant was shut down for 81 days in FY10, which
impacted the performance and resulted in EBIT loss of Rs 431 mn. In Q1FY11, EBIT loss from this
division was Rs 233 mn, which had declined to Rs 34 mn in Q2FY11. The paper segment’s
performance is expected to improve, as OPIL has constructed two reservoirs of 250 million
gallons aggregate capacity to ease water shortage.
OPIL’s electrical division’s performance improved during the quarter with topline growing by
40.6% YoY to Rs1,189 mn. EBIT increased 51.1% YoY and 51.3% QoQ to Rs 100 mn, with margins
improving 59 bps YoY and 319 bps QoQ to 8.4%. We expect the margins of this segment to
improve going forward (when the major sale season starts) by passing on the cost hike to
customers.
Multiple triggers ahead
Catalysts for re-rating the stock include: robust growth in electrical business on the back of
strong brand, turnaround in paper business and value unlocking from the Brajrajnagar asset
(850 acres of land at a defunct paper mill, where the management is planning a power unit).
Attractive valuations; maintain Buy
At the CMP of Rs 49.4, the stock trades at 5.5x FY12E earnings, 3.7 x EV/EBIDTA and EV/tonne of
US$44.5. In the light of attractive valuations and multiple triggers, we maintain a Buy with a
target price of Rs76, valuing the cement business at US$70/ton, paper business at 0.4x FY12E
sales and electrical division at 2.5x FY12E EBITDA. At our target price, the stock would trade at
8.5x FY12E earnings, 4.4x EV/EBIDTA and 1.5x P/BV.
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