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Orient Paper & Industries- Issuance of warrants will lead to equity
dilution
Orient Paper & Industries (OPIL) has allotted 12mn
warrants (6.22% of outstanding equity) to promoter
companies at a price of Rs57.25 each. These warrants
are convertible in equity shares of face value of Re1
within 18 months from the date of allotment. The issue
price of the warrant is 22.8% higher than the CMP and
reflects management’s confidence in the stock. This
would lead to a cash inflow of Rs687mn (25% now and
balance at the time of conversion) in the books of the
company. We maintain our Buy rating on the stock
given the attractive valuations and multiple re-rating
catalysts.
Issuance of warrants to result in equity dilution …: The
issuance of 12mn warrants, convertible into equity shares
of face value of Re1 each within a period of 18 months,
would lead to an equity dilution of 6.22% in FY13E.
… leading to lower diluted EPS: We expect the
diluted EPS of the company to be Rs7.44 in FY12E (5.6%
lower than our earlier estimate of Rs7.88) and Rs8.07 in
FY13E (5.2% lower than our earlier estimate of Rs8.51)
due to equity dilution.
Debt is expected to decline, going forward: We expect
the debt to decline to Rs5.23bn in FY12E and Rs3.97bn in
FY13E against Rs5.54bn in FY11E. Earlier, we were
expecting debt in the books to be Rs 5.44 bn in FY12E and
Rs 4.67 bn in FY13E.
Lower interest expenses due to debt repayment: We
expect the interest expense of the company to be
Rs355mn (earlier estimate: Rs361.7mn) in FY12E and
Rs303mn (earlier estimate: Rs 333.1 mn) in FY13E.
Key triggers for the stock: 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 for a power unit).
Valuations attractive, maintain Buy: The stock trades
at 5.8x FY13E EPS, 3.5x EV/EBIDTA, and EV/tonne of
US$39.1. In the light of attractive valuations and
multiple triggers, we maintain our Buy rating with a
target price of Rs75 against Rs73 earlier assigning
EV/tonne of US$70 to the cement business. We have
rolled forward our valuation multiple to FY13E from
FY12E
Key positives
The company had increased its capacity to 5 MT (increase of 47%) from 3.4 MT during FY10,
which will result in a volume CAGR of 9.3% for the period FY10-FY13E. We expect volume
growth to be 15.8% (3.72 MT) in FY11E, 6.9% (3.98 MT) in FY12E and 0.3% (3.99 MT) in FY13E.
50 MW captive power plants commissioned in FY10 will lead to savings in energy costs going
forward. We expect savings of Rs336mn on EBITDA levels due to commissioning of power
plants. This would translate to a PAT level savings of Rs113mn.
The paper division was facing water shortage issues due to which the plant was shut down for
81 days in FY10 and during Q1FY11E. The company has built 250mn gallons of reservoirs to
ease water shortage. We expect the utilization rate of this division to improve to 75% by
FY12E and 80% by FY13E against 49% in FY10 and 56% in FY11E. This division showed a sign
of turnaround in Q3FY11 and posted an EBIT of Rs24mn after losses in seven consecutive
quarters.
Electrical division has shown a robust growth of 41% in top line and 82% in EBIT during FY10
on account of 35% growth in electrical fans on account of value added products and growth
in newly launched CFL (Compact Fluorescent Lights). We expect revenues from this division to
increase at a CAGR of 11.3% and EBIT to increase at a CAGR of 9.5% during FY10-FY13E.
Attractive valuations; maintain Buy
At CMP of Rs46.6, the stock trades at 5.8x FY13E earnings, 3.5 x EV/EBIDTA and EV/tonne of
US$39.1. In the light of attractive valuations and multiple triggers, we maintain our Buy rating with
a target price of Rs75, valuing the cement business at US$70/ton, paper business at 0.4x FY13E
sales and electrical division at 2x FY13E EBITDA. At our target price, the stock would trade at 9.3x
FY13E earnings, 5.2x EV/EBIDTA and 1.3x P/BV and EV/Tonne of US$65.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Orient Paper & Industries- Issuance of warrants will lead to equity
dilution
Orient Paper & Industries (OPIL) has allotted 12mn
warrants (6.22% of outstanding equity) to promoter
companies at a price of Rs57.25 each. These warrants
are convertible in equity shares of face value of Re1
within 18 months from the date of allotment. The issue
price of the warrant is 22.8% higher than the CMP and
reflects management’s confidence in the stock. This
would lead to a cash inflow of Rs687mn (25% now and
balance at the time of conversion) in the books of the
company. We maintain our Buy rating on the stock
given the attractive valuations and multiple re-rating
catalysts.
Issuance of warrants to result in equity dilution …: The
issuance of 12mn warrants, convertible into equity shares
of face value of Re1 each within a period of 18 months,
would lead to an equity dilution of 6.22% in FY13E.
… leading to lower diluted EPS: We expect the
diluted EPS of the company to be Rs7.44 in FY12E (5.6%
lower than our earlier estimate of Rs7.88) and Rs8.07 in
FY13E (5.2% lower than our earlier estimate of Rs8.51)
due to equity dilution.
Debt is expected to decline, going forward: We expect
the debt to decline to Rs5.23bn in FY12E and Rs3.97bn in
FY13E against Rs5.54bn in FY11E. Earlier, we were
expecting debt in the books to be Rs 5.44 bn in FY12E and
Rs 4.67 bn in FY13E.
Lower interest expenses due to debt repayment: We
expect the interest expense of the company to be
Rs355mn (earlier estimate: Rs361.7mn) in FY12E and
Rs303mn (earlier estimate: Rs 333.1 mn) in FY13E.
Key triggers for the stock: 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 for a power unit).
Valuations attractive, maintain Buy: The stock trades
at 5.8x FY13E EPS, 3.5x EV/EBIDTA, and EV/tonne of
US$39.1. In the light of attractive valuations and
multiple triggers, we maintain our Buy rating with a
target price of Rs75 against Rs73 earlier assigning
EV/tonne of US$70 to the cement business. We have
rolled forward our valuation multiple to FY13E from
FY12E
Key positives
The company had increased its capacity to 5 MT (increase of 47%) from 3.4 MT during FY10,
which will result in a volume CAGR of 9.3% for the period FY10-FY13E. We expect volume
growth to be 15.8% (3.72 MT) in FY11E, 6.9% (3.98 MT) in FY12E and 0.3% (3.99 MT) in FY13E.
50 MW captive power plants commissioned in FY10 will lead to savings in energy costs going
forward. We expect savings of Rs336mn on EBITDA levels due to commissioning of power
plants. This would translate to a PAT level savings of Rs113mn.
The paper division was facing water shortage issues due to which the plant was shut down for
81 days in FY10 and during Q1FY11E. The company has built 250mn gallons of reservoirs to
ease water shortage. We expect the utilization rate of this division to improve to 75% by
FY12E and 80% by FY13E against 49% in FY10 and 56% in FY11E. This division showed a sign
of turnaround in Q3FY11 and posted an EBIT of Rs24mn after losses in seven consecutive
quarters.
Electrical division has shown a robust growth of 41% in top line and 82% in EBIT during FY10
on account of 35% growth in electrical fans on account of value added products and growth
in newly launched CFL (Compact Fluorescent Lights). We expect revenues from this division to
increase at a CAGR of 11.3% and EBIT to increase at a CAGR of 9.5% during FY10-FY13E.
Attractive valuations; maintain Buy
At CMP of Rs46.6, the stock trades at 5.8x FY13E earnings, 3.5 x EV/EBIDTA and EV/tonne of
US$39.1. In the light of attractive valuations and multiple triggers, we maintain our Buy rating with
a target price of Rs75, valuing the cement business at US$70/ton, paper business at 0.4x FY13E
sales and electrical division at 2x FY13E EBITDA. At our target price, the stock would trade at 9.3x
FY13E earnings, 5.2x EV/EBIDTA and 1.3x P/BV and EV/Tonne of US$65.
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