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As per management, near-term margins are under pressure as domestic realizations
are down 4% over the past three months. Margins should pick up over the next 1-2
quarters, as captive pulp capacities start to kick in from Oct 11. By Jun’12, BILT will
be self-reliant for pulp and new capacities will drive US$100-150/ton savings vs.
imported pulp. BILT raised paper prices by 4% in Sep and is raising them again in
Oct, which will also aid margins. Domestic demand is on track, with volume growing
10%-12%. The ban on plastic packaging for guthka (scented chewing tobacco) has
opened up a new segment for coated paper demand, which BILT is capitalizing on.
Near-term pressure on margins on account of about 4% correction in domestic
paper realizations as well as a correction in prices for rayon grade pulp from
Rs64,000/ton to Rs54,000/ton (BILT has a dedicated rayon grade pulp plant). Pulp
prices are down from US$700/ton to US$600/ton, but will not mitigate entire
margin pressure, given BILT’s captive pulp in India.
Margins should start to pick up over next 1-2 quarters: Sabah pulp plant
(+120K tons to 240K tons) will be commissioned by end Oct ’11, and the pulp
plant in Maharashra (+150K tons to 270K tons) by Jun ’12. This will make BILT
self-reliant for pulp. Management expects savings of US$100-US$150 per ton vs.
imported pulp over a cycle. In addition, BILT recently increased coated paper
prices by 4% and is seeking another 4% hike this month, which will aid margins.
Domestic volume growth on track: Management noted that demand for W&P
paper in India is growing at 10%-12%. In FY12, BILT expects to produce 0.9MM
ton of paper, vs 0.85MM tons last year. Ban on plastic packaging for guthka has
opened up a new segment for coated paper. BILT is looking to supply about
50,000 tons to this segment and expects better-than-average realizations.
Valuation, price target and risks: BILT stock is trading at 6.3x/5.1x
FY12E/FY13E P/E and at 0.5xFY12E P/BV, which makes it one of the cheapest
paper stocks in the world. We expect ROE to improve from 10% in FY11 to 13%
by FY14E, as captive pulp kicks in. Maintain OW, with a Mar-12 PT of Rs50
based on 10xFY13E P/E. Key risks include demand slowdown, delay in capacity
expansion and decline in paper prices.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
As per management, near-term margins are under pressure as domestic realizations
are down 4% over the past three months. Margins should pick up over the next 1-2
quarters, as captive pulp capacities start to kick in from Oct 11. By Jun’12, BILT will
be self-reliant for pulp and new capacities will drive US$100-150/ton savings vs.
imported pulp. BILT raised paper prices by 4% in Sep and is raising them again in
Oct, which will also aid margins. Domestic demand is on track, with volume growing
10%-12%. The ban on plastic packaging for guthka (scented chewing tobacco) has
opened up a new segment for coated paper demand, which BILT is capitalizing on.
Near-term pressure on margins on account of about 4% correction in domestic
paper realizations as well as a correction in prices for rayon grade pulp from
Rs64,000/ton to Rs54,000/ton (BILT has a dedicated rayon grade pulp plant). Pulp
prices are down from US$700/ton to US$600/ton, but will not mitigate entire
margin pressure, given BILT’s captive pulp in India.
Margins should start to pick up over next 1-2 quarters: Sabah pulp plant
(+120K tons to 240K tons) will be commissioned by end Oct ’11, and the pulp
plant in Maharashra (+150K tons to 270K tons) by Jun ’12. This will make BILT
self-reliant for pulp. Management expects savings of US$100-US$150 per ton vs.
imported pulp over a cycle. In addition, BILT recently increased coated paper
prices by 4% and is seeking another 4% hike this month, which will aid margins.
Domestic volume growth on track: Management noted that demand for W&P
paper in India is growing at 10%-12%. In FY12, BILT expects to produce 0.9MM
ton of paper, vs 0.85MM tons last year. Ban on plastic packaging for guthka has
opened up a new segment for coated paper. BILT is looking to supply about
50,000 tons to this segment and expects better-than-average realizations.
Valuation, price target and risks: BILT stock is trading at 6.3x/5.1x
FY12E/FY13E P/E and at 0.5xFY12E P/BV, which makes it one of the cheapest
paper stocks in the world. We expect ROE to improve from 10% in FY11 to 13%
by FY14E, as captive pulp kicks in. Maintain OW, with a Mar-12 PT of Rs50
based on 10xFY13E P/E. Key risks include demand slowdown, delay in capacity
expansion and decline in paper prices.
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