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Research
Orient Paper & Ind. - Result above estimates, maintain Buy - Centrum
Posted On : 2012-02-02 11:59:13( TIMEZONE : IST )
Orient Paper & Industries' (OPIL) Q3FY12 result was above expectations with Revenue at Rs5,757mn (est. Rs5,396mn), EBITDA at Rs892mn (est. Rs774mn), operating margin at 15.5% (est. 14.3%) and profits at Rs424mn (est. Rs358mn). The reason for higher-than-estimated Revenue and EBITDA was higher cement sales volume of 0.98mt against estimated 0.92mt. We remain positive on the company considering attractive valuations and expected increase in profits of the Electricals segment led by higher revenues. We maintain Buy on the company with a target price of Rs70, which gives an upside of 38% from the CMP.
Strong revenue growth led by cement division: Revenues of the company increased 31.3% YoY To Rs5,757mn driven by 50.9% YoY revenue growth of the cement segment. Cement division's stellar run was due to significant 25% YoY improvement in sales volume to 0.98mt and 20.7% YoY growth in realization to Rs3,525/tonne. Higher sales volume was due to increase in sales volume in the Maharastra region. EBITDA of the company increased 20.4% YoY to Rs892mn; however, EBITDA margin declined 141bps YoY to 15.5% primarily due to a) 526bps YoY decline in Electrical segment's margin to 3.2% and b) EBIT level loss of Rs153mn in the Paper segment against profit of Rs24mn in Q3FY11. Profit of the company increased 27.2% YoY to Rs424mn.
increase in realization and 25% YoY growth in sales volume, revenue of the cement segment increased 50.9% YoY to Rs3,451mn. EBIT of the segment increased 79.8% YoY to Rs839mn. EBIT margin improved 309bps YoY (and 510bps QoQ) to 24.3%. Sequential improvement in margin was on the back of a) 17.8% QoQ volume growth and b) lower energy costs in the quarter as coal production in Singareni coal mines stabilized after the strike by employees in Q2FY12. EBIT/tonne of the segment increased 43.9% YoY (and 26.7% QoQ) to Rs857.
Margins of Electrical division under pressure: Despite 13% YoY increase in revenues of the Electrical division, EBIT declined significantly by 57.5% YoY to Rs43mn mainly due to cost pressures. Revenue growth of the segment was driven by 3% YoY increase in Fan sales volume and 19% YoY increase in Lighting volume. EBIT margin of the division declined 526bps YoY to 3.2% due to a rise in input costs and Rs79mn incurred on a new initiative which is expected to yield substantial long term investments as per the management. During 9MFY12, EBIT margin of this division stands at 4.3% vs. 6.9% in 9MFY11. For FY12E, we believe that margins will be at 7% vs. 8.9% in FY11 as Q4 is seasonally the strongest quarter for this segment.
Paper division's dismal show continues: Though the revenue from paper division grew 5.7% YoY to Rs941mn, it reported an EBIT loss of Rs153mn against profit of Rs24mn in Q3FY11 due to higher pulp prices and rise in coal costs. The segment reported negative EBIT margin of -16.2% against 2.7% in Q3FY11.
Valuations attractive, maintain Buy: The stock trades at 5.6x FY13E EPS, 3.5x EV/EBIDTA, and EV/tonne of US$42.3. We maintain Buy on the stock with price target of Rs70.
