Orient Paper & Industries - Q4FY12 Result update - Centrum

Result above estimates, maintain Buy

Orient Paper & Industries' (OPIL) Q4FY12 result was above expectations with EBITDA at Rs1,460mn vs. est. Rs1,293mn, operating margin at 17.3% vs. est. 16.2% and profit at Rs864mn vs. est. Rs745mn. The reason for better-thanestimated performance was primarily driven by improved performance of the Electrical segment, which recorded 7.7% QoQ improvement in EBIT margin to 10.9% driven by higher sales volume (Q4 is seasonally best quarter for this segment). We remain positive on the company considering attractive valuations and expected increase in profit of the Electrical segment led by increase in fan and lighting sales volume. We maintain Buy on the company with target price of Rs76, which gives an upside of 37% from CMP.

- Strong revenue growth led by cement division: Revenue of the company increased 21%YoY to Rs8,424mn driven by 25.7% YoY revenue growth of the Cement segment and 18.6% YoY revenue growth of the electrical division. Cement division's improved run was due to 12.1% YoY improvement in sales volume to 1.11mt and 12.1% YoY growth in realization to Rs3,785/tonne. EBITDA of the company increased 11.9% YoY to Rs1,460mn; however, EBITDA margin declined 141bps YoY to 17.3% primarily due to a) 93bps YoY decline in Electrical segment's margin to 10.9%, b) 35bps YoY decline in Cement segment's margin and b) EBIT level loss of Rs103mn in the Paper segment against loss of Rs94mn in Q4FY11. Profit of the company increased 11.6% YoY to Rs864mn.

Higher realization and sales volume drives cement business' profits: On the back of 12.1% YoY increase in both realization and sales volume, revenue of the Cement segment increased 25.7% YoY to Rs4,201mn. EBIT of the segment increased 24.3% YoY to Rs1,287mn. However, EBIT margin declined 35bps YoY to 30.6% primarily due to an increase in energy and freight cost. However, on a sequential basis EBIT margin improved 6.3pp primarily due a) 13.4% QoQ volume growth and b) sequential decline in energy costs due to increased coal procurement from Singareni Coal mines. EBIT/tonne of the segment increased 10.9% YoY (and 35.4% QoQ) to Rs1,160.

- Improved performance of the Electrical segment: Revenue from the Electrical segment increased 18.6% YoY (and 131.3% QoQ) driven by improvement in fan and lighting sales volume. It is to note here that Q4 is seasonally best quarter for this segment. EBIT form this segment increased 9.2% YoY (and 7.9x QoQ) to Rs338mn and EBIT margin improved 7.7pp QoQ to 10.9%.

- Paper division's dismal show continues: Though the revenues from Paper division grew 11.8% YoY to Rs1,092mn, it continued to report EBIT level loss due to higher pulp prices and rise in coal costs. EBIT loss from the Paper division was Rs103mn in the quarter against a loss of Rs94mn in Q4FY11. The segment reported negative EBIT margin of - 9.4% against - 9.6% in Q4FY11.

- Earnings estimates revised upwards: We have revised EPS estimates upwards by 9.5% to Rs10 for FY13E and 5.5% to Rs11.4 for FY14E considering better realizations of Cement division in the quarter.

- Valuations attractive, maintain Buy: The stock trades at 4.9x FY13E EPS, 2.8x EV/EBIDTA, and EV/tonne of US$40.5. We maintain Buy on the stock with a price target of Rs76, upside of 37% from CMP.

Source : Equity Bulls

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