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Research
Orient Paper and Industries - Respite in sight; Buy - Anand Rathi
Posted On : 2012-11-03 20:46:31( TIMEZONE : IST )
Lower-than-estimated profits in cement and paper segments dragged Orient Paper and Industries' (Orient) 2QFY13 profit below our estimates. Losses in paper increased, while electricals' PBIT declined 65% yoy due to launch expense of appliances business. Certified copy approving demerger of cement is expected soon. We retain a Buy.
- 20% overall yoy revenue growth. Revenue was higher 22%, 26% and 3% in cement, electricals and paper, respectively, yoy. PAT was down 20% yoy, led by cost pressure in cement and paper.
- Cement stressed; recovery in 2H. Cement realization rose 3% yoy (down 7% qoq) to Rs.3,600/ton. Volumes grew 18% yoy (down 2% qoq), to 1m tons. Owing to 8% yoy rise in per-ton cost, EBITDA/ton shrunk to Rs.725 (down Rs.105/ton yoy and Rs.405/ton qoq). The qoq drop was more pronounced due to lower realisations. We expect a recovery in 2HFY13, given better cement prices in Andhra Pradesh and Maharashtra in Oct'12.
- Paper, electrical profitability down. Losses in paper (Rs.250m) continued due to industry-wide issues of low realizations and higher RM prices. The new 55 MW plant is close to stabilization and should minimize losses in 2HFY13. Electricals revenues grew 26% yoy, driven by higher than industry growth in both fans and CFL and some revenues in appliances. Profitability was, however, under pressure due to initial launch expenses for appliance business. Orient expects to post normalized margins in 2HFY13.
- Key updates. The Orissa High Court has approved hive off of the cement division w.e.f 1 Apr'12. Certified copy received by the company had certain errors and a revised copy is expected soon. This will be followed by allotment of the company's shares and its subsequent listing. Debt as on Sep'12 is lower by Rs.1bn from Mar'12 levels due to repayments.
- Valuation. Our sum-of-parts target is Rs.102: Rs.88 for cement at 6x FY14 EV/EBITDA (EV/ton: US$75) and Rs.13/Rs.1 for electricals/ paper businesses at 5x and 3x EV/EBITDA. Risk. Lower paper production.
