Tamil Nadu Newsprint & Papers - Stellar performance - Elara Capital

Higher volume and realisation drive topline growth

The company has reported sales volume growth of 17.5% YoY (sold 86,728tonnes of paper in Q1FY14) and net realisation growth of 12% YoY (net paper realisation - 49,245 per tonne in Q1FY14). Consequent of above facts and higher sale of notebooks (~INR660mn in Q1FY14 vs miniscule) has led to sales impetus of ~53% YoY . Finished stock was at 12,250 tonnes in Q1FY14 vs 18,000 tonnes in Q1FY13. The company has taken price hike of more than INR 5,000/ tonne over the year to make up for jump in chemical and wood prices. Domestic sales volume was up 23.5% YoY however exports declined 7.6%.

Higher sales of notebooks and RM cost diminishes margin

The higher sales of notebooks and raw material cost have dragged down EBITDA margin by 138bps YoY to 20.9% against our estimate of 21.8%. The wood cost in the quarter was up ~15% YoY to 4,250 per tonne. But for notebook sales, EBITDA margin would have shown contraction merely by 60-70 bps YoY. The lower coal price has helped to reduce power & fuel cost by 12.3%. Company has reported net profit of INR 321.8mn in Q1FY14 - way beyond our expectation; riding on better than expected sales growth and lower interest cost. Backward integration of de-inking pulp (replace high cost imports) is likely to boost margins majorly in Q3FY14.The plant is on trial run and will be commissioned in September 2013.

Maintain Buy rating with target price of INR155

The company has started reaping the benefits of expanded paper capacity, as vindicated by Q1FY14 numbers. We maintain view of healthy earnings growth going forward on the back of backward integration. The stock is available at attractive valuation of EV/EBITDA of 4x FY14E with dividend yield of 5.7%. We maintain Buy rating on the stock with target price of INR 155.

Source : Equity Bulls

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