STOCK IDEAS - Orient paper & Industries Ltd

Company Name- Orient paper & Industries Ltd

 

BSE Code- 502420

 

NSE code – ORIENTPPR

 

Orient paper and Industries ltd (Orient) starting as a paper manufacturer has now diversified well into a multi product Multi location company. It has a strong presence and operates in three segments namely Paper, Cement and Fans. It manufactures wide range of writing, printing, Industrial and specialty Paper, while Orient Cement is a known brand. Its Fans have a unique place with brand PSPO being well recognized. All its segments have performed well and with growing demand Orient plans for capacity expansions to drive growth.

 

Business-

Incorporated in 1939 Orient a G P & C K Birla group company started with a single paper machine. From then on it has grown well adding capacities as well as diversifying businesses. Today of all its revenue segments of Paper, Cement and Fans, it is the cement which leads. Cement contributed 54 percent followed by Paper 24 percent and Fans 22 percent to its revenues.

 

Orient Paper mill plants are located at Amlai in Madhya Pradesh. Whereas Madhya Pradesh offers rich source for raw material it has fully integrated facilities for production of high strength pulp combined with reforestation. It has high speed paper machines and independent power generation units. It thereby manufactures variety of superior paper and boards.

 

On International front is successfully managing Pan African Paper Mills Ltd, Kenya in partnership with the Kenyan Government and the International Finance Corporation. It exports its wide variety of paper and Paper board from India to countries in Africa, Middle East as well as to neighboring countries of Bangladesh, Nepal and SriLanka.

 

Cement manufacturing units are located at Devapur in Adilabad district of Andhra Pradesh and a split grinding unit at Jalgaon in Maharashtra. It has capacities to manufacture 3.4 million tones of cement per annum. Its products include Orient6 Gold 53 grade cement, Orient 43 Grade cement and Birla-A 1 premium cement.

 

Orient fans with a present production capacity of 35 lakh fans per year produces a wide range of ceiling fans, Desk Fans, Wall-mounted fans, Pedestal Fans, Exhaust fans and multi-Utility Fans. Introduction of PSPO (peak speed performance output) – the cutting edge technology revolutionized the entire fans range and helped Orient become the second largest player in the Indian Fan Industry.

 

Investment Rationale-

 

This Millennium is the millennium of knowledge and thus need for paper is going to grow continuously. Demand for upstream markets of paper products like tissue paper is also growing. Orient is the largest player in the tissue paper segment with market share of 40 percent as on March 08. Present capacities of Tissue paper stand at 10,000 tones, which are being expanded. Additions of 16000 tones to capacities are being ramped up leading capacities to reach 26000 tones by March 2009.

 

Indian cement Industry is a second largest producer of cement in the world after China. It has installed capacity of around 200 million tones. To meet the expanding demand industry is poised to reach 241 MT of annual capacity by end of 2009-10 as per ICRA industry monitor. India's Cement Industry is likely to record an annual growth of 10 percent in the coming years with higher domestic demand. Companies in south and west are benefiting compared to peers focused on north, East and central India.

Demand has been sluggish from housing sector in present times in north and central India. However Strong demand situation continues in south because of infrastructure projects sponsored by the government and west has robust retail demand. With Interest rate cuts and other measures taken by government to provide impetus to the Industry and Infrastructure sector the demand situation is likely to grow. Cement Industry also got respite from spiraling input costs. Coking coal prices have softened and transportation costs have also reduced.

 

On raw material front Orient benefits from the Singareni Collaries which are its source of coal being located just 60 kms from its Devapur plant.

Orient has also ramped up its capacities from 2.4 MMT to 3.4 MMT in current fiscal year. This is undergoing further expansion. An addition Of 1.6 MMT to the capacities will lead overall capacities to reach 5.00 MMT by March 2009.

Thus with buoyant demand, reducing input costs and increasing capacities Orient is set to reap benefits.

 

Working on cost efficiencies Orient is setting up a captive power plant of 50 MW that is expected to become operational by March 2009. Besides works on reduction in carbon emissions is expected to benefit revenues to the tune of Rs 10.5 crores for FY09E.

 

Orient's Fan segment is growing well and is the second largest player in Fan Industry. At the end of first half it posted Rs 142.7 crores of revenues that grew 34 percent year 0n year.

 

Orient has rich land bank Of 850 acres at non operational Brijrajnagar plant that can be utilized for suitable purposes.

 

Concerns

Demand growth of cement depends on recovery of Infrastructure and manufacturing sector. Any new developments affecting these sectors will adversely impact demand for cement.

 

Valuations-

Orient reported an impressive topline of Rs 352.56 crores at the end of second quarter. Topline grew good 16.54 percent over last year same quarters Rs 302.52 crores. Cement volumes provided impetus. On half yearly basis cement volume grew robust 11 percent y-o-y. However increased input costs affected the operating margins that reduced to 22.05 percent. This along with growing depreciations and reduced other incomes led profit margins reduce to 12.81 percent. However reduction in input costs has provided respite to Orient. Thus margins are set to increase. With this the benefits of capacity expansions will accrue from FY10. Volumes are likely to increase driving revenues. Orient with attractive valuations is a good addition to portfolio with good medium to long run prospects.

 

	Q2	Annual	Annual E
	FY09	FY08	FY09E
Net sales	352.56	1295.78	1554.93
OP	77.74	340.63	373.18
PAT	45.16	204.48	217.69
Capital	19.28	19.27	19.27
EPS	2.33	11.90	11.30

 

Price	23.1	Date	3/1/2009
PE	2.0	P/BV	0.87
Book Value	26.60	EV	582.24
EV/EBIDTA	1.71	Mcap	442.94
		(rs.crore)

 

Shareholding	30-Sep-08
Promoter	36.64
FII	1.08
Public	14.64
Others	47.64
Total	100