Orient Paper & Industries - 430.00 Rs

Incorporated in 1936, Orient Paper & Industries Ltd (OPIL), flagship company of the renowned CK Birla Group is a diversified company having interest in papers, cement and electric fans.

CEMENT DIVISION:-
OPIL’s main cement plant is located at Devapur, Andhra Pradesh, and a split grinding unit in Jalgaon, Maharashtra, leveraging the proximity to limestone, coal and fly ash sources on the one hand and fast-growing markets of Maharashtra, Andhra Pradesh and Gujarat on the other. With total installed capacity of 2.40 million tonne, it manufactures and markets portland pozzolana cement under the brand 'BIRLA A1 and ordinary portland cement under the brand name of 'ORIENT GOLD'. Ironically, cement contributes 55% to total revenue but 90% of the company’s profit comes from this division only. Hence to take advantage of the market growth and success of its brands and distribution network, it is implementing aggressive expansion plan to double the cement capacity from 2.4 million to 5 million TPA. It is also setting up a 50 MW captive power plant at Devapur to achieve further economy in the cost of energy consumed. These projects are scheduled to be completed before end of the financial year 2008-09 with 1 million TPA additional capacity becoming operational before March 2008. Moreover the cement division has already received 96310 units of CERs for activities undertaken up to 31st March, 2006 and will be entitled to further CERs each year until 2012 based upon its performance under the CDM project.

PAPER DIVISION:-
OPIL manufactures a wide range of writing and printing paper specially photocopying and office paper category apart from having dominant market shares in tissue paper segment. Its paper mill is located at Amlai in M.P having an installed capacity of 95,000 TPA. To provide sustainability in raw material availability, the company has been undertaking farm-forestry programmes across 18 proximate districts of Madhya Pradesh and Chhattisgarh. It is also expected to cover over 160 hectares during the planting season of 2007 under captive plantation. For this division also company is enhancing its pulping capacity along with setting up of additional tissue paper capacity of 20000 tonnes to be operational during 2008-2009. The paper division contributes around 25% of total sales. Incidentally, its second plant in Orissa at Brajrajnagar is non operational since 1999 and company is looking to dispose it off. As per unconfirmed news, the plant size is 880 acres and is expected to fetch more than 150 cr.

ELECTRICAL APPLIANCES:-
OPIL is India’s largest manufacturer of electric fans in terms of in-house manufacturing capacity with its two plants at Kolkata and Faridabad having an installed capacity of 30 lakhs fans per year. It offers entire product chain including fans, portable fans and exhaust fans - across price points, colours and designs with its ‘ORIENT PSPO’ brand as one of the most visible and respected names. Last fiscal, it launched 7 new products including a new children's segment fan under the name ‘Fantoosh’. Having global presence across 20 nations such as USA, Egypt, South Africa, Saudi Arabia etc, company enjoys the status of being the largest fans exporter with a brand share of 44.5% of total exports from India. Although 20% revenue comes from this division, but it hardly contributes to bottomline due to cut throat competition and low margin. Still, company is adding balancing facilities to increase the fan manufacturing capacities to 35 lakhs fans per year.

To fund its expansion plan company is raising around 160 cr via right issue in the ratio of 3:10 @ 360 per share. Scrip has already become ex-right with equity getting diluted by 30% to 19.30 cr. For FY07 it recorded 30% growth in topline to 1102 cr but its net profit multiplied 6x times to 131 cr on back of higher cement price realization and better operating efficiency. Hence it reported an EPS of 88 Rs and gave 10 Rs dividend. Importantly, company has brought down its total debt to 325 cr against 435 cr last year. For the latest June’07 qtr its sales grew by 13% to 293 cr but PAT shot up by 75% to 44.50 cr registering an EPS of 30 Rs on equity of 14.84 cr. With cement price expected to remain robust for couple of years and considering company’s expansion plan it may end FY08 with sales of 1250 cr and PAT of 165 cr i.e. EPS of 86 Rs on expanded equity of 19.29 cr. Investors are recommended to accumulate at dips with a price target of 575 Rs (35% appreciation) in 9~12 months.