Orient Paper & Industries Ltd - Rs 18.00

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 (60%):- 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 current installed capacity of 3.40 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 60% to total revenue but more than 90% of the company’s profit comes from this division only. Incidentally, company cement division is amongst the most cost-efficient units in the country with one of the highest EBIDTA percentage. Hence to take advantage of the market growth and success of its brands and distribution network, company is in the midst of further augmenting its capacity to 5 million TPA by April 2009. As demand supply situation for cement is favorable in Maharashtra and Andhra Pradesh, cement prices are expected to remain stable with no substantial correction. It is also setting up a 50 MW captive power plant at Devapur plant to achieve further economy in the cost of energy consumed. This is also expected to become operational by April 2009. Meanwhile, last year company generated more than Rs 10 cr on sale of 107353 units of CERs and is entitled to get similar CERs each year until 2012 based upon its performance under the CDM project.

· PAPER DIVISION (20%):- OPIL manufactures a wide range of writing and printing paper specially photocopying and office paper category apart from being a market leader in tissue paper with more than 40% market share. Its paper mill is located at Amlai in M.P having an installed capacity of 95,000 TPA. Notably, the demand for tissue paper is growing at around 15% per year and to meet this rising demand, company is expanding its tissue paper manufacturing capacity from current 10,000 TPA to 30,000 TPA by April 2009. To provide sustainability in raw material availability, the company has been undertaking farm-forestry programmes across 18 proximate districts of Madhya Pradesh and Chhattisgarh. Last year it assisted 4500 farmers to plant 5 lac clonal plants and 128 lac seed rooted plants in a land area of over 5000 hectares. It recently constructed sixth mist chamber is contemplating to further build two more mist chambers to double the clonal propagation capacity to 20 lac seedlings. Oh the other hand, its second plant in Orissa at Brajrajnagar which is spread across 850 acres is non operational since 1999. If disposed off it can fetch revenue of Rs 100 cr.

· ELECTRICAL APPLIANCES (20%):- 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 35 lakhs fans per year. Having a market share of over 17% in the organized sector, 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. Having global presence across 20 nations such as USA, Egypt, South Africa, Saudi Arabia etc, company enjoys the status of being the largest exporter of fans from India. Interestingly, company has expanded its product range by launching lighting products in few states from Feb 2008 and intends to gradually expand its reach across the country. In the meantime, it is setting up a modern manufacturing facility for Compact Fluorescent Lamps at its Faridabad plant.

To summarize, OPIL is implementing a total capex of around Rs 800 cr for all its expansion plan. Out of this company raised Rs 160 cr thru right issue in the ratio of 3:10 @ 360 per share. The balance amount will be funded thru internal cash generation and a minor debt from bank, if required. Importantly, in the last two years company has repaid most of its loan and has significantly brought down its total debt to Rs 165 cr from Rs 435 cr in 2006. As a result, it has a very healthy debt equity ratio of 1: 0.16 as at 31st March 2008. Due to sharp rise in input cost of coal, metals, chemicals, wood pulp etc, OPIL has reported dismissal performance for H1FY09. But with the recent sharp fall in the price of all these raw materials, OPIL may clock a turnover of Rs 1350 cr and PAT of Rs 150 cr for FY09. This leads to an EPS of Rs 8 on equity of Rs 19.30 cr having face value as Rs 1/- per share. As company is available fairly cheap at an EV of Rs 525 cr, investors are recommended to buy at current levels for a price target of Rs 30 in 9~12 months.

Click here to download Report (PDF)