Orient Paper & Industries Ltd - Rs 45.00

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. Its 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 has aggressively expanded its capacity in the last couple of years. With an installed capacity of 2.40 million ton in FY07, company added 1 million ton of capacity in FY08 and another 1.60 million ton in FY09 thereby taking the total cement production capacity to 5.0 million ton. However the latter 1.60 million ton enhanced capacity is expected to begin commercial production shortly. As demand supply situation for cement is favorable in Maharashtra and Andhra Pradesh, cement prices are holding stable although they may see some correction in 2010 as several Greenfield projects are expected to go on stream in next one year. Thus to maintain its margin in future as well, OPIL has taken initiatives to reduce its cost of production and is in the midst of setting up a 50 MW captive power plant at Devapur plant. The project is expected to get complete within this calendar year. Meanwhile, in FY08 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 undertook an expansion of 25,000 TPA which is almost completed and may being production within a month. Thus its total tissue paper capacity now stands enhanced to 35,000 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. During FY08 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 even constructed sixth mist chamber and 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. Oflate, OPIL has ventured into lighting segment by setting up a modern manufacturing facility for Compact Fluorescent Lamps at its Faridabad plant. This is another fast growing segment which company intends to scale up in coming years.


To summarize, OPIL’s topline will continue to grow on the back of increased production in all the three segments although the bottomline may not grow at the same pace. But importantly, OPIL has a very healthy operating cash flow which not only funds the capex plan but has also helped the company in reducing the debt on its books. 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 0.16x times as on 31st March 2008. During FY08 company raised Rs 160 cr thru right issue in the ratio of 3:10 @ 36 per share. Financially, OPIL has done well for FY09 as sales increased by 17% to Rs 1520 cr whereas adjusted PAT (Excl extraordinary item) also improved by 15% to Rs 235 cr. However company made an extraordinary provision of Rs 48 cr by writing off the dues from a JV company which made the reported PAT to shrink to Rs 200 cr. This translates into reported EPS of Rs 10 whereas adjusted EPS works out to an EPS of 12 on equity of Rs 19.30 cr having face value as Rs 2 per share. With lot of additional capacity to go an air in the current fiscal, OPIL has the potential to clock a turnover of Rs 1800 cr and PAT of Rs 270 cr i.e. EPS of Rs 14 on current equity. Although share price has tripled from the low it hit in 2009 and is trading at 40% discount to its all time high, still investors can accumulate at sharp declines with a price target of Rs 75 in 12~15 months.

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