Accumulate Ballarpur Ind: Mehta Equities

“Ballarpur Industries Ltd (BILT) the India’s largest manufacturer and exporter of paper reported its 3rd Quarter numbers (March 2011) with a net profit of Rs.60.63 Cr for the March 31 2011 with decline by 10 basis points compared to Rs.55 Cr for the Mar-10. The turnover increased by 13% to Rs.1164.35 Cr for the quarter ended Mar-11 from Rs.1038.84 Cr during the quarter ended Mar-10 the performance was mainly on the back of volume growth seen in Paper and pulp segment.”

“The cost of raw material for the quarter have gone up by 15% whereas cost of power & fuel have also gone up by 26% resulting pressure on the profitability of the company. This is the prime reason that despite the 13% increase in sales, the profitability did not improve. Segment wise revenue from paper grew by 12.47% where as office supplies segment saw a decline of -2.83% and the pulp segment made a 35.45% growth. To offset the rising input cost the company hiked the price to Rs.1500/tn and plans for further hike which will see impacts on the coming quarters. The company is been planning for listing its international subsidiary on the London Stock Exchange (LSE) in a bid to take advantage of the recent re-rating of the paper sector globally. Through the listing proceeds, the company plans to utilize about Rs 770 Cr on expansion, mainly on the development of pulp mill facilities, which will help in increased integration and better operating margins.”

“We believe that BILT will be able to cut back cost and increase its margin in the coming quarters basically from the volume growth from the paper segment. The new pulp facility will provide 120,000-tonne of pulp which would cut Ballarpur pulp import by about 40%, boosting its margins to grow in 2nd half of 2011. The new Listing will help the company to reduce its debt servicing obligation and enabling improvement in profitability. We believe that the momentum is already priced in the counter. On overall we expect the industry to consolidate more and hence we recommend investors to “Accumulate” at lower levels for a medium term investment from the current levels,” says Mehta Equities research report. 

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