Accumulate Ballarpur Industries; target of Rs 42: Emkay

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Accumulate Ballarpur Industries; target of Rs 42: Emkay

Emkay Global Financial Services is bullish on Ballarpur Industries (BILT) and has recommended accumulate rating on the stock with a target price of Rs 42 in its August 19, 2011 research report.

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Emkay Global Financial Services is bullish on Ballarpur Industries (BILT) and has recommended accumulate rating on the stock with a target price of Rs 42 in its August 19, 2011 research report.

"Ballarpur Industries (BILT), Q4FY11 results disappointed due to mounting cost pressures. EBITDA margins declined to 18.7% (-340bps yoy /-60bps qoq), lowest since 2006. RGP realizations remained strong at Rs 67,700 / mt (+58% yoy) and supported margins. However, RGP prices are near their peak and may correct from these levels. Margins to remain under pressure in near future due to company's dependency on market pulp. Maintain FY12E / FY13E estimates at Rs 4.5/Rs 5.2. BILT's Q4FY11 consol revenues increased by 10% yoy to Rs 11.9 bn in line with our estimates. Paper segment revenues increased by 5% yoy to Rs 9.1 bn (against est of Rs 9.4bn) driven by increased paper realizations. Paper realizations increased by 7% yoy/ 6% qoq to Rs 43,850/mt supporting revenue growth while sales volumes declined by 1% yoy to 207,600mt. RGP (Rayon Grade Pulp) segment revenues increased by 85% yoy to Rs 1.6 bn driven primarily on account of increased realizations. Pulp realizations increased by 58% yoy to Rs 67,700/mt while pulp volumes increased 18% yoy."

"EBITDA margins of 18.7% (-340 bps yoy / -60bps qoq) were marginally below estimates of 19.5%. Increase in coal and pulp costs weighed heavily on company's bottomline dragging EBITDA margins to their lowest level since 2006. Decline in margins during the quarter is primarily on account of lower margin in paper segment (7.9% vs 15.7% previous year). However, pulp margins improved to 35.2% compared to 26.0% las t year due to increase in pulp realizations. Depreciation increased by 14% yoy to Rs 901mn owing to woodyard plantations in Sabah Forest Industries (SFI) which started from the current quarter. Despite operational numbers being below estimates, APAT for the quarter increased by 14% yoy to Rs 746 mn against est of Rs 570 mn due to tax credit received of Rs 372mn by SFI during the quarter."

"Since pulp prices remain at elevated level and company imports part of its pulp requirements (approx 38% of pulp is imported), we expect margin pressures to continue. We believe industry is finding difficulties in passing on the cost escalation to end consumers by raising paper prices mainly due to continued supply in the industry. However, BILT is increasing its pulp capacity by 120,000 mt in FY12 and by 170,000 mt in FY13 which will bring down its dependency on imported pulp & provide support to margins in the long term. We maintain our FY12E/FY13E estimates of Rs 4.5/5.2 and value the stock at Rs 42 based on 8x FY13 earnings. At current market price of Rs 29, it is trading at 5.5x FY13E earnings. Maintain Accumulate with TP of Rs 42," says Emkay Global Financial Services research report.

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