Buy Orient Paper; target of Rs 82: Emkay

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Buy Orient Paper; target of Rs 82: Emkay

Emkay Global Financial Services is bullish on Orient Paper and Industries and has recommended buy rating on the stock with a target of Rs 82 in its July 28, 2011 research report.

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Emkay Global Financial Services is bullish on Orient Paper and Industries and has recommended buy rating on the stock with a target of Rs 82 in its July 28, 2011 research report.

"Orient Paper and Industries, Q1FY12 revenues grew 21% yoy to Rs5.33bn (estimates -Rs5.1bn) led by better than expected cement realization. Cement revenues grew 11.4% yoy driven by a sharp 29.4% yoy jump in cement realizations to Rs3565/t even volumes declined 14% yoy due to decline in cement demand in AP. Cement realization came in better than expected as higher FY11 exit prices sustained till mid-May resulting in higher average prices for the quarter. Electrical division registered healthy topline with growth of 22.3% yoy."

"With better than expected realization, Q1FY12 EBIDTA came in at Rs1.1 bn +54.6%yoy, above estimates (Rs0.94 bn). Overall EBIDTA margins at 20.8% improved by 453bps yoy driven by 450 bps improvement in EBIT margins of Cement division to 31.8% Cement EBIT/t stood at Rs1133, +51% yoy. With 8% decline in interest charge, OPIL's APAT at Rs584 mn came in above estimates of Rs457 mn, a growth of 70% yoy. Reported net profit includes Rs85.5 mn of income from sale of CERs and Rs75 mn of one-time stores write off (for paper division). The Board has approved De-merger of Cement Business into a new wholly owned sub- Orient Cement Ltd (OCL). Post the necessary approval, OPIL shareholder will get 1 share of OCL for each share held in OPIL. Hence OCL will have mirror shareholding of OPIL. Effective date of demerger is 1st April-12. The de-merger creates focused cement play for OPIL shareholder and triggers the much awaited value unlocking process, apart from providing separate platform for each businesses to pursue growth opportunities."

"Though sustainability of recent levels of cement prices remain uncertain, we believe that OPIL's least cost of production will help the company to see it through this cyclical downturn. Stock trades at 6.6x FY12 PER & EV/EBIDTA of 4X. Maintain BUY. Upgrade TP to Rs 82 as we now value cement business at EV/t of USD70 as compared to USD60 earlier. We expect the re-rating OPIL's cement business as the de-merger will ensure that the cement cash flows will be dedicatedly used for funding the growth of the business rather than supporting the losses of the paper division," says Emkay Global Financial Services research report.  

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To read the full report click on the attachment