Buy Orient Paper & Industries; target of Rs 74: Emkay

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Buy Orient Paper & Industries; target of Rs 74: Emkay

Emkay Global Financial Services is bullish on Orient Paper & Industries and has recommended buy rating on the stock with a target of Rs 74 in its April 28, 2011 research report.

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Emkay Global Financial Services is bullish on Orient Paper & Industries and has recommended buy rating on the stock with a target of Rs 74 in its April 28, 2011 research report.

"Orient Paper & Industries, net profit at Rs 775 million (+41% yoy) above est (Rs 620 million) led by higher cement prices & other income. Revenues at Rs 6.96 billion (+27%), Cement (+22%) , Electricals (+35%) & Paper (+24%). Cement revenues grew 22% yoy to Rs 3.34 billion as realizations improved 29% yoy and 15.6% qoq led by price hikes in OPIL's key markets of AP and Maharashtra. Upgrading FY12 earnings by 5.9% to Rs 9.3 and introducing FY13 estimates with EPS of Rs 11.3. Increasing cost key concern, as CIL coal price hike yet to reflect in P&F costs. OPIL on growth path led by better cement realizations, new product launches in Electricals division and stabilization of Amalai Paper plant."

"Revenues at Rs 6.96 billion grew by 27% yoy, driven by 22% growth in Cement revenues (Rs 3.34 billion), 35% growth in Electricals division (Rs 2.62 billion) and 24.3% growth in Paper division (Rs 0.98 billion) respectively. Impacted by subdued demand growth in southern region, OPIL's cement volumes declined 5.4%yoy (+26.4% sequentially). Cement realizations surprised positively and jumped 29%yoy & 16% qoq to Rs 3376/t as OPIL's key markets AP, Maharashtra and Gujarat witnessed series of price hikes during Q4FY11. Revenues from paper division at Rs 977 million were up 24.3% yoy (on low base) even after lower production at Amalai paper plant."

"Though sustainability of recent levels of cement prices remain uncertain, the sharp price hikes have meant that Q4FY11 exit prices are ahead of expectations. Hence even after factoring in a cement price decline of 8.5% over Q4FY11 averages, we see that OPIL net realisation for FY12 would still be up ~13% yoy, which in turn is expected to drive 27% yoy growth in OPIL's cement EBIDTA in FY12. Further OPIL's growth would be fuelled by new product launches leading to better revenue growth in the Electricals division and Stabilization of the Amalai plant leading to turnaround of paper division. Stock trades at undemanding valuation of 6.2x FY12 PER & EV/EBIDTA of 3.5X. We maintain our BUY rating on the stock. However we lower our target prices to Rs 74 (Rs 77 earlier) adjusting for the cash outflow for the capex expansion of 3mnt plant at Karnataka," says Emkay Global Financial Services research report.

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