Buy Tamil Newsprint; target of Rs 180: Emkay

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Buy Tamil Newsprint; target of Rs 180: Emkay

Emkay Global Financial Services is bullish on Tamil Newsprint and has recommended buy rating on the stock with a target of Rs 180 in its August 2, 2011 research report.

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Emkay Global Financial Services is bullish on Tamil Newsprint and has recommended buy rating on the stock with a target of Rs 180 in its August 2, 2011 research report.

"TNPL's Q1FY12 results disappointed on account of lower sales volumes. Revenues of Rs 3.4bn, 16% yoy, were lower than our est of Rs 3.9bn due to lower sales volumes. Total paper sales volumes increased 18% yoy to 73,925mt lower than our estimates of 90,000mt. This was primarily on account of inventory builtup (inventory increased by Rs 580mn) during the quarter which would be released in Q2 FY2012. However, blended avg realization increased 8% yoy/4%qoq to Rs 44450/mt against est of Rs 43500/mt. Volumes during the quarter were also affected due to lower capacity utilization of the new plant (commissioned in Q4 FY11). Production during the quarter stood at 82,300mt implying overall capacity utilization of 82.3% with the new plant operating at 74% utilization. We expect the new plant to stabilize in Q2 and lead to increase in volumes."

"TNPL reported EBITDA of Rs 897mn, flat yoy, lower than our estimates of Rs 1.03bn on account of lower sales. EBITDA margins declined 420bps yoy to 26.1% during the quarter in line with our estimates of 26.3%. Company's raw material costs increased to 29.0% of sales as compared to 20% last year. Similarly, P&F costs increased to 34% of sales as compared to 23.6% last year. We expect margins to remain under pressure in the near future amid rising costs and pressure on finished products prices. We believe that paper industry is finding difficulties in raising paper prices mainly due to continued supply in the industry. Consequently, we do not expect margin expansion in near future. TNPL commissioned its paper machine during Q4 FY2011. Consequently, interest cost increased 315% yoy/53% qoq to Rs 325mn while depereciation increased 48% yoy to Rs 404mn. Resulting PBT declined by 69% yoy to Rs171mn against est of Rs 280mn. APAT declined by 68% yoy to Rs 128mn agains t est of Rs210mn. AEPS for the quarter stood at Rs 1.8, -68% yoy against our expectation of Rs 3.0."

"We expect sales volumes to pick up in the coming quarters with the stabilization of new plant. Inventory clearance (inventory increased by Rs 580mn during Q1) in Q2 will also support sales volumes. However, we expect margin pressures to continue as raw material and power costs remain at elevated level. We maintain our FY12E/FY13E EPS estimates of Rs 18.9/25.6 and maintain our TP of Rs 180," says Emkay Global Financial Services research report.

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To read the full report click on the attachment