Orient Paper & Industries has been buzzing in trade since last couple of days. The stock of the company is up 2.5x this year with a 52-week high of Rs 35.5 in June 2014.
Speaking to CNBC-TV18, the MD ML Pachisia says that the paper industry remains under stress and the volumes across the industry will continue to be sluggish. He, however, expects a pick up in demand for paper business with the release of new Budget reallocations to education sector.
"We expect paper division to do much better during the second half of the year. This quarter may not be as good as one would like it to be," he adds.
The company, which is a major player in paper space, makes writing, printing, industrial and specialty paper. Its appliance business, which is a recent addition, is still at the nascent stage and is slowly picking up. Orient Paper's debt currently stands at Rs 220 crore but is declining slowly and gradually, adds Pachisia.Below is verbatim transcript of the interview:
Q: When we spoke to you last which was in end-July, you mentioned that you are expecting around 30 percent growth in your electric division and 10 percent in your paper division. How are both these divisions doing at current prognosis?
A: As I mentioned last time our electrical division did grow by over 30 percent during the first quarter and paper division grew by about 12 percent in the first quarter.
In the current quarter also electrical division continues to do well; we should do much better than last year same period, we still have to watch the exact percentage of growth but it continues to do well and both the fan business as well as the lighting business are doing extremely well. The appliance business, which is a recent addition, is still at the nascent stage and will be slowly picking up. Therefore, electrical business is doing well.
On the paper side, there has been a lot of improvement in our own internal efficiencies, the volumes are also slightly better. However, the paper industry in general is not doing well at the moment but it is expected that now with the release of new Budget reallocations to education sector, the demand will pickup soon.
Once that happens with our improved efficiencies, paper should also do well. However, we expect paper division to do much better during the second half of the year. This quarter may not be as good as one would like it to be.
Q: Now with the monsoons coming, has there been any improvement in the paper business – that was one big problem in previous months? Should we expect that in Q2 you will report losses or you will at least get breakeven on EBIT level for the paper business?
A: I will not be able to make specific comments but right now there is not much improvement in the volume of business available in the paper industry and I am not sure if we will be positive at EBIT level during this quarter but we are hopeful that for the year as a whole we will be EBIT positive.
Q: About electrical consumer durables, we spoke earlier with other companies like Whirlpool and they have done very well in the first quarter but they were not very sure it would be repeated in the second quarter. They attributed it more towards extended summer and maybe replacement demand. There is still a doubt whether the first time buyer is still coming into the consumer durable market. Is there a genuine improvement or is this just an extended summer benefit that you are enjoying? How will you rate the second half for the consumer durable space and even these two months of the current quarter? Were they substantially better than the same two months last year?
A: In our case the current two months are better than the same period last year. This is a new product category that we introduced a year and a half ago and are still in the process of establishing it. We are a small player in that segment unlike lighting and fan business.
Q: What about fans?
A: Fans are doing well.
Q: From year ago level, would you be 30 percent higher in fans?
A: I cannot say exact percentage but we will be substantially higher than last year. We are trying for 30 percent, whether we will achieve it or not, is yet to be seen.
Q: You did undertake Rs 25 crore one-time expense in previous quarter with regards to some amount of promotion that was undertaken. Was that only a one-off or are we seeing more of such expenses through the year as well?
A: The normal expenditure on promotions and advertising will continue. This Rs 25 crore that we spend was over and above the normal expenditure, the major brand campaign that we did in the first quarter that would not be repeated but the normal expenditure on advertising and promotion will continue throughout the year.
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