Orient Paper can test Rs 90: Aashish Tater

Orient Paper & Industries can test Rs 90, says Aashish Tater, Head of Research, Fort Share Broking.

Tater told CNBC-TV18, "We recommended Heidelberg Cements around Rs 28 given that their capacity is going to increase and the stock should stabilize around at Rs 38. The same story plays along with another demerger value unlocking story that the Orient Paper & Industries announced. It said that from April 1, 2012 there would be a demerger and you will be getting one share of Orient Cements plus the existing business of paper and electrical. I am taking a call from sum of total parts perspective."
he further added, "To give a brief snapshot of the cement play, they have a capacity of 5 million tonne per annum and are going to expand in a Greenfield project commencing from 2014 for another 3 million tonne plant. The cement valuation is very attractive because at the current market price you are getting the remaining business free post demerger."
"The demerger formalities are expected to end by December or max by March, so if you buy something now and hold till demerger, you will get a business, which is much higher valued than on a consolidated basis. This particular price is still down and has not been identified by the market yet, so that is very interesting thing."
"Their electrical business has forayed into new venture. They are now into light iron along with few other products. The company is looking to expand into a brand portfolio category, which will be a very good business prospect. If we look at the total consolidated basis, there 1 lakh tonne plant on the paper side is loss making. That's why perhaps the valuation of this particular company is so muted."
"But, that 1 lakh tonne plant could easily fetch Rs 300-350 crore of valuation despite making losses because you do not have captive power, which the company is incidentally going to plan out with 55 megawatt capex. They have got strong cash flows to compensate with it. The promoters of the company have recently converted their shares."
"Taking all this into account, we feel that on a conservative side, the stock could go and test almost Rs 90 during the demerger process, which is roughly 30-35% higher. The best part is that you will not lose anything because the cement valuation itself will fetch much more than the current market price. Taking all this into consideration, the risk reward ratio is extremely beneficial from next six months perspective. From six months perspective, we feel a stock from Rs 70 to 90 with almost zero downside risk definitely warrants some allocation in your portfolio." Disclosure: Safe to assume stocks discussed have been recommended to clients, no personal position.