Numbers in line with expectation….
BUY
CMP: Rs 49 Target Price: Rs 59
Orient Paper Industries Limited (OPIL) Q2FY10 net profit at Rs405mn is in line with our expectation (Rs415mn).Revenues for the quarter stood at Rs3532mn.The revenues were ahead of our expectation mainly on account of better than expected revenues from Electrical's division. Reported revenues for the electrical division grew at a whooping rate of 50.8% to Rs1005mn, while Paper division accumulated revenues of Rs602mn seeing decline on 24.5% y-o-y basis. Cement division revenues declined by 6.7% y-o-y basis to Rs1925mn on account of, volumes decline of 10.1% y-o-y to 0.62mn tonnes while realisations have improved by 3.8% y-o-y to Rs3119/tonne. Company has continued incurring losses in paper division as they have reported the loss of Rs76mn due to continuing problems in pulp mill. Reported EBIT of cement division was Rs606 mn with EBIT margins of 31.5% as against 35.8% as volumes declined 10% yoy. Electrical s division reported EBIT of Rs119mn registering the whooping growth of 307.5% y-o-y basis. EBIT margins improved by 750 bps y-o-y basis to 11.8% for the quarter.
Though the numbers are in line, we will be downgrading our FY2010 earnings estimates by 10-12% on account of mainly on account of lower volumes estimates in cement divisions. Moreover, the 50 MW captive power plant which was expected to be operational in Q2FY10 has only commissioned for 25MW and remainder is expected to be commissioned in the Q4FY2010. This will impact the estimated savings in power and fuel cost of the company. Also due to continuing problem in the pulp mill the paper division is expected to continue doing losses FY2010E. At current market price the stock is trading at 12.3x of FY2011 earnings. Hence, we maintain our BUY rating on the stock with a reduced price target of Rs59.
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