Orient Paper & Industries Ltd

Orient Paper & Industries Ltd

Background :
Orient Paper & Industries Ltd began its business only as a paper manufacture with a single machine in 1939, it now operates diversified business. About 62-65 percent of the company's revenues come from the cement business.apart from Paper and Electrical goods contribute 35-40 percent revenue. The company's cement units cater to the markets in Andhra Pradesh and Maharashtra. In fy-09 OPIL's cement division reported a 20% growth in net sales against the industry's average 8%.
Cement Shares:
OPIL's cement capacity is now at 3.4 million tonnes (mtpa). this is set increase to 5 mtpa as the new kiln at Devapur, Andhra Pradesh, commences operation. the company has been taking initiatives to expand its reach, which have been paying off.
In fy-09, the company established 17 new depots and added 330 stockists to its network aiding a 22% volume growth in Andhra and Maharashtra. the company is planning a further enhancement of dealer network and intensified brand promotion.
Paper:
In 2008-09, OPIL managed sales growth on higher realisation despite a 14% decline in production on temporary shutdown of the mill. Branded retail stationary has been a fast growing market and the company entered this market last year with the launch of notebooks under the brand, " 1st Choice".
OPIL's new tissue plant of 15,000 tonnes capacity is also set to commence production this year and may aid relisations and margins in the paper business. the company is striving to improve the sales further by setting up a network for selling the new branded notebook and tissue products to institutional segments.
Initiatives like these may be crucial to sales, the paper industry too marred by fears of a capacity overhang. 6.5 lakh tonnes of new capacity are expected to be added in the next one and half years. this would leave a surplus of 4.5 lakh tonnes in the market as the industry is expected to grow at 5-6%. the domestic market now absorbs 30 lakh tonnes of paper a year.
Electricals:
OPIL's electrical division which includes Fans, Compact Fluorescent lamps and other lighting, reported a 53% growth in operating profits in 2008-09 following a close to 20% growth in sales. the company is also the country's largest exporter of fans. now the company increased its focus in the domestic (semi-urban) market. OPIL's fan sales in the domestic market rose by 11% in fy-09, the company is further looking to expand its distribution reach in tier-11 and tier-111 markets. strong trends in semi urban and rural sales have been key drivers in this business.
Cost Efficiencies:
The company is also commissioning a 50 MW captive power plant for powering its cement units ( a 43 MW power plantfor the paper mill is also being planned) and has completely automated cement plants. OPIL's sales have grown at a compounded annual rate of 17% in the last three years. penetration into new markets in the domestic region and higher realisation buttressed the growth. the company 's operating profit margin stands at the industry's average 24-27 percent. the company 's debt to equity stands at a low 0.35. OPIL promises to deliver growth in the medium-to- long term.
Conclusion:
trading at six times its retailing 12-month fy-09 earnings the stock of Orient Paper and Industries (rs 54) appears to be a value buy.
Some Important Data: As on 7 September 2009
Market Cap 1075 crore
Book Value = 24.75
EPS = 9.51
Price/Book = 2.25
Face Value = 1Rs
P/E = 5.85
Div (%) = 150
Industry PE = 20.03
Div yield (%) = 2.69

Source: Bussine line, company report, moneycontrol.com.