Orient Paper Industries

Results

(in Cr.)
Jun-11
Mar-11
FY10-11
Revenue
546.97
709.82
1,989.36
Net Profit
59.38
77.47
143.1
EPS
3.08
4.02
7.42
Cash EPS
4.18
5.13
11.64
OPM %
21.57
20.57
16.73
NPM %
10.86
10.91
7.19
 
 
 
 

share price movement

 
 
 
Weekly H/L
61.9
58.05
Monthly H/L
65.4
57.3
52 Weeks H/L
66.7
44.5
 
( 12 Nov 10 )
( 15 Mar 11 )
Delivery / Var+ELM %
50.19
12.5
Ex Date
 
 
 
 
 

share price movement

Source

Orient Paper Industries


Q1 results not good

Orient Paper Industries has not produced good results for the quarter ended 30.06.11 as compared to the quarter ended 31.03.11. Revenue has dropped from Rs.709 crore to Rs.546 crore. Revenue for the whole year 2010-11 was at Rs.1989 crore. Net profit has dropped from Rs.77.47 crore to Rs.59.38 crore. Net profit for the whole year 2010-11 was at Rs.143.10 crore. Operating profit margin was slightly up from 20.57% to 21.57%. Net profit margin was flat at 10.86%. The company is operating in cement and cement products sector. The shares of Orient Paper Industries are being traded in the stock markets at Rs.58.55 now (10.11.11). The highest price recorded by the company’s shares in the last one year was at Rs.66.70 (12.11.10) and the lowest price was at Rs.44.50 (15.03.11). The company’s shares attract a volume ranging from 4800 to 5300 shares every day.

Q2 no better

The company’s Registered Office is located at Unit VIII, Plot 7, Bhoinagar, Bhubaneswar 751012 in Orissa State. For the second quarter ended 30.09.11, the company’s revenue has dropped to Rs.512 crore from Rs.546 crore. Its net profit was only at Rs.24 crore. But when compared to the figures of last year in the same period, there has been an improvement. For example, net sales have increased to Rs.506 crore from Rs.382 crore in the corresponding period of the previous year. Net profit has increased from 0.49 crore to Rs.24.06 crore. Paid up capital stands at Rs.19.28 crore. Free reserves stand at Rs.48.75 crore. The company is a part of Chandrakant Birla group. The company is planning to set up a three million tonnes per annum Greenfield cement plant at Gulbarga in Karnataka at an investment cost of Rs.1473 crore. Orient Paper Industries will also set up a 50 MW power plant at an investment cost of Rs.247 crore. The company will acquire 1500 acres of land for the project. The financing of the project will be through debt, internal accrual and equity. After the project is completed, the company’s cement capacity will increase to 8 million tonnes per annum and then to 12-15 million tonnes per annum by 2015.

Capacity expansion in cement

The company will issue convertible warrants to two promoter group firms namely Shekhavati Investments and Traders and Central India Industries at Rs.57.25 a share to collect Rs.70 crore by way of long term capital. The company recently completed expansion of cement capacity in Andhra Pradesh and Maharashtra States that took its overall cement capacity from 3.4 million tonnes per annum to 5 million tonnes per annum. The company also set up a 50 MW power plant at Devapur cement plant in Andhra Pradesh. The company has also applied for permission to secure limestone mining lease from Rajasthan and some other States to set up cement units in these States. As limestone is the raw material for cement manufacturing, the company’s operations will be benefited if it secures limestone mine leasing. Rajasthan has the largest limestone deposit in India. The company is careful in its expansion of operations. Its financial planning is such that it maintains its debt equity ratio at below 0.8. This is a good strategy in the present high interest regime. If the debt equity ratio shoots up in the balance sheet, the company will suffer from high interest outgo and its profits and profitability will take a beating.

Cement division to be hived off as a separate company

Orient Paper Industries has decided to spin off its cement division as a separate company Orient Cement. It will be issuing one equity share of Orient Cement for each share of Orient Paper Industries held. The record date is April 1. Orient Cement will be listed in the stock markets in April-May. After the cement division is spun off as a separate company, Orient Paper Industries will have presence in electrical consumer durables (fans and lighting) and paper. For the Q1, cement division contributed revenue amounting to Rs.317 crore, electrical business contributed Rs.165 crore and paper and board division contributed Rs.51 crore. The company management says that the decision to spin off cement division as a separate company will add shareholder value. C.K. Birla is the Chairman of the company.

Paper business turns around

Orient Paper Industries earned an income of Rs.8.55 crore on sale of carbon credit. For 36 days, paper production was shut down for overhauling. The company expanded its CFL (compact fluorescent lamps) capacity to 13.2 million units. The company is expanding its fan production capacity also. The new 55 MW thermal power plant will be commissioned in Q1 of 2012-13. For the last several quarters, losses in the paper division dragged overall profitability of the company. But now the paper division has turned around and is posting profits. Cement prices are also firming up. The cement business of the company is being benefited due to increased volume and prices particularly in the key market of Maharashtra State.

Avoid investment

At the current market price of Rs.58.55, investors should avoid investing in the company’s shares because of the following factors:

  • The company’s paper division has been posting losses for several quarters and only now has turned around. Investors should wait and watch whether the turnaround is real and stable
  • No doubt cement prices are firming up, but the cement division is going to be spun off into a separate entity
  • After the cement division is hived off into a separate company, Orient Paper Industries will be left with only electrical appliances and paper business. There is no charm left in the company.
  • The company does not have high reserves in its balance sheet
  • Volumes in the company’s share counter in the stock markets are not high enough to push its prices

But contrary to this opinion, there is also a view that since one share of the company will be allotted in Orient Cement free of cost, it will add up to the shareholder value. That will happen only when the listing price of Orient Cement plus the diminished share price of Orient Paper Industries after the record date becomes more than the current share price. One cannot bet on this happening surely.

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Will the shareholders be benefited by the move of Orient Paper to spin off its cement division into a separate company?

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