Orient Paper

Shares Of Orient Paper Trade At Nearly 6.1 Times On A Trailing Four-Quarter Basis

 

ORIENT Paper & Industries, a diversified company in businesses such as cement, paper & amp; board, coupled with electrical consumer durables, had to reckon with a near 4.2% YoY decline in realisations on a per tonne basis in its key cement division in the December '09 quarter. 

   In addition, the company's performance was adversely impacted by a rise in its operational costs in the third quarter. As a result, Orient Paper's operating profit margin declined 910 basis points YoY to 18.8% in the third quarter of FY10, at a time when its net sales rose 2.8% to Rs 372.2 crore. Orient Paper's cement division contributed 57% of its net sales in the third quarter. 

   Pressure on its operating margins was due to its cement realisations which declined nearly 4.2% YoY to Rs 2,836 per tonne, while its despatches were estimated at 0.75 million tonne in the third quarter, broadly flat on a YoY basis. The company's key markets for cement include Andhra Pradesh and Maharashtra, and players in these regions have been grappling with additional capacities coming on stream over the past few months, especially in the southern region, and the resultant pressure on realisations in the third quarter. 

   The difficult operating environment resulted in the segment profit of the cement division also falling 40.6% YoY to Rs 49.6 crore in the December '09 quarter. The Orient Paper stock plummeted 6% on Thursday, to close at Rs 50.1. In addition, over the past six months, this stock has gained just 5.9% compared to a 26.9% rise in the Sensex. Another diversified cement player with a presence in southern markets, like India Cements, saw its stock price decline 5.2% over the past six months. 

   Orient Paper's other divisions such as electrical consumer durables, which include products like electric fans, benefited from a broad revival in demand, especially from the residential sector. As a result, the segment profit of this division improved 168.3% YoY to Rs 6.6 crore in the December '09 quarter. However, Orient Paper's overall net profit fell 44.4% YoY to Rs 30.1 crore in the third quarter of FY10, given the company's huge dependence on its cement division to drive its earnings. 

   Orient Paper trades at nearly 6.1 times on a trailing four-quarter basis and its valuations is in line with that similar-sized cement players in South and Central India.