BILT -- turnaround candidate

Stock Opportunities
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BILT â TURNAROUND CANDIDATE

CMP AROUND 19.7 , MARKET CAP 1280 CRORES. BOOK VALUE 24.

CONSOLIDATED ENTITY DEBT AT 2462 CRORES LONG TERM + 1080 CR SHORT TERM.

CASH AND EQUIVALENTS 87 CRORES.

ENTERPRISE VALUE COMES TO 4735 CRORES.

CONS SALES FOR FY 12 ENDING JUNE 12 WAS AT 4747 CRORES AND NET PROFITS FOR FY 12 ENDING JUNE 12 WAS 159 CRORES. (FOR FY 11, SALES WAS 4500 CRORES AND NET PROFIT WAS 265 CRORES)

CONS EPS AT 1.88 PER SHARE FOR FY 12.

COMPANY IS ONE OF THE BIGGEST PAPER COMPANIES IN INDIA.

NEW DEVELOPMENTS:

COMPANY HAS STARTED ITS PULP MANUFACTURING FACILITY OF 1.2 LAC TONNES AT SABAH FOREST IN MALAYSIA RECENTLY. ANOTHER PULP FACILITY OF 1.7 LAC TONNES HAS RECENTLY BEEN COMMISSIONED. ONCE BOTH THESE FACILITIES START CONTRIBUTING FULLY, THE MARGINS FOR BILT ARE LIKELY TO INCREASE DUE TO BACKWARD INTEGRATION AND BETTER SOURCING AND COST OF PULP WHICH IS BASIC RAW MATERIAL FOR PAPER INDUSTRY.

TECHNICAL SETUP:

attached charts are self explanatory.

IF ONE DRAWS A TRENDLINE ON MONTHLY CHART FROM 1999 JOINING ALL BOTTOMS, THE STOCK IS CURRENTLY VERY CLOSE TO THE BOTTOM FORMED RECENTLY AROUND 17.50.

17.50 LEVEL OFFERED SUPPORT TWICE IN THE LAST LAST ONE YEAR FROM WHICH STOCK TRIED TO BOUNCE. CONFIRMATION OF THIS DOUBLE BOTTOM SETUP CAN COME ONCE STOCK MOVES ABOVE 26-27 LEVELS AFTER WHICH TARGETS CAN BE 40 PLUS.

INVESTMENT THEME

THERE IS NOT MUCH TO SUGGEST A GREAT STOCK BY WAY OF FUNDAMENTALS. NOT MUCH BY WAY OF RATIOS, OR BALANCE SHEET STRENGTH ETC. THE PURISTS AND VALUE BUYERS WILL IN ALL LIKELIHOOD GIVE THIS ONE A GOOD HAMMERING WITH ALL DATA POINTS.

**FOR THE MAVERICK THIS IS A COMBINATION OF TECHNICALS AND FUNDAMENTALS AT WORK. LOTS OF UNCERTAINTY CURRENTLY SURROUNDING THE STOCK BECAUSE OF POOR FY 12 RESULTS. **

LOOKS LIKE A LOW RISK HIGH RETURN BUY FOR SOMEONE WITH A 1-2 YEAR VIEW AND LOOKING FOR 50-100% RETURNS. IF TURNAROUND MATERIALISES THEN THERE IS GOOD UPSIDE WITH LOW RISK.

ONE SHOULD MAINTAIN STRICT STOP LOSS OF 17 ON ALL POSITIONS AND ACCUMULATE GRADUALLY ON DECLINES TO 18-19 LEVELS.

DISC: NO POSITION, BUT IN WATCHLIST.


2

weekly charts of Bilt attached.


3

Rajen Shah had recommended this as his multibagger along with Kilburn.

4

Fortunately or unfortunately I own this as legacy

Bought as a turnaround story

Hope it turns around this time

Another turnaround story which I can think is shree renuka sugars

Now a low cost Brazilian sugar company

Operationally should do well though they are highly leverd at this point of time

5

I think the key to buying turarounds is to buy at such an attractive price that even if the turnaround does not materialise according to plan, there is not too much to lose except maybe opportunity cost.

6

Hi Hitesh

How we can know what is attractive price for opportunities like this or in other words how can we know there is very less downside at certain price level?Is it based on strengthing price chart ?

Thank you

7

Agreed But it was looking like a bargain that time as well

8

There are two ways to go about it.

first is to look at charts and try to find out whether a bottom is in place. And then try to buy as close to bottom as possible. Normally what happens is that once a bottom is formed there is a sharp rally followed by an equally sharp pull back but the bottom usually is not violated. Various technical parameters are there to detect bottom formation like candle stick patterns, indicators like RSI etc giving positive divergence (here basically stock price continues to make lower lows but indicator e.g RSI makes higher lows), some reversal patterns like inverted head and shoulders pattern, double bottom pattern, apparent bottom formation on long term trendline (as in case of BILT).

Second is fundamental analysis. Here one has to do a bit of future gazing. e.g in case of BILT we know the company is not going to go belly up. It is one of the largest paper companies in India. So after a string of bad results we try to find out the cause of the poor results and if we can detect any chances of things improving (in case of BILT, backward integration into pulp should help shore up margins) , then look at how it will affect results of the company going forward. If inspite of good prospects, one can get stock at attractive prices, one can go ahead and buy it. This part comes out of some crystal gazing and some amount of market feel. And if it is supported by evidence of bottom formation on charts, it makes all the more sense to load up.

attaching another chart of BILT this time weekly where there is a big bullish engulfing candlestick.

**
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another important evidence of apparent bottom formation shown in above weekly chart is visible on candlestick chart itself.

One can see six weekly candlesticks before the single weekly big white candlestick. These weekly candlesticks indicate six weeks of downtrend which got arrested by posting a bottom at 17.50 and this was followed by a single weekly candlestick which retraced fall of entire six weeks in a single week.

This phenomenon is called faster retracement. When we see a faster retracement (within one week in case of BILT weekly chart) of the last falling segment (six weeks as we saw earlier) it is added evidence that a bottom is in place.

10

The margins were lowest this year when compared to last 5-6 years We should expect a bit of a margin expansion as a result of so called mean reversion or normalisation The good thing is that the pulp integration which has been in the region of 45-50% for last 3-4 year would go up again to 70% levels after the commissioning of Malaysian and Indian pulp expansion

11

Thank you Hitesh for guiding me in technical aspects of looking charts.

Reg fundamentals , I was checking in details reg 2 new facilities.

It seems both ,1.2 lakh tones of pulp manufacturing plant in Malaysia & also 1.7 lakh tones of pulp manufacturing plant at BILT are now operational last few months back. So margins seems bound to increase this FYonward, as now they no more need to buy the pulp from open market because of thesefacilitiesin place, therefore volatilty factor is decreased significantly by this integration.

I was also reading that paper stocks are not those which gives superior returns on a consistent basis but they provide good returns if one is able to time well ones entry and exit. Entry time when they are going through rough times**(may be somewhere around this time as per Hitesh Suggestions when last year performance has hammered stock badly )**and exit when the times are turning to good with improved performance.

faster retracement.

12

Hi Hitesh,

Excellent find. How do you come up with these finds? Are there any screeners that one can keep dabbling with that throw up such pre-defined setups?

How does one decipher certain levels? In this case, how can I say 26.5 as decisive level above which double-bottom of 17.5 is confirmed? I don’t see any apparent channel or price hugging that line.

I’m learning basic TA and hence just curious how TA analysts define certain levels, like bottom-confirmations, stop-loss, targets etc.

(Other amateurs like me can also take a look at stateofthemarket.net by Deepak Singh. Good TA setups with easy explanations).

Thanks a lot.

13

kamikazi,

if u google double bottom formation u will get all the details u need to see in a double bottom formation. I am posting the following which i found:

The Double Bottom Reversal is a bullish reversal pattern typically found on bar charts, line charts and candlestick charts. As its name implies, the pattern is made up of two consecutive toughs that are roughly equal, with a moderate peak in-between.

Although there can be variations, the classic Double Bottom Reversal usually marks an intermediate or long-term change in trend. Many potential Double Bottom Reversals can form along the way down, but until key resistance is broken, a reversal cannot be confirmed. To help clarify, we will look at the key points in the formation and then walk through an example.

  1. Prior Trend: With any reversal pattern, there must be an existing trend to reverse. In the case of the Double Bottom Reversal, a significant downtrend of several months should be in place.

  2. First Trough: The first trough should mark the lowest point of the current trend. As such, the first trough is fairly normal in appearance and the downtrend remains firmly in place.

  3. Peak: After the first trough, an advance takes place that typically ranges from 10 to 20%.Volumeon the advance from the first trough is usually inconsequential, but an increase could signal early accumulation. The high of the peak is sometimes rounded or drawn out a bit from the hesitation to go back down. This hesitation indicates that demand is increasing, but still not strong enough for a breakout.

  4. Second Trough: The decline off the reaction high usually occurs with low volume and meetssupportfrom the previous low. Support from the previous low should be expected. Even after establishing support, only the possibility of a Double Bottom Reversal exists, and it still needs to be confirmed. The time period between troughs can vary from a few weeks to many months, with the norm being 1-3 months. While exact troughs are preferable, there is some room to maneuver and usually a trough within 3% of the previous is considered valid.

  5. Advance from Trough: Volume is more important for the Double Bottom Reversal than the double top. There should clear evidence that volume and buying pressure are accelerating during the advance off of the second trough. An accelerated ascent, perhaps marked with a gap or two, also indicates a potential change in sentiment.

  6. Resistance Break: Even after trading up to resistance, the double top and trend reversal are still not complete. Breaking resistance from the highest point between the troughs completes the Double Bottom Reversal. This too should occur with an increase in volume and/or an accelerated ascent.

  7. Resistance Turned Support: Broken resistance becomes potential support and there is sometimes a test of this newfound support level with the first correction. Such a test can offer a second chance to close a short position or initiate a long.

  8. Price Target: The distance from the resistance breakout to trough lows can be added on top of the resistance break to estimate a target. This would imply that the bigger the formation is, the larger the potential advance.

It is important to remember that the Double Bottom Reversal is an intermediate to long-term reversal pattern that will not form in a few days. Even though formation in a few weeks is possible, it is preferable to have at least 4 weeks between lows. Bottoms usually take longer than tops to form and patience can often be a virtue. Give the pattern time to develop and look for the proper clues. The advance off of the first trough should be 10-20%. The second trough should form a low within 3% of the previous low and volume on the ensuing advance should increase. Volume indicators such asChaikin Money Flow,OBVandAccumulation/Distributioncan be used to look for signs of buying pressure. Just as with the double top, it is paramount to wait for the resistance breakout. The formation is not complete until the previous reaction high is taken out.

**As mentioned here, the double bottom will not be confirmed in BILT unless it takes out the peak of 26.50 it posted after the first bottom was formed. (refer weekly charts i posted). Now if i wait for this to happen, I miss the ride from 19 to 26. **

Plus I have additional evidence on monthly chart of strong trendline support, bullish candlesticks, positive divergence in RSI etc to support my buy logic.

Hence my logic in buying at cmp of around 19.7. (ideal thing would have been to buy at around 17.50 or 18 but its difficult to find out such situations all the time)

14

Hitesh,

Can you suggest some good books / training courses for Technical Analysis?

Regards

15

Thank you Hitesh jee for your analysis on BILT. I am having this stock in my PF and gave me confidence by seeing your post

16

Thanks so much Hitesh for your detailed explanation.

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Hi Kamikazi - thanks for your link to the stateofthemarket site. I was looking for something like that - lots of ideas and updated status. Aiming to earmark some 5-10% of my portfolio for trading ideas and this is a good resource.

)- HG

18

Hi Hitesh bhai,

What do you make of this announcement?

“Ballarpur Industries Ltd has informed BSE that the Board of Directors of the Company at its meeting held on February 05, 2013, inter alia, have Constituted a Committee of Directors for evaluating proposals for enhancing growth and unlocking shareholders value.”

Are you still tracking BILT? What’s your view on it now?

Thanks.

19

kamikazi,

there might be some demerger/stake sale etc to enhance shareholder value.

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CONFERENCE CALL

The company has seen price hike of approx Rs 4000/mt in last 4 months

The company held its conference call for discussing Q2 and H1 FY13 results.

Key highlights

  1. On Asian Paper Industry, the mgmt said that paper is cyclical industry and they are seeing cycle changing in every 12 to 13 months in last 3 years. At this time, cycle is at near to low level in paper and pulp and it is continuing for last 4 to 5 months. Post Chinese New Year, it has to see how the cycle will turn, as it is usually seen that the after Chinese New Year, price move upwards.
  2. In India, cycle is little bit independent of Asian cycle. Wood prices moved up, so do paper prices. 4 price rises have happened in last 3 â 4 months by Industry.
  3. Capacity utilization of the industry is 100%.
  4. The revenue on the consolidated basis for Q2 FY13 de-grew by 1% to Rs 1199.28 crore. Total paper sales volumes were up by 1% to 208736 MT on QoQ basis. OPM has increased by 200 bps to 17.7% due to fall in raw material cost. The net profit has decreased by 9% to Rs 12.43 crore due to rise in interest cost and depreciation.
  5. The revenue on the consolidated basis for half year ended FY13 has grown by 5% to Rs 2440.77 crore. Total paper sales volume were up by 4% to 420509 MT on YoY basis. OPM has increased by 110 bps to 18.1%. The net profit has increased by 21% to Rs 47.24 crore.
  6. Paper segment performance was adversely affected due to drop in global paper prices by 10% hence reducing profitability of Sabah, Malaysia operations.
  7. Sharp increase in wood cost in domestic market by ~20% also affected paper segment margins.
  8. The company has taken various price increases in last four months by approx Rs 4000/mt across the categories and the impact of which is likely to come in subsequent quarters. In November 2012 it has taken price hike of Rs 500/mt, in December 2012 of Rs 1100/mt, in January 2013 of Rs 1200/mt and in February 2013 of Rs 1800/mt.
  9. The avg. realization in Q2 for coated paper was Rs 50000/mt and uncoated was Rs 49000/mt.
  10. RGP segment disappoints drastically with margins of mere 4.6% as higher wood prices increased cost while on the other hand sluggish demand from VSF industry kept RGP prices lower by ~5%. The avg. realization in Q2 was Rs 53080/mt. In RGP, prices are linked to cotton prices. Profitability of RGP biz is likely to remain subdued as VSF prices to remain under pressure in near term
  11. The company has introduced new special paper products which is used in packaging of gutkas and such other things. It is most profitable products.It has sold 32000 mt of this products uptil now and expects to close the year will sale of 50000 mt.
  12. SFI, Malaysia’s pulp mill is working at 90% of capacity. Malaysia’s local paper market is at low cycle. It has shipped 22000 tonnes of pulp in the quarter
  13. The Ballarpur’s pulp mills will start at the end of this month or early next month.
  14. The company has 5 â 6 days of inventory in every mill.
  15. The company is adding Rs 30 crore every quarter from the captive plant.
  16. Increase in long term borrowings by Rs1100 crore due to payment to Avantha power for consolidation of its captive power plant and higher working capital has affected inflated debt and subsequently interest cost. Mgmtt clarified the increase in loans & advances by Rs 330 crroe will get reflected in Gross block after the consolidation of Avantha power plant.
  17. The company’s avg. cost of debt is around 8% â 8.5%.
  18. Company took MAT credit of Rs 3 crore due to tax benefit at its subsidiary â Sabah.
  19. The mgmt said that if excise duty on paper is hiked in coming budget, it will be passed on.

Source: Capital Market