Sectoral tailwinds are in its favor especially due to china factor. With good management, low debt, market leadership in Tissue paper segment, all capex almost done giving room for growth without additional investment company looks good from investment perspective. Looking for risk factors here.
1 Like
Risk is building very fast. Eucalyptus and poplar wood prices increasing. Within 3 months from Rs 250 per quintal to 550 per quintal.
Disclosure - I have interest in wood prices.
Company has sufficient stocks of Eucalyptus which they grow with the help of local farmers. For future also they have developed enough stocks. Also rising cost can be passed to end customer easily because this affects the whole sector and not just one company. In fact its good chance for margin expansion.
All paper companies convince farmers to grow wood. Farmers have been losing money in wood farming for many years. Now paper mills have to pay more. There is no agreement to purchase at low prices. In fact wood was selling less than sugarcane price which is 8 months crop. Wood is 8 years crop. Farmers have already stopped planting wood 4 years before. Now it is not easy to creat wood suddenly. I am also a wood grower in Century mill area. It would be better if you check your facts at ground. Management statements will not help here. I strongly beleive margins will come down. In commodity business it is not easy to pass on raw material prices.
Anyway, still wood prices are at throw away prices. I see only the trend that is certainly up. If prices move up and I beleive these will move up certainly, margins will collapse. I say this based on my experience of 34 years tracking wood prices.
Disclosur again -I may be biased as I have interest in wood.
Does anyone have idea what is rough margin on tissue paper company earns? I see JK paper which makes P&W paper has margins to the tune of 22% but orient paper for which 35% contribution is from Tissue paper still has overall margin around 17%. Am i missing something here?
Thanks for sharing. The problem is now most leading paper mills are already running at or close to 100% utilization, there is limited scope of disproportionate rise in revenue because of -
- New capacity addition will take time, I guess around 2 yrs at least as most are greenfield projects
- They cannot raise paper price to leverage demand-supply gap as international companies get chance to come target this market. (mentioned in recent JK paper concall)
Requesting counter views!
JK Paper enhanced capacity by acquiring Sirpur Paper and in house capacity enhancements.
Orient paper has highest realization per ton (INR 75,155) and lowest COGS/ Ton (INR 21,522). This translates into highest EBIDTA / Ton - INR 13,990 for orient paper among all other paper producers.
Further, paper capacity addition is RoCE decretive and no-one in his right mind will choose to do so (as yields are lower than FD).
Figures are taken from recent article published on Indian paper Industry: https://www.alphainvesco.com/blog/understanding-the-indian-paper-industry/
What is the source of such out-performance by Orient Paper?
My analysis -
- It is leader in Tissue paper segment - High growth & High Margin business
- Integrated paper mill and somewhat assured raw material supplies (afforestation / Nursery)
- Better chemical recovery and cost efficiency due to backward integration (Power + Pulp)
Key issues - All key employees are 50+, lack of any young leader / next generation to take forward company (lack of succession planning, I guess).
Disc: Holding before de-merger, ~6% of PF
3 Likes
I have prepared a report on ‘Indian Paper Industry’ which includes coverage on 12 small/mid caps companies. Please take a look and share your feedback.
https://equityunravelled.wordpress.com/
25 Likes
Amazing work @Divyachawla - very comprehensive. learnt quite a bit going through the report.
1 Like
Brilliant work…
1 Like
Excellently detailed. What I liked about your report is the oversight you have provided about the paper industry and the macro economic factors impacting it.
1 Like
Can anyone have a list of all listed MNCs in India . Excel sheet with some basic information on Mcap , price etc
Hi,
Currently stock is trading at p/e of 5.46.Also have good cash reserves and dividend yield.The company is having 12.13% of stake in HIL and 1.12% stake in Century textiles,combining both it is more than 200 crore of investments in 2 good firms which are poised to grow in future.Moreover they are also into business of paper napkins(tissue papers) which will have a good future in INDIA.Seems like a good bargain investment at these levels.
Disc -> Invested from 30 odd levels.
Thanks,
Deb
2 Likes
Apart from liquid investments into HIL & Century, OPIL also has land bank amounting to ~Rs 900 Crs (894 to be precise as per AR FY19), against marketcap of INR 536 Crs and dividend yield of 4.36%
1 Like
Hi,
Orient Paper has postponed the quarterly results to 14th August instead of having it in 1st august.should this raise eyebrows or is it ok??Being a CK birla group company I didn’t expect this.
Thanks,
Deb
Hi,
Results are not good.
Thanks,
Deb
Some thoughts & perspectives on Orient Paper & Industries Ltd (OPIL)
- Rs 710 Cr Operating Revenue in FY 2018-2019. Revenue Mix (Mar 2019): Paper – Rs 564.32 Cr VS Rs 531.29 in FY 2017-18; Caustic Soda – Rs 129.65 Cr vs Rs 121.41 Cr in FY 17-18.
- Close to 50% of the revenues are generated from tissue paper, out of which 50% of tissue papers are exported - Largest Indian tissue paper manufacturer & exporter.
- Revenues, margins and profits were high in FY 18-19 driven by higher pulp prices. EBITDA margins peaked at 24% in Mar 2019,
- Since Q1 FY20 pulp prices have gone down from US$ 800 to US$ 450 impacting price realization, margins, etc even though capacity utilization have gone up. EBITDA margins for 9M FY20 is around 12-13%
- Low cost operations with strong focus on cost reductions, especially energy conservation; reducing dependence on higher cost pulp imports
- OPIL expanding pulp capacity to 100000 TPA (through internal accruals) with a Rs 225 Cr investment and further on tissue paper plant expansion with Rs 100-120 Cr investment
- Pulp mill expansion scheduled to complete by Q4 FY21 followed by tissue paper plant expansion should add significantly to the revenues and profits.
- Almost debt free with just Rs 28 Cr debt (incl WC). Pulp expansion financed through internal accruals
- Revenues & margins depressed over last 12 months on account of drop in pulp prices from US$ 800 / tonne to US$ 450/tonne.
- OPIL diversifying international revenues by focusing on tissue paper exports to higher price realization markets of Europe & USA
- The value of OPIL’s investments at Rs 428 Cr – 800 acre Land bank in Orissa at Rs 309 Cr book value; Shares valued at Rs 119 Crores in Century Textiles & HIL is more than the current market capitalization of Rs 374 Cr
- OPIL is available at less than 4x OCF, almost debt free with operating & profitable assets
- COVID related impact, weak margins for the next few quarters should be an overhang on the stock for a few quarters
- Increase in pulp prices, expansion of export markets can drive up revenues, margins and profitability in the near to medium term. Over a medium to longer term, capacity expansion in pulp and tissue paper should drive revenues, EBITDA & margins, followed by profits leading to valuation growth
- Risks include
- Further downside to pulp price in international markets
- Delays in completion of the pulp paper expansion project
- Increase in raw materials prices (wood)
- Low cost imports / dumping of printing paper, especially from Indonesia
- Significant Risk: Madhya Pradesh Govt Rs 982.48 Cr ‘contingent liability’ towards excess water consumption charges. Interim stay obtained in 2015 through writ petition. This represents a huge risk if Government wins the claim.
3 Likes