Scripscan:Orient paper Ltd
Point to note:Please don't make any haste.Its a volatile counter with good volumes and would always offer chances to pick up during correction periods.
Quote:A lot of action is expected to happen in the recommended counter.The note is of Skp aligned with my views.Its not meant for long term members.Folks who fancies short term stuff can act accordingly.
Company Background:Orient Paper & Industries Ltd (OPIL) is a part of CK Birla Group. It is engaged in the business of manufacture of Paper (tissue papers, writing and printing papers, photocopy papers etc) and Consumer Electrical goods (fans, lightings and household electrical appliances). OPIL has five manufacturing units located at Amlai (M.P.), Brajrajnagar (Orissa),
Kolkata (W.B.), Faridabad (Haryana) and Noida (U.P.)
Investment Rationale:OPIL Paper business in recent years have been facing stiff challenges, since Indian Paper Industry has been passing through a very difficult phase due to huge cost increases and depressed market conditions. In addition, the OPIL had problems in functioning of its aging captive power plant, which led to losses during the year FY13. OPIL has already taken several initiatives to improve the performance of paper business:
a)A 55 MW power plant was commissioned in December -2012 at Amlai, M.P. This will not only overcome the bottleneck of steam and power unavailability but will also result in savings of ~INR 300 million annually.
b)New 250 million gallon water reservoirs are now fully operational,which is helping OPIL to avoid any water shortage related shutdown.
c)OPIL has taken ~12% increase in the prices of paper which has helped in reducing losses.Apart from the above Rupee depreciation had increased the cost of imports thereby, giving some respite to the industry.
Diversification into the small electrical appliances to propel growth:OPIL has launched a wide range of Electrical/Household Electrical Appliances (achieved turnover of ~INR 500 million in the first year of launch). Initially the company will trade in the aforesaid new products and will leverage its Orient brand coupled with its robust distribution network comprising of ~5,000 dealers.
Surplus land to add value:OPIL Paper plant at Brajrajnagar is non-operational since 1999. The company has applied for coal linkage for an IPP project and is awaiting an approval. Though, we believe that relevant available land can be optimally used for other purposes going forward.
Valuation:We rate a BUY rating on OPIL with a price target of INR 23.7/share. Our target price is based on SOTP valuation methodology, discounting Electrical and Paper business at 0.2x and 1x FY15EEV/Sales.
Btw:The past data of OPIL is not comparable since the Cement division has been demerged with effect from 1St April 2012. Post the demerger, the OPIL business reflects the value of the Paper, Consumer Durable business and Investments.
My view:Orient paper after the demerger has rejuvenated itself with its initiatives.The company is all set to make a sparkling turnaround in the coming quarters.Its a class company coming from a quality stable.Interest is very high in the counter because of the intrinsic value.A lot of MF's are already behind it and with the expected profits,it should attract a premium valuation.My target is 23 bucks which should get achieved over the next 4-6 months.
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