Value Buy: Orient Paper and Industries

Orient Paper and Industries
Recommendation: Buy
Price target: Rs80
Current market price: Rs46

Paper division affects profitability

Result highlights

* Orient Paper and Industries (Orient Paper) has reported an 11.5% year-on-year (y-o-y) growth in its net sales to Rs379.3 crore for Q4FY2008. The revenue growth was driven by the cement and fan divisions, which have reported revenue growth of 15.9% and 26.7% respectively for the same quarter. On the other hand, the revenues of the paper division declined by 18.1% to Rs60.1 crore in Q4FY2008.

* The reported operating profit margin (OPM) fell by 460 basis points year on year (yoy) to 21.7% mainly due to a decline in the profit before interest and tax (PBIT) margin of the paper division. The PBIT margin of the paper division dropped due to a shutdown at its Amlai paper unit in Q4FY2008. Consequently, the operating profit of the company declined by 8% yoy to Rs82.4 crore. The adjusted OPM for the quarter stood at 24.9%.

* The other income of the company declined by 71.8% to Rs2.5 crore due to the absence of income from the sale of certified emission reduction units (CERs). In the corresponding quarter in the previous year, the company had generated income from the sale of CER credit of Rs6.4 crore.

* The interest expense of the company declined by 65.7% to Rs3.13 crore due to debt repayment.

* The reported net profit of the company increased marginally by 0.3% to Rs48.1 crore during Q4FY2008.

* During the quarter under review, the company made a provision of Rs12 crore against receivables from its joint venture company in Kenya. In the corresponding quarter in the previous year the company had a prior-period item of Rs11.7 crore. Thus, the adjusted net profit of the company increased marginally by 1% to Rs55.8 crore in Q4FY2008.

* Orient Paper's expansion schedules are progressing well. The third phase of the capacity expansion (from 3.4 million metric tonne [mmt] to 5mmt) in the cement division; the 50-megawatt (MW) captive power plant (CPP) at the Devapur cement plant; and the expansion of the tissue paper capacity of the company by 15,000 tonne are expected to be commissioned as per schedule by the end of FY2009.

* We have revised our FY2009 net profit estimate marginally upwards by 1.1% and forecast a net profit of Rs281.1 crore for FY2010. We expect the company to generate earnings per share (EPS) of Rs11.5 and Rs14.6 in FY2009 and FY2010 respectively. High volumes from the capacity additions in the cement and paper divisions will be the primary drivers of the earnings growth for the company in FY2010. At the current market price of Rs45.95, the stock trades at 4x and 3.2x its FY2009 and FY2010 earnings estimates and an enterprise value (EV)/earnings before interest, depreciation, tax and amortisation (EBIDTA) of 3.3x and 1.9x for FY2009 and FY2010 respectively. The EV per tonne for the cement business works out to US$67 per tonne and US$25 per tonne for FY2009 and FY2010 respectively. Taking into account the low valuations at which the stock trades at present, we maintain our Buy recommendation on Orient Paper with a price target of Rs80.

Pick of the Week: Unitech

ALL OUR RECENT STOCK OF THE WEEK CALLS HAVE ACHIEVED TARGET IN FEW DAYS ITSELF LIKE HOTEL LEELA, LANCO INFRATECH, ADLABS FILMS, KAVERI TELE, PRAJ IND, YES BANK, AND MANY MORE

BUY BUY BUY UNITECH

Equity : 324.68Cr, (Code : 507878), CMP : 288.85

BUY UNITECH @ 288, Target Rs. 308 to 310

Unitech is one of the two biggest property developers in India. The company has a presence in all segments of real estate development viz., residential, commercial, retail and hospitality. The company has a land bank of over 10,300 acres, which is one of the largest in the country. This provides it strong visibility in respect of future growth. In order to diversify its business from location risks, the company has entered new markets like Kolkata, Chennai, Kochi, Hyderabad, Mohali, Agra and Varanasi and has plans to start operations in many others.

Unitech has executed various residential and commercial projects. It has tie-ups with Singapore � based companies through Unitech Prefab for producing ready mix concrete. In addition it has tie-up with Gurgaon Technology Park and Hyundai through Hyundai Unitech Electrical Transmission for galvanizing and fabricating electric tower material. Real estate division is the major contributor to revenues generation.

Unitech in order to diversify its business is entering into telecom sector through 8 of it�s wholly � owned subsidiary companies. �Sales and NP for year ended 06 / 07 were 2504Cr. & 962.1Cr. Sales and NP for latest Quarter 818.5Cr. & 368.9Cr. On YOY basis NP has increased by 999%, Dividend during year ended 06/07 was 25%

Pick of the Week: Hotel Leela

BUY BUY BUY HOTEL LEELA

Equity : 75.56 Cr, BSE Code : 500193, CMP : 45.05


Hotel Leelaventure Limited is the promoter of the 5-star deluxe ho-tels in Mumbai, Goa, Bangalore and Kovalam. The hotel was founded by Captain C. P. Krishnan Nair. Hotel �eelaVenture Ltd owns and manages hotels under The Leela Palaces & Resorts brand in India. It has a management alliance with Kempinski, the oldest hotel group in Europe. All the hotels of the company are co-branded with Kempinski. The Leela Group has planned new properties in Udaipur, Hyderabad, Pune and Chennai. The hotel of 360 guest rooms situated at Adyar beach, Chennai fac-ing the Bay of Bengal admeasuring about 6.5 acresis expected to be commissioned in near futureat an estimated cost of around Rs 3,200 million. Another 300 roomhotel at Banjara Hills, Hyderabad is expected to commence operations in the near future at an estimated cost of Rs 3,100 million. The Leela Group is also setting up a 260 room hotel in Pune at an estimated cost of Rs 1,600 million which is expected to commence operations in the near future only.

The Hotel Leela entry into Hyderabad and Pune would give fillip to its revenues due to an increase in the growingIT and ITeS industries in these cities. Both the cities in recent past seen huge surge in demand due to the growing number of business travelers thereby increasing the occupancy rates of the rooms. The Hotel Leela with upcoming hotels in Gurgaon, Udaipur, Chennai, Delhi, Pune and Hyderabad will have 2,750 rooms over the next three years from the current 1,086 rooms. Of the six proposed projects, the Gurgaon hotel is expected to be operational first followed by projects in Udaipur, Chennai, Delhi, Hyderabad and Pune. These facilities once becoming operational will generate huge turnover for the Hotel Leela and thereby add to its top line and bottom line. Sales and NP for year ended 06 � 07 were 393.7Cr. & 98.6Cr. Sales and NP for latest Quarter 143Cr. & 55Cr.

On YOY basis NP has increased by 33% & based on quarter latest its increased by 54% Dividend during year ended 06 � 07 was 23%

Pick of the Week: ABG SHIPYARD

BUY BUY BUY ABG SHIPYARD
Equity – 50.92 Cr
BSE Code – 532682
CMP – 606.65
BUY ABG SHIPYARD @ 606 - 607 TGT 662 - 664

ABG Shipyard Ltd., the flagship company of ABG group was incorporated in the year 1985 as Magdalla Shipyard Pvt. Ltd. with the main objects of carrying Shipbuilding and Ship Repair business. In a span of 15 years from the year 1991, the company has achieved the status of the largest private sector shipbuilding yard in India with satisfied customer base all around the world. The registered office and the yard are situated at Surat in the state of Gujarat and the corporate office is in Mumbai.

Their shipyard has state of the art, manufacturing facilities including a “Ship-lift Facility” with a lift capacity of 4500 tons, side transfer facilities, CNC plasma cutting machine, Bending rolls, Hydraulic press, Cold shearing machine, Frame bending machine and steel processing machinery. The Shipyard also has blasting shop and fabrication shop covered in 4 bays of 150 x 30 M each equipped with 20T EOT Cranes. The manufacturing process is in line with world-class standards and the Yard is certified by DNV for ISO 9001:2000.

During past decade, the Shipyard has constructed and delivered Ninety-Five (95) Vessels including Specialized and Sophisticated vessels like Interceptor Boats, Self Loading and Discharging Bulk Cement Carriers, Floating Cranes, Articouple Tugs and Flotilla, Split Barges, Bulk Carriers, Newsprint Carriers, Offshore Supply Vessels, Dynamic Positioning Ships, Anchor Handling Tug Supply Vessels, Multi-purpose Support Vessel, Diving Support Vessels, etc. for leading companies in India and abroad.

The Shipyard has executed many prestigious Shipbuilding and Ship-repair contracts
against stiff International Competition for both Export and Domestic Markets. All these vessels have performed very well, thus establishing its reputation for building and delivering vessels of the best quality at competitive prices and delivery periods. The Ship Repair Division has successfully repaired and refurbished Dredgers, Ethylene Carriers, Bulk Carriers, Offshore Supply Vessels and Coast Guard Vessels.

They are now setting-up a new shipyard with state of art manufacturing facilities
including Two (2) Nos. 400 Mtrs. long Newbuilding dry-docks allowing us to build all
kinds of vessels upto 120000 DWT.

Sales and NP for year ended 06 – 07 were 704.4Cr & 116.2Cr. Sales and NP for latest
Quarter 275Cr & 47.1Cr.

On YOY basis NP has increased by 39% & based on quarter latest its increased by 61%
Dividend during year ended 06 – 07 was 15%

Pick of the Week: KAVVERI TELECOM

BUY BUY BUY : KAVVERI TELECOM

Equity : 10.06 Cr, BSE Code : 590041, CMP: 194

BUY KAVVERI TELECOM @ 192/194 TGT 210/212

Kavveri Telecom is a leading telecom products manufacturer, providing world-class, hardware products and solutions for the telecom industry. Founded in 1991 by a highly innovative team, Kavveri Telecom designs, develops, tests and implements a diverse range of products, from concept to deployment. With over 150 R&D man-years of experience, Kavveri Telecom is uniquely positioned to offer an array of world-class products and solutions to meet all hardware requirements of telecom manufacturers, telecom service providers and telecom users.

Kavveri Telecom combines expertise with experience to deliver state-of-art products and solutions spanning the wide spectrum of wireless Telecommunications. The diverse range of products manufactured by Kavveri Telecoms includes Antennas, RF Components, Repeaters, TMA/TMB and Solar Products. The Company also enjoys the stature of being the largest manufacturer of Antennas & RF products in India. With 30,000 Sq. ft. area of R&D manufacturing infrastructure for design, development & production of Microwave Components, RF products and Antennas, Kavveri Telecoms has the capacity of manufacturing over 1,00,000 high quality Antennas & 10,000 RF products per month.

Headquartered in Bangalore, India, with three well-equipped production plants, Kavveri Telecom is geared to meet all telecom hardware needs of clients across the globe. Kavveri Telecom's esteemed clientele include industry giants such as Ericsson, Motorola, Spice, Airtel, BSNL, ISRO, World Space and Airports Authority of India. Sales and NP for year ended 06/07 were 50.2Cr & 5.9Cr. Sales and NP for latest Quarter 43Cr & 6.1Cr. On YOY basis NP has increased by 122% & based on quarter latest its increased by 205% Dividend during year ended 06 � 07 was 10%