Orient Paper Industries - Value unlocking on the cards - IIFL

Orient Paper Industries (OPIL) is a cement company based in south and west India, with interests in the paper and electrical businesses. OPIL expects to complete the de-merger of its cement business in the next two months and will list the cement business as a separate entity following the de-merger.

- OPIL expects cement volume to grow 8% for FY13, driven by strong demand growth in the western region.

- OPIL is planning to expand cement capacity through greenfield expansion in Karnataka. The company is securing the necessary clearances. Work on the new plant may start in early FY14 and expansion is likely to be completed by end-FY15.

- Cement costs are likely to be largely stable. OPIL plans to sell ~5MW excess power in the open market.

- The electrical segment's profitability was negatively impacted in 1QFY13 as capacity expansion is yet to stabilise. OPIL expects profitability to improve following stabilisation of new plants.

- We expect volatility in the cement segment's profit since 35% sales come from the supply-heavy Andhra Pradesh market. However, the valuation is attractive at US$41 per tonne for cement assets assigning 0.3x P/BV for the paper business and 8x EV/Ebitda for the electrical business.

Source : Equity Bulls

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