The paper industry is on an upturn. This is evident from the firm trend in international paper prices and also the domestic hike in prices witnessed twice in calendar year 2003, the latest being the one during November 2003. In this article, we give you a brief overview of the biggest paper player in the domestic industry, Ballarpur Industries (BILT).
Returns are calculated on Rs 100 invested on December 31 2002
Ballarpur Industries (BILT), India's largest paper company, ranks among the top 200 paper companies in the world. It is India's largest exporter of paper with a significant presence in the manufacturing of various types of paper like writing and printing paper, industrial paper and specialty paper. The company is backward integrated and produces most of the raw materials required for manufacturing paper.
The company has 6 manufacturing units across the country with a total annual paper producing capacity of 0.5 million tonnes. BILT basically has two business segments - paper and chemicals. However, the paper division contributes the major chunk of revenues (over 60%). The fortunes of the company and the industry per se is dependent on its user industries like pharmaceuticals, FMCG and cigarettes, which are the key volume consumers.
The company has been restructuring its business since the last few of years and has been concentrating on its paper business. The company's acquisition of the pulp division of AP Rayon will provide the company with easier access to raw materials. The company has also doubled the capacity of its Sewa paper mill in Orissa.
Also, last year, the company merged BILT Graphics Paper (BGPL), formerly Sinar Mas Pulp and Paper India, with itself, which was one of the largest consolidation exercises in the domestic paper industry. BGPL has a state-of-the-art paper manufacturing plant with a capacity of 115,000 tpa and is the market leader in the high-end coated paper and art board segments in India. Post the acquisition, BILT commands a 50% share of the coated paper market.
At Rs 83, the stock is trading at a P/E multiple of 13x its FY03 earnings (June ending). Going forward, not much should be read into the recent price hikes, as it was largely to offset the hike in input costs. Further, as can be seen in the chart above, the stock has largely performed in-line with the benchmark index despite the hike in paper prices because the merger with BGPL has been putting pressure on the bottomline of the company.
Going forward, the company expects the paper industry to grow in line with the GDP i.e. at about 6%-7%, while it expects that the capacity in the industry will grow at a much lower rate (about 3%). This is a favourable scenario for the industry and consequently the company. However, one concern would be the fact that the paper industry's fortunes are largely dependent on its industrial user industries.