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  • Jan 4, 2012 - BILT vs International Paper: The financial factsheet

BILT vs International Paper: The financial factsheet

Jan 4, 2012

In our previous article, we discussed key operational parameters of two paper giants Ballarpur Industries and International Paper. We will now delve into the financials of these two to decide which is a better run organization.

We had mentioned in our earlier article that sales growth for International Paper has been quite stagnant because of a slowing US economy. This is reflected in the average sales growth number of last 5 years that comes to an average of around 3% per annum. For Ballarpur Industries (BILT) though, sales growth has been close to 19% on an average.

In terms of margins, operating margins have hovered around 22% on an average for BILT while for International Paper these were 13%. Net margins too are higher for BILT at 7.6% as compared to a much lower 2.1% for International Paper. The margins for International Paper have been on a decline but are more or less consistent. This may be because International Paper is quite a mature business now while BILT is still growing.

Current ratio has been quite high for BILT at 2.9 times while for International Paper the same has been 1.8 times. Having a higher current ratio may not always be ideal as it indicates capital being blocked in inventory and unused cash.

For paper companies in India, expansion of capacity is the only way to grow at present. Thus, these require funds which they borrow in the form of debt. For BILT too, the story is the same thereby impacting the debt-equity ratio. Debt-equity for BILT has been quite high at 1.6 times. International Paper too has a high debt-equity of 1.5.

Sales/working capital too is a crucial ratio to look at for paper companies. The same is 2 times and 7 times respectively for BILT and International Paper for last 5 years. This indicates better efficiency from the north American company.

At the end of it all, what attracts a person to invest in any stock is the returns that it generates for equity shareholders. The return on equity (RoE) for BILT is 11% at present and has been higher at 13% over last 5 years. Although the returns may be tempered in the near term, as compared to International Paper (average of 7.7%) BILT still scores higher.

Parameter Units Companies
Ballarpur Industries* International Paper**
Operating parameters      
Last reported Sales (US$ m) 900 25,179
Sales growth (last 5 years average) (%) 19.1 3.2
Operating margin (last 5 years average) (%) 22.5 12.9
Net margin (last 5 years) (%) 7.6 2.1
Ratios - average of last 5 years      
Current ratio (x) 2.9 1.8
De ratio (x) 1.6 1.5
Sales/ working capital (%) 2.0 7.3
RoE (%) 13.1 7.7
Valuations      
TTM EPS   0.32 ^ 3.2
TTM PE (x) 6.0 9.2
TTM- Trailing Twelve Month, * Year ending June 2011, ** Year ending December 2010, ^EPS in Rs

After going through the financials of both BILT and International Paper we conclude that International Paper is a better managed company in some aspects while BILT in some others. In terms of valuations, BILT is trading at consolidated trailing 12 months price to earnings (P/E) multiple of nearly 6 times and International Paper at 9 times. To conclude, the growth prospects are not too bright for the paper companies overseas. On the other hand, growth opportunities are immense for BILT over the longer term. If the business is managed efficiently, it could benefit from its leadership position in the branded paper segment and keep growing in years to come.

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