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BILT: Firm paper trend!

Feb 6, 2006

Performance Summary
BILT has announced results for the second quarter and half year ending December 2005 (June ending company). While the revenues from the paper business clocked a good growth rate, there was a decline in overall revenues for the quarter. This was owing to poor performance of the companyís pulp business. An improvement in operating margins on the back of a decline in expenditure led to the 9% YoY growth in bottomline.

Financial performance: A snapshot
(Rs m) 2QFY05 2QFY06 Change 1HFY05 1HFY06 Change
Net sales 4,426 4,363 -1.4% 8,679 8,722 0.5%
Expenditure 3,289 3,199 -2.8% 6,435 6,412 -0.4%
Operating profit (EBDITA) 1,137 1,164 2.4% 2,244 2,310 2.9%
EBDITA margin (%) 25.7% 26.7%   25.9% 26.5%  
Other income 21 20 -3.8% 36 41 12.4%
Interest (net) 278 230 -17.1% 563 481 -14.6%
Depreciation 361 368 1.8% 723 734 1.5%
Profit before tax 519 587 13.0% 995 1,136 14.2%
Tax 86 113 31.0% 161 220 36.9%
Profit after tax/(loss) 433 474 9.4% 834 916 9.8%
Net profit margin (%) 9.8% 10.9%   9.6% 10.5%  
No. of shares (m) 162.5 162.5   162.5 162.5  
Diluted earnings per share (Rs)*         10.8  
Price to earnings ratio (x)*         11.3  
(* trailing twelve months)            

What is the companyís business?
BILT is Indiaís largest manufacturer and exporter of paper, with a strong presence in the all the segments that includes writing and printing paper, industrial paper and specialty paper. The company has a diversified production infrastructure with six manufacturing units spread across the country. It is the undisputed leader in the high-margin coated wood free and business stationery segments with market shares of 49% and 79% respectively. Besides this, it also has a significant presence in the uncoated wood free, copier and creamwove segments.

What has driven performance in 2QFY06?
Pulp subdues revenues:BILTís paper business recorded a decent 6% YoY growth in revenues for the quarter. Total paper volume sales were up just 1% YoY from 98,422 tonnes in 2QFY05 to 99,466 tonnes in 2QFY06, thus indicating that the growth has come from better price realisations. Paper prices have remained firm during the quarter due to a rise in demand. This trend of firm paper prices is expected to continue throughout the year as well. However, the blip on the picture was the dismal performance of the rayon grade pulp business (Unit Kamalapuram), which declined by 48% YoY during the quarter. The poor performance of this business was attributed to the shutdown of the unit on account of repairs and industrial action.

Revenue break-up
  2QFY05 2QFY06 Change 1HFY05 1HFY06 Change
Paper 3,977 4,155 4.5% 7,918 8,303 4.9%
PBIT margin (%) 20.3% 20.4%   20.3% 20.2%  
Paper products & office supplies 63 120 91.1% 109 203 86.4%
PBIT margin (%) 25.9% 30.6%   26.0% 29.2%  
Pulp 697 361 -48.2% 1,224 797 -34.9%
PBIT margin (%) 4.9% -2.5%   3.2% -1.0%  
Others 216 278 28.5% 478 517 8.1%
PBIT margin (%) -1.9% -2.3%   -1.7% -2.3%  
Total 4,953 4,915 -0.8% 9,729 9,819 0.9%

Improvement in margins: BILTís margins expanded by 100 basis points during the quarter owing to a fall in expenses, mainly raw materials and power and fuel costs. The reduction in raw material costs as a percentage of sales was attributed to effective procurement and cost controls. The company has been laying greater emphasis on the social forestry programme for the easy availability of its key raw material, wood.

Cost break-up
(% of sales) 2QFY05 2QFY06 1HFY05 1HFY06
Raw material costs 28.9% 28.4% 29.1% 28.0%
Stores and spares consumption 18.0% 17.5% 17.9% 17.8%
Power and fuel charges 13.0% 12.3% 12.6% 12.6%
Personnel cost 6.7% 7.2% 6.9% 7.3%
Other expenditure 7.1% 7.2% 7.1% 7.2%

Bottomline scenario: Bottomline grew by a muted 9% YoY mainly on account of the poor performance at the topline level. Reduction in other income and a higher tax outgo also added to the woes despite a fall in interest costs.

What to expect?
At the current price of Rs 122, the stock is trading at a price to earnings multiple of 11.3 times its trailing twelve months earnings. BILTís presence in all the segments of paper, chiefly in the value added segments (coated wood free, stationary) shall the stand the company in good stead going forward. With stable growth in demand for paper and with most of the players operating at nearly 100% of their capacity, paper prices are expected to improve further (Source: Cris Infac). This is likely to be a favourable scenario for the industry and consequently the company. The company is in the process of further augmenting its capacities and is also looking to foray into the tissue segment in a bid to be present in all the segments of paper and improve margins.

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