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BILT: The capex impact - Views on News from Equitymaster

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BILT: The capex impact

Feb 6, 2010

Performance summary
  • Topline during 2QFY10 (June ending fiscal) grows by a robust 37% YoY boosted by volumes due to added capacity at Bhigwan and Ballarpur coming on stream.
  • Operating margins shrink by 3.7% due to a substantial rise in raw material costs (as percentage of sales).
  • Despite the 18% YoY growth in operating profits, net profits fall by 1% YoY on account of higher depreciation charges and interest costs.

Financial performance: A snapshot
(Rs m) 2QFY09 2QFY10 Change 1HFY09 1HFY10 Change
Net sales 6,491 8,881 36.8% 14,230 16,984 19.4%
Expenditure 4,833 6,932 43.4% 10,730 13,155 22.6%
Operating profit (EBDITA) 1,659 1,948 17.5% 3,500 3,829 9.4%
EBDITA margin (%) 25.6% 21.9%   24.6% 22.5%  
Interest (net) 449 565 25.9% 826 1,047 26.8%
Depreciation 527 742 40.9% 1,047 1,462 39.6%
Profit before tax 683 641 -6.1% 1,627 1,319 -18.9%
Tax 183 106 -41.8% 361 296 -18.1%
Minority interest 49 79   149 150 0.5%
Share of profits in associates 7 -   16 - -100.0%
Profit after tax/(loss) 459 456 -0.7% 1,133 874 -22.8%
Net profit margin (%) 7.1% 5.1%   8.0% 5.1%  
No. of shares (m)       555.6 555.6  
Diluted earnings per share (Rs)*         2.6  
Price to earnings ratio (x)*         9.7  
(* on a trailing 12-months basis)

What has driven performance in 2QFY10?
  • BILT’s revenues grew by a robust 37% YoY during 2QFY10 largely due to a boost in volumes as its capacity expansions at Ballarpur and Bhigwan came on stream. Unit Kamalapuram (which manufactures rayon grade pulp) also bounced back with revenues growing by 211% YoY. As a result, the company’s overall paper business logged in a healthy growth of 24% YoY. For the half year period too, while overall sales grew by 16% YoY, sales from the paper business logged in a growth of 17% YoY.

    Segmental snapshot
      2QFY09 2QFY10 Change 1HFY09 1HFY10 Change
    Paper 5,459 6,773 24.1% 11,349 13,184 16.2%
    PBIT margin (%) 21.5% 16.5%   20.6% 17.4%  
    Paper products & office supplies 763 939 23.2% 1,493 1,790 19.9%
    PBIT margin (%) 10.5% 7.0%   21.3% 8.8%  
    Pulp 298 925 210.6% 1,199 1,586 32.4%
    PBIT margin (%) -25.1% 12.6%   -16.6% 2.9%  
    Others 293 307 5.0% 623 582 -6.6%
    PBIT margin (%) -4.0% -4.0%   -6.9% -4.2%  
    Total 6,812 8,944 31.3% 14,663 17,143 16.9%
    PBIT margin (%) 17.1% 14.4%   29.9% 14.7%  

  • BILT’s operating margins contracted by 3.7% during the quarter, largely due to a rise in raw material costs from 21.2% of sales in 2QFY09 to 30.9% in 2QFY10. Raw material prices were higher on account of a substantial increase in pulp prices. Further, a correction in realisations also had an impact on overall margins during the quarter. Despite this, BILT enjoys the best margins among its peers in the domestic as well as the international paper market. For the half year period, operating margins shrank by 2.1%.

  • Despite the 18% YoY growth in operating profits, higher interest costs and depreciation charges dented BILT’s bottomline, which fell by 1% YoY during the quarter. Increased tax expenses also played a role in impacting bottomline. Depreciation was higher during the quarter due to the expanded capacities at Bhigwan and Ballarpur coming on stream.

What to expect?
At the current price of Rs 25, the stock is trading at a price to earnings multiple of 3.2 times our estimated FY11 earnings. With the capacity expansion at Bhigwan and Ballarpur coming on stream, volumes and consequently sales are expected to ramp up going forward. Near term pressures are likely to persist in terms of higher raw material costs as pulp prices remain firm. Also, given that Bhigwan imports pulp, the additional capacity coming on stream means that pulp requirements will increase putting further pressure on margins. However, in the longer term, the Sabah acquisition will be beneficial as pulp from the forests in Malaysia would be used at the Indian plants thereby lowering raw material costs. Overall, we maintain our positive view on the stock from a long term perspective.

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