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Ballarpur Ind: Good show in pulp segment
Aug 23, 2011

BILT has announced its results for the fourth quarter and full financial year 2010-11 (FY11). The company has reported a 10.2% YoY growth in sales and 14.2% YoY increase in net profits during 4QFY11. Here is our analysis of the results.

Performance summary
  • Topline during 4QFY11 (June ending fiscal) grows by a 10.2% YoY largely led by growth in its pulp business. For the year ended June 2011, the revenues grew by 18.2% and net profits by 8%.
  • Operating margins fall by 3.3% over the same quarter last year. For the full year, operating margins reduced by nearly 2%.
  • Interest expenses were contained during the quarter. However, for the full year interest expenses grew by 14.1%.


Financial performance snapshot
(Rs m) 4QFY10 4QFY11 Change FY10 FY11 Change
Net sales 10,812 11,920 10.2% 38,185 45,149 18.2%
Expenditure 8,429 9,694 15.0% 30,001 36,399 21.3%
Operating profit (EBDITA) 2,384 2,226 -6.6% 8,184 8,750 6.9%
EBDITA margin (%) 22.0% 18.7%   21.4% 19.4%  
Interest 685 686 0.1% 2,371 2,705 14.1%
Depreciation & amortisation 787 901 14.5% 3,019 3,351 11.0%
Profit before tax 912 640 -29.8% 2,794 2,694 -3.6%
Profit before tax margin (%) 8.4% 5.4%   7.3% 6.0%  
Tax 82 (318) -489.6% 389 38 -90.1%
Profit after tax before minority 830 958 15.3% 2,404 2,656 10.5%
Share of minority 177 212   434 529  
Profit after tax 653 746 14.2% 1,970 2,127 8.0%
Net profit margin (%) 6.0% 6.3%   5.2% 4.7%  
No. of shares (m)         655.5  
Diluted earnings per share (Rs)*         3.2  
P/E (x)         8.4  
(*trailing twelve month earnings)

What has driven performance in 4QFY11?
  • BILTís revenues grew by 10.2% YoY during 4QFY11 and by 18.2% during FY11. This was mainly on account of the growth in pulp business which grew by 85.3% YoY during the quarter and 47.4% over the full year FY11.
    Segmental snapshot
      4QFY10 4QFY11 Change FY10 FY11 Change
    Paper 8,641 9,104 5.4% 29,959 34,975 16.7%
    PBIT margin (%) 15.7% 7.9%   15.5% 10.3%  
    Paper products & office supplies 1036.7 931 -10.2% 3867.5 4202.3 8.7%
    PBIT margin (%) 6.0% 7.0%   7.2% 7.0%  
    Pulp 875 1621 85.3% 3425 5048 47.4%
    PBIT margin (%) 26.0% 35.2%   16.8% 32.1%  
    Others 287 245 -14.5% 1133 907 -20.0%
    PBIT margin (%) -4.0% -4.0%   -4.0% -4.0%  
    Total 10,840 11,902 9.8% 38,384 45,132 17.6%
    PBIT margin (%) 15.1% 11.3%   14.3% 12.2%  

  • The paper segment also saw some growth amounting to 5.4% during the quarter but the paper products and office supplies segment had a de growth of 10.2%.

  • Operating expenses grew 15% YoY during the quarter. This number stood at 21.3% for the full year. Higher expenses resulted in lower operating profits and reduced operating margins.

  • The paper company was able to contain its interest expenses during the quarter. But, for the full year interest expenses grew by nearly 14%.

What to expect?
At the current price of Rs 27.2, the stock is trading at a price to earnings multiple of 8.4 times FY11 earnings. The company is in an expansionary phase and the production from the new mills is expected to begin from the next year. Also, it is widening the product portfolio with inclusion of tissue in its offerings. It has recently acquired one of the leaders in tissue manufacturing "Premier Tissues" with the same aim in mind.

Since pulp prices remain at elevated level and company imports part of its pulp requirements (38% of pulp is imported), we expect margin pressures to continue. Due to excess supplies, the paper industry is finding it difficult to wield pricing power and thus having to bear higher input costs. However, BILT is increasing its pulp capacity by 120,000 mt in FY12 and by 170,000 mt in FY13 which will bring down its dependency on imported pulp. Further the same will provide support to margins in the longer term. The stock is currently under our review and we will soon revise our estimates.

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