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BILT: The 'rayon grade' impact - Views on News from Equitymaster
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BILT: The 'rayon grade' impact
Sep 25, 2009

Performance summary
  • Topline during FY09 (June ending fiscal) falls by 1% due to the poor performance of its pulp unit at Kamalapuram and Sabah Forest Industries in Malaysia.
  • Operating margins shrink by 1.9% due to a substantial rise in the consumption of stores and spares.
  • Fall in operating profits coupled with higher interest costs and depreciation charges lead to the 44% YoY fall in the bottomline for the year.

Financial performance: A snapshot
(Rs m) 4QFY08 4QFY09 Change FY08 FY09 Change
Net sales 8,034 7,272 -9.5% 28,543 28,361 -0.6%
Expenditure 6,248 5,581 -10.7% 21,397 21,821 2.0%
Operating profit (EBDITA) 1,786 1,692 -5.3% 7,146 6,540 -8.5%
EBDITA margin (%) 22.2% 23.3%   25.0% 23.1%  
Other income - 17   - 17  
Interest (net) 371 413 11.3% 1,482 1,708 15.2%
Depreciation 513 730 42.4% 1,924 2,326 20.9%
Profit before tax 903 567 -37.2% 3,740 2,524 -32.5%
Tax 172 120 -30.2% 704 645 -8.4%
Minority interest 37 75   65 212 226.5%
Share of profits in associates 3 -   28 16 -43.0%
Profit after tax/(loss) 697 372 -46.7% 2,999 1,683 -43.9%
Net profit margin (%) 8.7% 5.1%   10.5% 5.9%  
No. of shares (m)       555.6 555.6  
Diluted earnings per share (Rs)*         3.0  
Price to earnings ratio (x)*         8.8  
(* on a trailing 12-months basis)

What has driven performance in FY09?
  • BILT’s revenues fell by 1% YoY during FY09 largely due to the poor performances of both its rayon grade pulp unit and Sabah Forest Industries in Malaysia. Due to the sluggish demand for pulp in the second and third quarter, unit Kamalapuram (which manufactures rayon grade pulp) remained shut during these two quarters. However, this unit resumed operations from May 2009. Further, revenues were also impacted due to the subdued performance of Sabah Forest Industries in Malaysia once again due to tepid demand for paper in Malaysia and the maintenance shut down in March. The company’s overall paper business logged in a growth of 9% YoY, which is below the 15% YoY growth that we had estimated for the full year and hence we shall have to downgrade our numbers for the full year accordingly.

    Segmental snapshot
      4QFY08 4QFY09 Change FY08 FY09 Change
    Paper 6,109 6,331 3.6% 21,772 23,493 7.9%
    PBIT margin (%) 18.8% 13.7%   15.7% 13.7%  
    Paper products & office supplies 707 764 8.0% 2,475 3,019 22.0%
    PBIT margin (%) 14.0% 10.5%   11.9% 7.9%  
    Pulp 947 59 -93.7% 3,580 1,388 -61.2%
    PBIT margin (%) 14.7% -180.3%   8.9% -4.5%  
    Others 288 233 -19.1% 1,213 1,093 -9.9%
    PBIT margin (%) -6.3% -4.1%   -3.3% -3.1%  
    Total 8,050 7,387 -8.2% 29,040 28,993 -0.2%
    PBIT margin (%) 17.0% 11.3%   13.8% 11.6%  

  • BILT’s operating margins contracted by 1.9% during the year, largely due to a rise in consumption of stores and spare parts from 16.8% of sales in FY08 to 18.5% in FY09. Operating margins also declined on account of the shrinkage in profits of the Kamalapuram unit and Sabah Forest Industries. Despite this, BILT enjoys the best margins among its peers in the domestic as well as the international paper market.

  • Led by the 9% YoY drop in operating profits and higher interest costs and depreciation charges, BILT’s bottomline fell by 44% YoY during the year. Even an 8%YoY decline in tax expenses could not do much in terms of arresting the fall in net profits. The performance at the net level has been lower than our estimates.

What to expect?
At the current price of Rs 24, the stock is trading at a price to earnings multiple of 3.1 times our estimated FY11 earnings. The performance in FY09 was tepid on account of stagnant demand and maintenance shut downs. Having said that, the company’s performance is expected to improve over the next three years with the new capacities coming on stream, which will provide a fillip to revenues. Infact, capacity expansion at the Bhigwan unit has been completed and commercial production already started in March 2009. In the longer term, the company is also expected to benefit from the Sabah acquisition in the form of lower raw material costs and consequently higher operating margins. Despite near term pressures and the fact that we will have to downgrade our estimates for the full year, we maintain our positive view on the stock from a long term perspective.

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