Similar to fourth quarter performance, Ballarpur Industries Ltd. (BILT) has registered a flat topline but sizable bottomline growth. Post tax profits have been lifted primarily by improvement in operating profit, lower interest expense and reduced deferred tax liability. As per reports, international paper industry is experiencing improvement in realisations.
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Over the past two years, the company has undergone restructuring and emerged a more focused player. The efforts are reflected in financial performance. Over the same period ending FY02, sales have almost doubled and profits have risen from Rs 161 m to Rs 1 bn. We reckon, for quarter ended September '02, improvement to topline is likely to have materialized from better realisations. As per reports, year-to-date, the industry has initiated price hikes. The increase is likely to have been in the branded paper segment. At the end of last fiscal, the company has guided improvement in realisations & volumes.
Key operating expense heads across the board have declined YoY, which seems to suggest reduced production and better operating efficiency. Volume sales are likely to have been maintained through de-stocking. The 80 basis points improvement in operating margins could be driven by better realisations and inventory de-stocking. The company has implemented an ERP system, which is likely to streamline working capital cycle. A reflection of the same could be the impact on interest expense. Having said that, the company has re-financed debt to benefit from lower interest rates.
Continuing with re-structuring, the company is in the process of amalgamating subsidiary company, Bilt Paper Graphics Ltd. (BPGL), erstwhile Sinar Mas. The proposed amalgamation ratio is 1 share of BILT for every 17 shares in BPGL. In FY01, BILT acquired Sinar Mas for an estimated Rs 5.2 bn to emerge the leading paper company in the country. Sinar Mas gave the company leadership position in the coated paper business. Also, corroborating on-the-road trends, the company has leadership position in the premium executive bond segment under 'Royal' brand. That said, as per reports, leading competitor, J.K Paper Ltd. is also increasing focus on the branded paper segments, which is likely to heat up competition. Marketing activity is likely to be focused on branded paper, with the segment registering double digit growth.
In FY02, the company made a rights issue, raising Rs 2.2 bn through a mix of equity and 9.5% fully convertible debentures. Consequently, the share capital has increased. At Rs 41, the scrip is trading on a multiple of 6.2x 1QFY03 annualised earnings.
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