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BILT Vs TN Newsprint: The numbers story - Views on News from Equitymaster
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  • Dec 14, 2011

    BILT Vs TN Newsprint: The numbers story

    In our previous article we discussed the business models of Ballarpur Industries (BILT) and Tamil Nadu Newsprint (TNPL). We also discussed the management strategies adopted by the companies and concluded that Tamil Nadu Newsprint (TNPL) over the years has grown organically by expanding capacity. On the other hand, Ballarpur Industries (BILT) has grown through acquisitions. In this article, we will compare both the paper companies based on financial parameters.

    As mentioned earlier, the paper companies are in an expansion mode and have been adding on to their existing capacities. Merely adding capacities will not help, we need to see whether this has resulted in revenue increase. We note here that BILT's revenues, on an average, have grown by 11.5% over the last decade and by 19% over the last 5 years. However, growth in TNPL's revenues have been subdued but maintained at an average of 7.5%- 8%. There was a sudden spurt in the revenues of BILT post the acquisition of Sabah Forest Industries. Also, TNPL's 2011 revenues are nearly 1/4th of BILT's revenues for the same period.

    BILT has been able to maintain an EBITDA (operating) margin of around 22% over the last 10 years. Using bagasse as primary raw material along with a few other innovations has helped TNPL maintain its operating margins close to 25%. TNPL's raw material as a percentage of sales has been contained within 20% throughout. The same has touched the level of 37% in 2011 for BILT.

    Interest expenses exert pressure on the bottom line of the companies. On average interest coverage ratio has been2.5 times and 5 times for BITL and TNPL respectively. This speaks about the earnings strength of TNPL. In terms of profit margins too, TNPL scores over BILT. While BILT's net profit margins hovered around 7.5-8% , for TNPL profit margins have been a tad better at 10%-10.5%. TNPL's margins have been gradually increasing over the last 5 years timeframe.

    Paper being a capital expenditure intensive industry requires huge amounts of investments. The companies thus have a tendency to borrow more thereby distorting the debt-equity ratio. BILT's debt equity ratio has been around 1.5. Here too, TNPL seems to be the winner with an average debt-equity ratio ranging between 0.9-1.2. However, TNPL's debt levels are rising steadily and in fact the debt has increased by more than 160% over the last 5 years.

    To service the year round demand for paper, paper companies have to ensure ready availability of products at all times. This implies more working capital and thus sales to working capital also becomes a crucial aspect to look at before deciding on your investment. For BILT, sales/ working capital equals 3.7 times while for TNPL it is 6.9 times.

    In our analysis so far, we have compared BILT and TNPL based on the financials. While TNPL seems to score over BILT in the parameters considered so far, further analysis of return ratios and valuations will help us in coming to a final conclusion as to which among the two is better. In our next article, we will discuss whether any of these two paper companies is worth investing into from a long term perspective.

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