Triple play will fan Orient’s growth
Written By
Ujjval Jauharri
| Updated:
Orient Paper and Industries Ltd started as a paper maker and has grown into a multi-product company. It has strong presence in three segments — paper, cement and fans.
Orient Paper and Industries Ltd started as a paper maker and has grown into a multi-product company. It has strong presence in three segments — paper, cement and fans. The paper division manufactures a wide range of writing, printing, industrial and specialty paper, while Orient Cement is a known brand. Its fans have a unique place with brand PSPO being well recognised.
Business: Incorporated in 1939, Orient, a G P & C K Birla company, has three revenue segments. Cement leads the pack, contributing 54%, with paper and fans accounting for 24% and 22%, respectively. Its paper mills are in Amlai in Madhya Pradesh. Orient exports paper and paper board to African countries, the Middle East, Bangladesh, Nepal and Sri Lanka. Internationally, the company is managing Pan African Paper Mills Ltd, Kenya, in partnership with the Kenyan government and the International Finance Corp. Its cement units are in Devapur in Andhra Pradesh and Jalgaon in Maharashtra. The cement capacity is 3.4 million tonne per annum. The products include Orient Gold 53 grade cement, Orient 43 grade cement and Birla A-1 premium cement. The fans division, with a capacity of 35 lakh fans per year, produces a wide range of ceiling fans, desk fans, wall-mounted fans, pedestal fans, exhaust fans and multi-utility fans.
Introduction of PSPO (peak speed performance output) revolutionised the fans range and helped Orient become the second largest player in the Indian fans industry.
Investment rationale: This century is one of knowledge, and the need for paper will increase. Demand for upstream markets of paper products, like tissue paper, is also growing. Orient is the largest player in the tissue paper segment with market share of 40% in March 2008. The tissue paper capacity is at 10,000 tonne. Another 16,000 tonne will be added by March.
The cement industry is likely to record an annual growth of 10% in the coming years due to high domestic demand. India is the world’s second largest producer of cement after China, with an installed capacity of 200 million tonne. The stimulus package for infra and real estate, and fall in input costs will help Orient. On the raw material front, Orient benefits from the Singareni Collaries — its source of coal — being just 60 km from its cement plant at Devapur. Orient has also ramped up its cement capacity from 2.4 mt to 3.4 mt this fiscal.
An addition of 1.6 mt will take overall capacity to 5 mt by March 2009. Orient is setting up a 50-mw captive power plant, which is expected to become operational by March 2009. Besides, work on reduction of carbon emissions is expected to benefit revenues to the tune of Rs 10.5 crore this fiscal.
Concerns: Demand growth of cement depends on recovery of infrastructure and manufacturing sector. Any new developments affecting these sectors will hit cement demand.
Valuations: Orient reported a topline of Rs 352.56 crore at the end of Q2FY09, a growth of 16.54% over last year’s Q2 number. Cement volumes provided the impetus, with a 11% volume growth in the first six months, against the same period in FY08. But increased input costs hurt operating margins, which fell to 22.05%. Growing depreciations and reduced other income also crunched profit margins to 12.81%.
However, reduction in input costs has helped. Thus, margins are set to increase. With this, the benefits of capacity expansions will accrue from FY10. Volumes are likely to increase, driving revenues. Orient is a good option with good medium to long-run prospects.
Disclaimer: The author does not hold any shares in the company
Business: Incorporated in 1939, Orient, a G P & C K Birla company, has three revenue segments. Cement leads the pack, contributing 54%, with paper and fans accounting for 24% and 22%, respectively. Its paper mills are in Amlai in Madhya Pradesh. Orient exports paper and paper board to African countries, the Middle East, Bangladesh, Nepal and Sri Lanka. Internationally, the company is managing Pan African Paper Mills Ltd, Kenya, in partnership with the Kenyan government and the International Finance Corp. Its cement units are in Devapur in Andhra Pradesh and Jalgaon in Maharashtra. The cement capacity is 3.4 million tonne per annum. The products include Orient Gold 53 grade cement, Orient 43 grade cement and Birla A-1 premium cement. The fans division, with a capacity of 35 lakh fans per year, produces a wide range of ceiling fans, desk fans, wall-mounted fans, pedestal fans, exhaust fans and multi-utility fans.
Introduction of PSPO (peak speed performance output) revolutionised the fans range and helped Orient become the second largest player in the Indian fans industry.
Investment rationale: This century is one of knowledge, and the need for paper will increase. Demand for upstream markets of paper products, like tissue paper, is also growing. Orient is the largest player in the tissue paper segment with market share of 40% in March 2008. The tissue paper capacity is at 10,000 tonne. Another 16,000 tonne will be added by March.
The cement industry is likely to record an annual growth of 10% in the coming years due to high domestic demand. India is the world’s second largest producer of cement after China, with an installed capacity of 200 million tonne. The stimulus package for infra and real estate, and fall in input costs will help Orient. On the raw material front, Orient benefits from the Singareni Collaries — its source of coal — being just 60 km from its cement plant at Devapur. Orient has also ramped up its cement capacity from 2.4 mt to 3.4 mt this fiscal.
An addition of 1.6 mt will take overall capacity to 5 mt by March 2009. Orient is setting up a 50-mw captive power plant, which is expected to become operational by March 2009. Besides, work on reduction of carbon emissions is expected to benefit revenues to the tune of Rs 10.5 crore this fiscal.
Concerns: Demand growth of cement depends on recovery of infrastructure and manufacturing sector. Any new developments affecting these sectors will hit cement demand.
Valuations: Orient reported a topline of Rs 352.56 crore at the end of Q2FY09, a growth of 16.54% over last year’s Q2 number. Cement volumes provided the impetus, with a 11% volume growth in the first six months, against the same period in FY08. But increased input costs hurt operating margins, which fell to 22.05%. Growing depreciations and reduced other income also crunched profit margins to 12.81%.
However, reduction in input costs has helped. Thus, margins are set to increase. With this, the benefits of capacity expansions will accrue from FY10. Volumes are likely to increase, driving revenues. Orient is a good option with good medium to long-run prospects.
Disclaimer: The author does not hold any shares in the company
- India
- Kenya
- Amlai
- Andhra Pradesh
- Bangladesh
- China
- Jalgaon
- Madhya Pradesh
- Maharashtra
- Nepal
- Sri Lanka
- Orient Paper
- Orient Paper and Industries Ltd
- G P & C K Birla
- Devapur
- Birla A-1
- Pan African Paper Mills Ltd
- C K Birla
- Singareni Collaries
- Orient Gold
- International Finance Corp.
- Orient Cement
- Middle East