BILT’s revenues grew by a robust 37% YoY during 2QFY10 largely due to a boost in volumes as its capacity expansions at Ballarpur and Bhigwan came on stream. Unit Kamalapuram (which manufactures rayon grade pulp) also bounced back with revenues growing by 211% YoY. As a result, the company’s overall paper business logged in a healthy growth of 24% YoY. For the half year period too, while overall sales grew by 16% YoY, sales from the paper business logged in a growth of 17% YoY.
BILT’s operating margins contracted by 3.7% during the quarter, largely due to a rise in raw material costs from 21.2% of sales in 2QFY09 to 30.9% in 2QFY10. Raw material prices were higher on account of a substantial increase in pulp prices. Further, a correction in realisations also had an impact on overall margins during the quarter. D
Despite the 18% YoY growth in operating profits, higher interest costs and depreciation charges dented BILT’s bottomline, which fell by 1% YoY during the quarter. Increased tax expenses also played a role in impacting bottomline. Depreciation was higher during the quarter due to the expanded capacities at Bhigwan and Ballarpur coming on stream.
At the current price of Rs 25, the stock is trading at a price to earnings multiple of 3.2 times our estimated FY11 earnings. With the capacity expansion at Bhigwan and Ballarpur coming on stream, volumes and consequently sales are expected to ramp up going forward. Near term pressures are likely to persist in terms of higher raw material costs as pulp prices remain firm. Also, given that Bhigwan imports pulp, the additional capacity coming on stream means that pulp requirements will increase putting further pressure on margins. However, in the longer term, the Sabah acquisition will be beneficial as pulp from the forests in Malaysia would be used at the Indian plants thereby lowering raw material costs. Overall, we maintain our positive view on the stock from a long term perspective.
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