Orient Paper & Industries, a CK Birla group company is a diversified company with 3 lines of business – Cement (constituting nearly 50-60% of the total business, Paper (constituting about 10-15% of the total business) and lighting and domestic appliances such as fans (remember Orient PSPO?). It is in the process of demerging its cement business (3.4 MT) and shareholders will get 1 share of the demerged cement company for every one held in the whole. Post that it is likely that Kumar Birla will fold it under his cement empire at some point as envisaged by CK. With an expected EPS of 12 for FY 12-13, it is quoting at a P/E of just about 5. Also, last month, the promoters were allotted 1.2 cr shares @57 as a part of preferential allotment while the current price is also at 57.
It is a general observation that sum of parts of a company when considered separately is usually greater than the whole. Look at Reliance, L&T (Ultratech cement demerger) etc. Of course a good promoter background and high/significant stake always helps.
NESCO, a pure real estate company, has 65 acres of freehold land in Mumbai adjoining the Hub mall on the W. E. Highway, housing the Bombay Exhibition & Convention Centre. Besides, it has about 170 cr of liquid investments on a market cap of nearly 880 cr. (about 18%). Promoter and their associates together hold about 80%. Quoting at a P/E of about 13 (an EPs of nearly 47 on a ttm basis), though not cheap, it certainly looks interesting considering that rental income at a prime location in Mumbai besides being stable, is bound to show a steady, if not spectacular, appreciation. Besides the current figures don’t reflect the accruals from new buildings it plans to commission soon. Also, grapevine has it that a stock-split is on the cards and the share can reach 1000 in the coming weeks
With the cement story gaining ground, what with the monsoons ending and the government’s renewed focus on infra spending, this story has played out to script. From 57 on 12-Mar-12, it has moved to nearly 80 on 03-Oct-12, a return of nearly 40% in 7 months. While I did expect this, and cautious folks can certainly take some money off the table, considering the benign environment for cement and the pedigree of this company, there is still a case to hold on to this or even add more at current levels. A key trigger for this – the de-merger of the cement business, though always on the cards since the intention was announced nearly a year back, is still to occur, and once it does, there will still be an upside here, though how much it will be difficult to say. I would certainly expect the cement business to command far better valuations than justified by the current market price. And if their paper and consumer appliances story, like fans, light irons which they have forayed into recently and other electrical products, plays out well, it will be an added bonus. The de-merger is expected over the next 3-6 months. Then as mentioned in the above article, people may decide where they want to place their bets – on the paper and consumer appliances business or the cement one.
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