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ICICI Bullish on Tamilnadu Newsprint and Paper

May 18, 2007

Tamil Nadu Newsprint and Paper Ltd (TNPL) is one of the major players in the domestic paper industry. The company has embarked upon a massive capex to ride the demand-driven upswing in the sector. The first phase of capex will get completed by June 2007, making TNPL the first to bring its capex on-stream amongst peers undergoing technological upgrade. We believe these initiatives will place its key business matrices on a higher-thanindustry growth tragectory in the form of revenue and profit growth, aided by an expansion in margins. TNPL also plans to set up a mini cement plant and an IT park on its unused land to the west of Chennai.

At the current price of Rs 87, the stock discounts its FY08E EPS of Rs 16.87 by 5.16x. This is below its historical average of 8x. On a P/BV basis, it is available at 0.9x FY08E and on an EV/EBIDTA basis, at 4.89x FY08E earnings. ICICI rates the stock an Outperformer with a target price of Rs 135 at its historical average of 8x earnings. This is conservative considering the improving business fundamentals, rising efficiencies and better return ratios.

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