Six Month Call

TNPL

Current Market price: 101
Target 1: 141
Target 2: 153
Current Quote of TNPL

TNPL's cost reduction initiatives, especially in raw material, power and chemical costs (through shifting from conventional bleaching to elemental chlorinefree bleaching) and shift toward higher realisation product mix will help it sustain margins at higher levels despite input cost pressures. I expect these initiatives would result in operating margins increasing by 400 bps from 21% in FY06 to 25% in Y08E.TNPL's cost reduction initiatives, especially in raw material, power and chemical costs (through shifting from conventional bleaching to elemental chlorinefree bleaching) and shift toward higher realisation product mix will help it sustain margins at higher
levels despite input cost pressures. I expect these initiatives would result in operating margins increasing by 400 bps from 21% in
FY06 to 25% in FY08E.

Also due to a conscious shift in the product mix, I expect the company to see an impressive growth in sales revenue, increasing at a CAGR of 5% over FY06-08E to Rs 930 crore from Rs 849 crore. Over the years, TNPL has reduced newsprint production in wake of rising imports and has shifted focus on copier paper. This shift has increased the average per tonne realization by 7% over FY06- 08E. Due to a conscious shift in the product mix, I expect the company to see an impressive growth in sales revenue, increasing at a CAGR of 5% over FY06-08E to Rs 930 crore from Rs 849 crore. Over the years, TNPL has reduced newsprint production in wake of rising imports and has shifted focus on copier paper. This shift has increased the average per tonne realization by 7% over FY06-08E.

The target price for this stock is 141 and 153 respectively with a strong buy call from my side.

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