ITC Bhadrachalam Paperboards: Hold

Recommendation: Hold

S. Vaidya Nathan

The stock of ITC Bhadrachalam Paperboards has had a very good year, rising by 25 per cent.

In the past two months the stock was up more than 50 per cent, after a protracted stagnation around Rs 40. Last month, the company managed to break the barrier and the stock trades close to Rs 67.

ITC Bhadrachalam is one of the major turnaround stories in the last year or so. The company reported steady growth in turnover amidst sluggish prices after the commissioning of the coated paperboards project. But heavy financial charges and a one-time charge for excesses by its finance subsidiary have taken a toll on the bottomline.

The fleeting signs of making profits in the second half of 1999 became sustained signals this fiscal with continuous improvement in operational parameters. A combination of better price levels, higher export growth rates (which means more use for the company's products) and enhanced exports improved the company's performance in the first six months of 2000-01.

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This is a significant time for ITC Bhadrachalam Paperboards because this is the first time since the delayed commissioning of its large coated paperboard facility that it is in profit's terrain. The company has also replaced high-cost debt (63 per cent so far) with cheaper borrowings.

The fact that ITC has also indicated that paper and paperboard would be a thrust area augurs well. With aggressive investments plans lined up, the ITC Bhadrachalam's scale of operations could over the next few years give it an edge in the Indian context. Now it has a capacity of 1,82,500 tonnes for coated paperboards and high-quality paper.

A cleansed balance-sheet, better prospects in the domestic and international markets, reduction in high-cost debt and a good competitive position may enable ITC Bhadrachalam consolidate on the recent turnaround. If this happens, some more upside may be in store, and in this context, shareholders could stay invested.