Orient Cement Ltd. share price target

Amid continued demand turbulence in the south, Orient exhibited opex reduction. As demand recovers in subsequent quarters, op-lev gains should bolster margin recovery. Orient is also planning to add 10MW WHRS in Karnataka to further reduce opex (FY23 onwards). The stock currently trades at an attractive valuation of 6.9/6.8x FY21/22 EBITDA and at EV of USD 58/MT. We reiterate BUY with a TP of Rs 120 (8x Sep'21E EBITDA). We reiterate BUY on Orient Cement (ORCMNT) with a TP of Rs 120 (8x FY21E EBITDA, implies EV of USD 68/MT).

Sector: Cement /Small Cap | Earnings Update 2QFY20 Background: Orient Cement, a CK Birla group company, formed in 2012 following the demerger from Orient Paper and Industries ltd, is a mid-sized south based cement manufacturer. The company is one of the leading cement manufacturers in India with a capacity of 8 MTPA with clinker manufacturing capacity 5.5 MTPA and captive power capacity of 95MW. The Company operates 3 manufacturing facilities, located at Devapur (3 MTPA) in Telangana, Chittapur (3 MTPA) in Karnataka and...

21 October 2019 ORCMNTs volumes fell 16% YoY to 1.24mt in 2QFY20. Realizations increased 9% YoY but were down 9% QoQ to INR4,150/t due to weak pricing in the markets of south and Maharashtra. Cost/t rose 4% YoY (+4% QoQ) to INR3,718, higher than our estimate of INR3,554, due to higher freight cost/t (+4% YoY) and other expenses/t (+32% YoY). Freight cost was higher, primarily due to an increase in average lead distance as ORCMNT reached newer markets in south Karnataka. Thus, EBITDA/t stood at INR432/t (+78% INR908m) with the margin at 10.4% (+4.04pp YoY, -11.3pp QoQ). Tax rate was at 28.5% v/s 35% in 2QFY19. ORCMNT incurred a net loss of INR77m Sales were flat at INR12b, while EBITDA increased 68% YoY to INR2b. PAT came in at INR482m v/s loss of INR7.4m in 1HFY19. For 2HFY20, sales/EBITDA/PAT growth is estimated at 4%/5%/27% YoY.

ORMCNT, already a cost leader among mid size Indian cement cos, is evaluating WHRS additions to further reduce opex (by FY21E). ORCMNT will also do calibrated capex (all brown-field) to increase its capacity by 6 MT to 14mn MT by FY25E, across its existing locations. Robust earnings and calibrated capex should double ORCMNT's RoCE to 10% in FY19-20E (vs 5% in FY18-19) and keep its net D/E at/below 1x. The stock currently trades at attractive valuations of 6.1x FY21 EBITDA and at EV/MT of USD 61. We reiterate BUY with a TP of Rs 150 (8x FY21E EBITDA). We reiterate BUY on Orient Cement (ORCMNT) with a TP of Rs 150 (8x FY21E EBITDA). ORCMNTs stellar show continued in 1QFY20 on strong realization tailwinds amid benign input costs.

Volumes decline but pricing improves: Volumes declined 6% YoY to 1.5mt in 1QFY20. However, realizations increased 14% YoY (+11%QoQ) to INR4,552, led by strong pricing in underlying markets. Revenue grew 7.5% YoY (-8% QoQ) to INR6.8b (in-line). driving margins improvement: Cost/t increased 3% YoY (+9% QoQ) to INR3,562/t, as freight cost/t inched up 6% YoY (+8% QoQ), primarily due to higher lead distance as ORCMNT attempted to garner sales from betterrealization markets. Other expenses/t rose 12% YoY (+25%QoQ) due to operating deleverage. However, led by healthy realizations, EBITDA/t...

ORMCNT, already a cost leader among mid size Indian cement cos, is planning to add WHRS across its Telangana and Karnataka plants by FY21E to further drive up efficiencies. Thereafter, ORCMNT hopes to commence brown-field expansions (potentially 6 MT by FY25E, across locations). This will be calibrated in line with OCF, which translates to leverage hovering around ~1x. With better operations and calibrated capex, RoCE should double to 10% in FY19-20E (vs 5% in FY18-19). We estimate EBITDA/PAT to rebound at 29/105% CAGR during FY19-21E off a weak base, driven by pricing and cost tailwinds. Our TP jumps to Rs 140 (at an affordable 8x FY21E EBITDA). Upgrade to BUY from NEUTRAL. Key risks include weak cement pricing, higher fuel prices and reckless capex (all of which look unlikely hereon). Orient Cement (ORCMNT) becomes a conviction BUY from NEUTRAL (in our 4QFY19 preview), with a TP of Rs 140 (at a mere 8x FY21E EBITDA). A robust comeback in Q4, continued realization and cost tailwinds and calibrated capex outlook drive our rediscovered confidence.

Sector: Cement /Small Cap | Earnings Update 4QFY19 Background: Orient Cement, a CK Birla group company, formed in 2012 following the demerger from Orient Paper and Industries ltd, is a mid-sized south based cement manufacturer. The company emerged as one of the fastest growing and leading cement manufacturer in India with a capacity of 8 MTPA with clinker manufacturing capacity 5.5 MTPA and captive power capacity of 95MW. The Company is primarily engaged in the manufacture and sale of Cement and its...

8 February 2019 Revenue grew 12% YoY (+2% QoQ) to INR5.7b and volumes increased 10% YoY to 1.51mt; both were in line with our estimates. Realizations at INR 3,782/t (+1%YoY;-1% QoQ) also came in line with our estimate due to weaker prices in underlying markets. Cost/t increased 2% YoY (-1%QoQ) to INR3531/t as freight cost/t increased 18%YoY. Power and fuel prices declined 4% YoY due to increasing AFR usage, and significantly better consumption metrics across plants, especially Chittapur. Thus, EBITDA/t stood at INR251 (-12% YoY; +3% QoQ), resulting in EBITDA of INR379m, -3%YoY (v/s our est. Margins came in at 6.6% (-1pp YoY, +0.3pp QoQ). Orient Cement reported PBT loss of INR202m (v/s loss of INR248m in 3QFY18) as against our estimate of loss at INR161m. As a result, there was a loss of INR137m (PAT) as against our estimate of INR105m loss (v/s INR177m loss in 3QFY18).

6 November 2018 Revenue grew 7% YoY (-12% QoQ) to INR5.6b (in line with est.), as volumes increased 13% YoY to 1.47mt (est. Realizations were at INR 3,815/ton (-5% YoY; -4% QoQ) (v/s est. INR3,982) due to better-than-estimated prices in underlying markets. Cost/ton increased 4%YoY (+3%QoQ) to INR3,572/ton as freight cost/ton increased 5% YoY led by increase in diesel prices. Power and fuel prices increased 4% YoY due to an increase in fuel prices. Thus EBITDA/ton stood at INR243 (-58% YoY; -54% QoQ) resulting in EBITDA of INR358m, -52% YoY (est. Margins came in at 6.4% (- 7.8pp YoY, -6.