Orient Cement Ltd. share price target

Sector: Cement /Small Cap | Earnings Update 3QFY18 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 ~6 MTPA and captive power capacity of 50MW. The Company is primarily engaged in the manufacture and sale of Cement and its...

Maintain NEUTRAL with a TP of Rs 138 (8.5x Dec-19 EV/EBITDA, US$80/T). Orient Cements numbers were below estimates (EBITDA/T Rs 286, (21.4)/(49.9)% YoY/QoQ) owing to lower realisations (Rs 3,737, (6.5)% QoQ). Volumes grew 9.3% YoY to 1.37 mT. However, other costs jumped 19% sequentially to Rs 700/t, as the company incurred non-recurring maintenance costs.

Orient Cement's Q3FY18 operating performance disappointed, with EBITDA at Rs391mn against estimated Rs772mn and OPM at 7.6% against estimated 14.5%, led by lower realization and higher Repair & Maintenance costs (impact of Rs100-120mn). Sales volume was up 9.3% yoy at 1.37mt with capacity utilization of 68.5% (62.6% in Q3FY17). Realization grew by 2.5% yoy (down 6.5% qoq), supported by change in billing...

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 ~6 MTPA and captive power capacity of 50MW. The Company is primarily engaged in the manufacture and sale of Cement and its...

Maintain NEUTRAL, with an unchanged TP of Rs 165 (8.5x Sep-19 EV/EBITDA, USD86/T). Orient Cements numbers were below estimates (EBITDA/T: Rs570, 4.2x/ (31.8) % YoY/QoQ). Volumes grew 11.5% YoY (1.31 mT), while realisations were flattish (Rs 3,996/T, 22.1/ (1.7) % YoY/QoQ). However, freight costs jumped ~8.5% sequentially owing to higher lead distance, as Orient sold in distant markets, chasing growth. The miss on EBITDA (Rs746mn, 4.6x/ (3.62) % YoY/QoQ) was lower owing to higher-than-estimated volumes

YoY margin improvement led by better realizations: The sharp YoY margin improvement of 10pp to 14.3% was led by improved pricing in its focus markets of west and south. This was partially offset by higher cost/t (+9% YoY to INR3,426/t). Hence, EBITDA/t increased 303% YoY to INR570/t (-32% QoQ due to a seasonally weak quarter). Power & fuel cost/t declined 4% YoY due to higher usage of domestic coal. Freight cost/t increased 43% YoY due to a shift in invoicing toward FOR terms and an increase in lead distance. Hence, EBITDA increased 350% YoY (-36% QoQ) to INR746m (est. of...

Our TP of Rs 165 values Orient at 8.5x FY19 earnings (US$84/t). Orient Cement reported strong numbers (EBITDA: Rs 1.17bn, Est: Rs 1.06bn, 3x YoY, 54.7% QoQ), as realisations surprised (Rs 4,064/t, 30.0% YoY, 18.0% QoQ, Est- 8.0% QoQ). Part of this may have been owing to the shift in invoicing to FOR (free on rail) terms, as reflected in the higher freight numbers (Rs 996/t, 43.2%, YoY 12.4% QoQ). Despite this, the improvement in pricing is better than expected, as is evident from ex-freight realisations (Rs 3,068, 26.2% YoY, 20.0% QoQ, Est 2,823/t).

Orient Cements numbers beat our estimates (EBITDA: Rs 755mn, Est: Rs 606mn, 22.3% YoY, 65.9% QoQ) as volumes surprised (1.73 mT, 25% YoY vs expectations of flattish growth). However, EBITDA/t (Rs 436, -2.2% YoY, 19.9% QoQ) was inline (Est Rs 407/t) as realisations weakened (Rs 3,443, 9.6% YoY, -5.6% QoQ), given the volume push. At implied utilisations of 87%, 4QY17 is a relevant base for production costs (Total op. costs Rs 3,007/t), one of the lowest in the industry.

Orient Cements numbers beat estimates (EBITDA/T: Rs 349, 75.3% YoY, 2.6x QoQ). Pricing improvement (net plant realisations up 6.9% QoQ or Rs 175/t) and reversion of P&F cost (-11.1% QoQ) from abnormal highs in 2QFY7 contributed to EBITDA/t of Rs 349 (75.3% YoY, 2.5x QoQ). Volume growth (19.6% YoY) was driven by rampup of Chittapur ops (utilization at 55%), even as utlisations at the old operations declined to 67%.

Orient Cement reported weak operational performance in Q2FY17 with EBITDA declined significantly by 56% YoY to Rs 160 mn (much lower than our expectation of Rs 311 mn). This was on account of lower realisation and higher costs. Though revenues increased by 8% YoY led by higher volumes, it was also below expectations as volumes were impacted by heavy rainfall and shortage of flyash.