Orient Cement Ltd. share price target

Sector: Cement /Small Cap | Earnings Update 1QFY19 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...

1 August 2018 Revenue grew 12.7% YoY (+3% QoQ) to INR6.4b (est. of INR5.7b) in 1QFY19, as volumes increased 15% YoY to 1.6mt (est. Volume growth was on account of low base and healthy demand from underlying markets of Telangana and Maharashtra. Realizations stood at INR3,992/ton (+8% QoQ) versus our estimate of INR3,866/ton due to better-than-estimated prices in Maharashtra as also impact of higher FOR sales. Cost/t increased 6% QoQ (+7% YoY) to INR3,459 due to 10%QoQ increase in P&F; cost (unavailability of domestic coal leading to sourcing of higher cost alternatives). Freight cost/t increased 10% QoQ to due to higher diesel prices as also higher FOR sales. However, EBITDA/t stood at INR533 (-36% YoY, +20% QoQ; est. of INR498), resulting in EBITDA of INR854m (-27% YoY, +15% QoQ) versus our estimate of INR737m due to better than estimated realizations.

Strong cost control QoQ offset impact of lower volume YoY Orient Cement (ORCMNT) posted flattish EBITDA YoY in Q4FY18, as increased competition drove volume decline YoY, and aggressive pricing led to weak NSR QoQ. Lower opex QoQ moderated YoY cost inflation. The JPA's assets acquisition is getting delayed owing to pending approvals. We remain wary of this inorganic acquisition which will keep leverage high, and return ratios subdued. We maintain HOLD with TP of Rs150. Volume declined 3% YoY, market share loss continues: Sales volume recovered 23% QoQ to 1.68mn MT, but still fell 3% YoY. Utilisation stood at 84% (vs 87% YoY and 69% QoQ)....

Cost/t declined 6% QoQ (+8% YoY) to INR3,2 51 due to positive operating leverage and lower P&F cost (better efficiency parameters). Freight cost/t increased 6% QoQ to INR1,055 due to higher diesel prices. Thus, EBITDA/t stood at INR445 (+2% YoY, +56% QoQ; est. of INR244), resulting in EBITDA of INR746m (-1% YoY, +91% QoQ) versus our estimate of INR440m. ORCMNT reported PBT of INR182m and PAT of INR128m (-23% YoY; est. of a loss of INR38m).

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...