Orient Cement Ltd. share price target

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.

Orient Cement 2QFY17 numbers were disappointing (EBITDA/t: Rs 136/t, -62.2% YoY, -51.1% QoQ). These were driven by weak volumes (only 65% utilization at old ops), high P&F costs (mainly due to abnormal rains) and poor fly-ash availability, which hurt both volumes and RM costs.

Orient Cement announced the acquisition of Jaiprakash Associate?s (JPA) 74% shareholding in Bhilai Jaypee Cement Ltd (BJCL, 2.2 mTPA) and Jaiprakash Power Venture?s (JPVL) Nigrie grinding unit (2.0 mTPA). The headline valuations at US$98/t for BJCL and US$37/t for Nigrie are reasonable. While imparting scale and diversification, the total deal size of ~Rs17.3bn entails significant equity dilution (11-13% at CMP) and increased leverage, which may weigh on the stock price in medium term.

Orient Cement has announced an acquisition of 4.2 mt of cement capacity from Jaypee associates at an enterprise value of Rs 19.5 bn. The 4.2 mt cement capacity includes 2.2 mt Bhilai Jaypee Cement (BJCL) and 2.0 mt Nigrie grinding unit. BJCL unit (74% stake is held by Jaypee and 26% by SAIL) includes 1.1 mt of clinker capacity at Babupur (MP) with the 2.2 mt grinding unit at Bhilai (Chhattisgarh). Orient will acquire shares of BJCL held by Jaypee through execution of share purchase agreement. Another Grinding unit of 2 mt is at Nigrie (MP) which will be acquired from JPVL (Jaiprakash Power Ventures Ltd) through a business transfer agreement.

Orient Cement's board has approved acquisition of a 74% stake in BJCL plant (capacity of 2.2mt) for total EV of INR 14.5b (Orient Cement's cash outflow at INR12b). The board has also approved the...

Orient Cements numbers were weak (EBITDA/T: Rs 279, -55.3% YoY, -35.2% QoQ) driven by continually weak pricing (Rs 3,126, -10.3% YoY, QoQ not comparable). Gulbarga rampup remains on track with the plant reaching 50% utilization for the quarter. Operating costs/t remained low (Rs 2,848/t, flat YoY, 1.8% QoQ) despite the annual maintenance shutdown which dragged by Rs 60 mn QoQ.

Volumes strong, but weak realizations: Orient Cement's (ORCMNT) 1QFY17 revenues grew 25% YoY (flat QoQ) to INR4.4b as volumes increased 43% YoY to 1.4mt. Utilization in existing operations is 82%, while the new plant contributed 27% of volumes with utilization at 50%. Realizations dipped 8% QoQ (-13% YoY) on the back of weak pricing in Maharashtra and Andhra Pradesh, which led to a loss of INR76m (-3.6x YoY, -2.4x QoQ) in 1QFY17. coupled with higher annual shutdown cost dent profitability: Cost/ton declined 4.5% YoY (+2% QoQ), led by: (a) reduction in power and fuel costs due...