The Hindu Business Line : OCL India: Buy

OCL India appears well placed to benefit from the favourable industry dynamics in the cement sector. It has a presence in the eastern market where price have been firming up and are expected to stay that way over the next couple of years. Capacity additions in this region are likely to be limited and unlikely to cast a shadow on prices.

OCL India plans to gradually scale up its capacities and this will ensure that capacity is not a constraint to its prospects for growth.

There is a possibility of a rights offer to bankroll a planned expansion of its cement facilities by about 25 per cent to 2.2 million tonnes and this should take care of volume growth over the next couple of years.

OCL India also has a strong presence in refractories business.

With the likelihood of robust demand from user industries, especially in the metals space, the outlook appears promising. Cement and refractories account for about 85 per cent of revenues.

Any slack in sponge iron is likely to more than adequately compensated by cement business.

OCL India has been on an investment mode over the past few years and this explains the sizeable expansion in debt level. It has been able to source finance at attractive rates and with healthy cash flows from operations, it is well placed to whittle down the debt burden.

As one of the few cement plays focused in the eastern markets, there is the likelihood of OCL figuring on the radar of the consolidation process underway in the industry.

The possibility of restructuring to create focussed plays cannot be ruled out. The stock trades at about 10 times its likely FY07 earnings and is more attractively valued from a longer-term perspective.

S. Vaidya Nathan

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