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Chola Securities
Orient Cement (Outperformer)
CMP: ₹77.1
Target: ₹86
Orient Cement, a CK Birla group company, formed in 2012 following the demerger from Orient Paper and Industries, 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 95 MW.
In 3QFY20, revenues from operations declined by 1.1 per cent y-o-y to ₹560 crore driven by 2 per cent y-o-y decline in volumes, primarily in South and West market. Negative impact of weak volume and realisation (8 per cent q-o-q) was partially offset by lower costs (-7 per cent q-o-q).
Valuation: Orient Cement is well placed to capitalise on the likely uptick in cement demand in its key markets (Andhra Pradesh, Telangana and Maharashtra) however same is not getting reflected in quarterly performance. Higher demand with moderate increase in prices should drive earnings growth and deleverage the balance sheet At CMP, the stock is trading at 7.8x EV/EBITDA of FY21E.
We recommend an ‘outperformer’ with a revised target price of ₹86, assigning 7.7x EV/EBITDA of FY21E.
Risk: Slowdown of construction and infrastructure investments in key markets and low realisation.
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