CARE assigns fundamental grade of 4/5 to OCL India

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CARE assigns fundamental grade of 4/5 to OCL India

CARE Equity Research has come out with its report on OCL India Limited (OCL). The research firm has assigned a valuation grade of 5/5 to the company in its October 21, 2011 report.

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CARE Equity Research has come out with its report on OCL India Limited (OCL). The research firm has assigned a valuation grade of 5/5 to the company in its October 21, 2011 report.

CARE Equity Research assigns a fundamental grade of 4/5 to OCL. This indicates 'Very Good Fundamentals'. OCL is a key player in the eastern region and the largest cement player in Orissa with a market share of around 30%. OCL has one of the lowest freight cost in the industry on account of its plants being located in the proximity of the key markets in the eastern region. The company is also setting up a captive power plant (CPP) which will reduce its dependence on grid power and in-turn aid the margins. CARE Equity Research believes key catalysts for OCL would be higher cement demand in the eastern region on the back of infrastructure and economic growth. The eastern region currently has lowest per capita consumption (an average of 106 kg, compared with all-India average of 171 kg).

Valuation: CARE Equity Research values OCL using sum of the parts (SOTP) methodology. Given the cyclical nature and corresponding earnings volatility of the industry, we have valued OCL's cement business based on Enterprise Value (EV)/tonne multiple based valuation methodology. Consequently, we have assumed USD 45 per tonne to arrive at the EV for OCL's cement business. The EV for refractory business is arrived by EV/EBITDA multiple of 3x to one-year forward refractory EBITDA. The total EV has thus been arrived at using the SOTP method, resulting in a Current Intrinsic Value (CIV) of Rs. 124 per share. Based on the Current Market Price (CMP) of Rs.92 per share we assign a valuation grade of 5/5 to OCL, indicating the shares of OCL have 'Considerable Upside Potential'.

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To read the full report click on the attachment