CRISIL maintains fundamental grade 3/5 on OCL India

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CRISIL maintains fundamental grade 3/5 on OCL India

CRISIL Research has come out with its report on OCL India. The research firm has initiated coverage on the company with a fundamental grade of ‘3/5’ and has maintained the fair value of Rs 178 per share.

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OCL India BSE | NSE 31/05/12 Are Mutual Funds betting on OCL India?

CRISIL Research has come out with its report on OCL India . The research firm has initiated coverage on the company with a fundamental grade of '3/5' and has maintained the fair value of Rs 178 per share.

OCL India Ltd's (OCL's) revenues were almost in line with CRISIL Equities' expectations. However, PAT far exceeded our expectations owing to lower tax outgo (FY10 - deferred tax adjustment shored up taxes). Due to the spike in coal prices, we are lowering our earnings estimates for FY12. Further, CRISIL Research expects the upcoming housing and infrastructure projects in the eastern region to boost cement demand by 12% over the next three years. OCL, a leading player in Orissa, is expected to benefit from this growth. It is setting up captive power plants whose full benefit will be realised from FY13 onwards. Consequently, we maintain our fundamental grade of 3/5.

Q4FY11 result analysis
• Q4 revenues grew by 2.9% y-o-y to Rs 4,388 mn driven by 21% y-o-y growth in refractory revenues (contributed 21% to total sales in Q4FY11 vs. 18% in Q4FY10). Refractory volumes as well as realisations were up by ~10% y-o-y. Cement business' revenues declined marginally (0.5% y-o-y) as the 5.7% growth in volume was offset by a ~6% drop in realisations.

• EBITDA margins contracted by 1,097 bps y-o-y to 18.9% due to an increase in operating cost and a decline in cement realisations. For the same reasons, segmental EBIT margins also dropped in Q4 - cement margins declined ~17% (30.4% in Q4FY10), while refractory margins declined to 8.4% from 11.4% in Q4FY10.

• Adjusted PAT declined ~38.9% y-o-y to Rs 339 mn despite a lower tax rate - ~17% in Q4FY11 vs. ~40% in Q4FY10 - primarily due to 34.9% y-o-y decline in operating profits. Interest (up 9.8% y-o-y) and depreciation (13.6% y-o-y) costs moved up on account of capitalisation (setting up captive power plants). Lower other income (down by 24% y-o-y) also exerted pressure on PAT.

Earnings estimates: Revised downwards for FY12
We have marginally lowered our revenue estimate owing to improved demand for refractory products but lowered our earnings estimates by 14.8% for FY12 due to an increase in coal prices and lower cement realisation. We have introduced FY13 estimates.

Valuations: Current market price has strong upside
We continue to value OCL at EV/tonne of Rs 2,200 and maintain our fair value of Rs 178 per share based on FY13 estimates, says CRISIL Research report.

Disclaimer: This report (Report) has been commissioned by the Company/Investor/Exchange and prepared by CRISIL. The report is based on data publicly available or from sources considered reliable by CRISIL (Data). However, CRISIL does not guarantee the accuracy, adequacy or completeness of the Data / Report and is not responsible for any errors or omissions or for the results obtained from the use of Data / Report. Opinions expressed herein are CRISIL's opinions as on the date of this Report.  The Data / Report are subject to change without any prior notice. Nothing in this Report constitutes investment, legal, accounting or tax advice or any solicitation, whatsoever. The Report is not a recommendation to buy / sell or hold any securities of the Company. CRISIL especially states that it has no financial liability, whatsoever, to the subscribers / users of this Report. This Report is for the personal information of the authorized recipient only. This Report should not be reproduced or redistributed or communicated directly or indirectly in any form to any other person or published or copied in whole or in part especially outside India, for any purpose.

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To read the full report click on the attachment