Buy OCL India; target of Rs 254: SPA Research

“OCL India came out with good set of numbers on the back of robust performance by both its cement & refractory segment. While the top-line increased by 25% YoY, net profit improved by 78% on the back of 410 bps increase in operating margins. Commencement of 27 MW power plant and superlative operational efficiencies led to margin improvement across both the divisions. We maintain a BUY rating on the stock with a target price of INR 254.”

“Revenues of cement segment increased by 24% YoY to INR 3414 mn in Q3FY12 led by 5.4% increase in volumes to 9 lakh tn & 17.7% surge in realisations to INR 3797/tn. EBIT improved at a faster pace, growing by 76% YoY to INR 673 mn led by 585 bps improvement in EBIT margins to 19.7%. OCL continued to maintain its dominant position in Eastern region, by dispatching more than 5 lakh tn in Orrisa, thereby maintaining a market share of more than 30% in the state. We expect OCL to clock volumes of 10 lakh tn in Q4FY12. Prices are also expected to increase marginally in coming months. Refractory segment registered robust performance in Q3FY12, with revenues growing by 29% YoY to 849 mn (20% of total revenues) led by 16.7% surge in volumes to 21000 tn & 10.7% improvement in realisations to INR 40429/tn. EBIT surged by more than 3x to INR 108 mn on the back of 744 bps YoY increase in EBIT margins.”

“OCL registered sharp improvement in operating margins on the back of improving operational efficiencies. Recently commissioned 10 km cross country conveyer belt to transport limestone from quarries resulted in significant savings in logistics cost. Commencement of 27 MW captive power plant resulted in savings on power front. With another 27 MW captive power plant lined up for commissioning, margins are expected to remain stable. OCL has already commenced 27 MW coal based captive power plant in Sept 2011 and is expecting another 27 MW captive power plant to get commissioned by Mar 2012. Post commissioning, OCL will be self sufficient in power requirement thereby leading to substantial savings.”

“We remain positive on the cement sector and OCL India being one of the leading players in Eastern region is well placed to benefit from growth opportunities in the region. Commencement of captive power unit, superlative margins and strong dividend yield promises strong outlook for the company. OCL expects mining activity to resume very soon and for the time being, it is procuring clinker from the market. At the CMP of INR 104, the stock trades at a P/E and EV/EBIDTA of 4.1x and 1.7x respectively its FY13E earnings. We maintain our BUY rating on the stock with target price of INR 254,” says SPA Research report.  

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