Buy Oriental Carbon & Chemicals; target of Rs 1125: ICICI Direct

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ICICI Direct's research report on Oriental Carbon & Chemicals

OCCL had a capacity of 23000 tonne and operated at 90% utilisation level in FY16. Sensing the same, it launched an impressive expansion plan where it intends to increase its capacity (brownfield) by 11000 tonne in two phases with first phase of 5500 tonne already commissioned in December 2016 (four months ahead of schedule) taking overall capacity to 28200 tonne in FY17.

Outlook

We have built in conservative margin expansion of 220 bps over FY17-19E given the brownfield nature of expansion amid associated operating leverage benefits. With certainty of operations and time bound commissioning of new facilities, we value OCCL at Rs 1125 i.e. 17.0x P/E (1.0x PEG) on FY18E & FY19E average EPS of Rs 66.2. We maintain our BUY recommendation on the stock.

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