Buy OCL India; target of Rs 565:SPA Research

SPA Research's research report on OCL IndiaOCL India reported impressive set of numbers on the back of improvement in the performance of core cement segment. The segment reported a revenue growth of 17.0% entirely driven by 19.2% surge in volumes. Refractory segment's business continued to deteriorate as it reported an EBIT loss (for the fourth consecutive quarter) of INR 63 mn in Q3FY16 vis-à-vis EBIT profit of INR 37 mn in Q3FY15, as its revenue declined by 7.8% YoY. We continue to retain our BUY rating with a target of INR 565 on the stock. Cement demand after languishing in low single digits for last 3 years, is expected to recoup back to +1.5x GDP over the next few years, as infrastructure projects and initiatives announced by the new government comes on stream. OCL being one of the leading players in Eastern region will benefit immensely from increased focus on infrastructural development in East India. Cost reduction measures through commencement of captive power unit and strong prices in the eastern region promises strong outlook for the company. Return ratios too are expected to improve with cessation of capex plans. Currently the stock is trading at FY17E EV/EBIDTA of 6.2x & PE of 11.7x and EV/tonne of INR 3743 its FY17E capacity. We retain our BUY rating with a target of INR 565 on the stock based on FY17E EV/tonne of INR 4500

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