Buy OCL India; target of Rs 647: Emkay

Emkay's research report on OCL IndiaThe Board of Directors of OCL India have approved restructuring of its business with various group entities of Dalmia Bharat (DBL) group which primarily includes: a) amalgamation of OCL India to its wholly owned subsidiary to Odisha Cement Ltd. (ODCL), and b) transfer of Dalmia Cement East Ltd. (DCEL) to ODCL. Post the restructuring, OCL, DBCHL, SRSHL and DCEL shall stand dissolved and the whole process is expected to be completed in 8-10 months. ODCL will later be renamed as OCL India Ltd and its shares will be listed on stock exchanges. Capacity of the merged entity will be at 9.3mt (5.4mt in Odisha, 1.3mt in West Bengal and 2.6mt in Jharkhand). The restructuring has been done to consolidate the presence of “Dalmia” group in the East markets and the management expects synergy benefits of Rs50-60/tn in administrative and logistics costs. Post the restructuring, we expect D/E of the merged entity to increase to 0.59x/0.31x in FY17e/FY18e against earlier expectation of (-0.2x)/(-0.3x) for the same period. Factoring in debt increase, our target price is being revised downwards to Rs647 against Rs671 earlier. Post the restructuring, we expect D/E of the merged entity to increase to 0.59x/0.31x in FY17e/FY18e against earlier expectation of (-0.2x)/(-0.3x) for the same period. Factoring in debt increase, our target price is being revised downwards to Rs647 against Rs671 earlier.

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