Cholamandalam Securities is bullish on Orient Cement has recommended buy rating on the stock with a target price of Rs 108 in its research report dated November 13, 2018.
Cholamandalam Securities' research report on Orient Cement
Orient Cement posted a muted revenue growth of 7.2% YoY to INR 5.6bn largely led by volume growth of 13% YoY to 1.47mn tonnes driven by strong demand from AP and Telangana. However, realisation/ton for the quarter dropped by 4.5% YoY (-4.6% QoQ) to INR 3,815 due to weak prices in Maharashtra and Telangana. Capacity utilization stood at 73% in 2QFY19 vs 65% in the corresponding quarter last year. During the quarter, Portland Pozzolana Cement (PPC) sales were 90%. Higher operating expenditure and decline in realization led to a 52% YoY and 58% QoQ drop in EBITDA to INR 358mn and margins contracted by 790bps YoY (-700bps QoQ) to 6.4%. Hence this resulted in Orient Cement reporting a loss of INR 167mn vs profit of INR 102mn in 2QFY18 and a profit of INR 160mn in 1QFY19. Significantly better consumption metrics across all plants and increasing alternate fuel usage partly offset the impact of rise in overall Power and Fuel costs (which accounts for 30% of the total cost), which was INR 1,064/tonne in 2QFY19 vs INR 981 in 2QFY18.
We maintain a BUY rating on the stock with a revised target price of INR 108, assigning an EV per tonne USD 65 of its FY20E capacity.
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