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Last Updated : Sep 18, 2018 02:05 PM IST | Source: Moneycontrol.com

Buy Orient Cement; target of Rs 153: Cholamandalam Securities

Cholamandalam Securities is bullish on Orient Cement has recommended buy rating on the stock with a target price of Rs 153 in its research report dated August 03, 2018.

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Cholamandalam Securities' research report on Orient Cement


Orient Cement posted a revenue growth of 13% YoY to INR 6.4bn largely led by volume growth of 14% YoY to 1.6mn ton. Realisation/ton for the quarter dropped by 1.4% YoY (+8% QoQ) to INR 3,999. Realisation improved on QoQ basis mainly on account of rise in prices in its key markets (Maharashtra & AP/ Telangana regions) and higher FOR sales. Raw material costs grew by 14%YoY to INR 799mn (Raw material cost/ton rose marginally by 0.4% YoY to INR 499). Freight costs increased by 34% YoY to INR 1,866mn (Freight cost/ton increased by 17.0% YoY to INR 1,167) on account of rising fuel prices, and higher freight on road sales. The company’s average lead distances, continues to be one of the lowest at ~300kms. Power & Fuel costs increased by 29% YoY to INR 1,778mn (Power & Fuel costs/ton increased by 13% YoY and 10% QoQ to INR 1,111) due to rise in coal and pet coke prices. Employee cost during the quarter grew by 17% YoY to INR 399.7mn. As a result, EBITDA margin contracted by 723 bps YoY to 13.4%.


Outlook


Orient Cement has delivered a reasonably strong quarter and is well placed to capitalize on the likely uptick in cement demand in its key markets. The demand growth is expected to be led by strong project pipeline from affordable housing and metro projects of state government of Telangana and Maharastra (~75% of sales). Healthy volume growth coupled with uptick in realization in key market and moderation in debt levels will drive the EPS growth. At CMP of INR 118, the stock is trading at EV/EBITDA 9.7X and 6.4X FY19E & FY20E respectively. We maintain a BUY rating on the stock with a revised target price of INR 153, assigning a multiple of 8X on EV/EBITDA of FY20E.



For all recommendations report, click here


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First Published on Aug 7, 2018 05:06 pm
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