Cholamandalam Securities is bullish on Orient Cemen has recommended buy rating on the stock with a target price of Rs 188 in its research report dated May 04, 2018.
Cholamandalam Securities' research report on Orient Cement (ORCMNT)
For 4QFY18, Orient Cement posted a revenue growth of 3.9%YoY to INR 6bn aided largely by a change in billing method, which resulted in a 7.4% YoY increase in realization. Intense competition in key markets resulted in a 3.2% YoY decline in sales volume to 1.68mn tonnes. Capacity utilisation for the quarter stood at 84%. During FY18 sales rose by 18.5% due to 14.4% increase in realization and a 3.6% YoY growth in sale volumes. Sales volume for the year stood at 5.75 million tonnes with a capacity utilization of 72%. Total cost/tn increased by 8.1% YoY to INR 3,251. Raw material costs fell by 2.3%YoY to INR 786mn ( Raw material cost/ton rose by 1%YoY to INR 469). Freight costs increased by 15.2% YoY to INR 1,769mn ( Freight cost/ton increased by 19.0%YoY to INR 1,055) on account of higher Free on Road (FOR) sales, costlier diesel prices and longer lead distance. Power & Fuel costs increased by 6.7%YoY to INR 1,692mn (Power & Fuel costs/ton increased by 10.3%YoY to INR 1,009) due to increase in coal and pet coke prices. However, Power and Fuel costs/ton fell by 3.1% on QoQ basis. Fuel mix for the company stood at 80% pet coke in Chittapur plant (75% in 3QFY18) and 0% pet coke in Devapur plant (13% in 3QFY18). However, Total cost/ton fell 5.8% on sequential basis due to Power and Fuel costs and other expenses.
The company is well placed to capitalize on the likely uptick in cement demand led by strong project pipeline such as affordable housing and metro projects of state government of Telangana and Maharastra (~75% of sales) to drive the volume growth of the company and moderation in debt levels going forward. At CMP of INR 139, the stock is trading at EV/EBITDA 10.2X and 6.5X FY19E & FY20E respectively. We value the stock at 8X FY20E EV/EBITDA, which gives us a target price of INR 188.
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