SPA Research report on Orient Cement (OCL)
Orient reported subdued set of numbers with ~20.0% decline in earnings largely owing to 10.2% decline in cement volumes. While weak demand resulted in lower volumes, the same was accentuated by sharp fall in cement prices (particularly Maharashtra region which accounts for ~60% of Orient’s volumes) as realizations sequentially declined by 8.1%. Resultantly EBIDTA/tonne declined by 35.1% QoQ to INR 610. Additional 3 mt green-field unit in Karnataka remains on track and is set to commence operations from H2FY16. We continue to retain our “BUY” rating on the stock with a target of INR 224.
Outlook & Valuation"OCL with its large distribution network remains best placed to benefit from demand revival in AP & Telengana region. Being amongst the lowest cost cement producer, OCL enjoys industry leading return ratios and has successfully captured higher market share despite muted industry growth. With capacity expansion on track, we expect revenue and net profit to register a CAGR of 33.8% and 20.5% respectively over FY15-17E. Any visible progress on plans of becoming a 15 mt company by 2020 would lead to rerating of the company. We retain our “BUY” rating on the stock with a target of INR 224 based on an average of 9.0x FY17 EV/EBIDTA & FY17 EV/tonne of INR 6600", says SPA Research report.
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