Hold Orient Refractories; target of Rs 240: CD Equisearch

CD Equisearch's research report on Orient Refractories

According to Markets and Markets, global refractories market is likely to witness a CAGR growth of 3.9% during 2017-2022, to reach $36.17 bn by end of 2022 from $28.72 bn in 2016, with CAGR volume growth of 3.5% - 56.83 mn tons compared to 46.28 mn tons in 2016. Sales growth of refractories across various applications should help Indian refractory market to exhibit a CAGR growth of 5.4% over the forecasted period. According to Moody’s Investors Service, India is expected to be the brightest spot for the steel sector over the next 12-18 months. Thanks to minimal steel capacity to be commissioned until 2021 in India, robust demand in steel consuming sectors - construction, infrastructure and automotive - is expected to keep end-product prices high, with rising cost of key inputs, coking coal and iron ore, putting pressure on profitability. However, India’s steel sector consolidation – takeover of Bhushan Steel by Tata Steel, acquisition of Electrosteel Steels by Vedanta - is likely to ease the financial stress and further improve utilization levels within the industry.

Outlook

However, steep valuations pose near term challenges. Therefore we assign ‘hold’ rating to the stock with target price of Rs 240 (previous target Rs 201) based on 24x FY20e EPS of Rs 10.00 over a period of 9-12 months.