Hold Oriental Carbon & Chemicals; target of Rs 1105: Centrum

Centrum's research report on Oriental Carbon & Chemicals

We retain our Hold rating on Oriental Carbon & Chemicals (OCCL) with a revised TP of Rs1105. Q2 performance was subdued and trailed our estimates due to lower than expected volumes as ramp-up at Mundra remained slow yet steady. We reduce our earnings estimates marginally as we trim our volume growth estimates but remain positive on company’s prospects led by solid demand outlook for IS in domestic market and opportunity for gaining market share in new geographies of US & China. Consolidated margins are expected to improve materially over FY17- 19E led by i) benefits of operating leverage and ii) turnaround of its downsized subsidiary Duncan Engineering.

Outlook

We value OCCL on our conservative AOCF/EV yield based on five year average cash flows to arrive at our revised TP of Rs1105. Retain Hold. Key downside risks are lower volumes and rupee appreciation while upside risk is of higher margins.