Orient Cement - Highest operating margin in two years driven by robust realisation growth: CRISIL

CRISIL's research report on Orient Cement

 
Orient Cement Ltd’s (Orient’s) Q1FY18 results were in line with CRISIL Research’s expectations. Revenue increased 30% y-o-y, but declined 4.8% q-o-q, to Rs. 5.7 bn driven by increase in realisations even as volume growth was flat y-o-y and down 19% sequentially. Per tonne realisation net of freight increased 26% y-o-y and 20% q-o-q driven by improved pricing scenario in the key markets of Maharashtra and Telangana. Resultantly, EBITDA margin expanded to 20.6% in Q1FY18 from 12.7% in Q4FY17 and 9.3% in Q1FY17. Given demand recovery in key markets and continued improvement in EBITDA per tonne, we maintain the fundamental grade of 3/5.

We continue to value the company at 8.5x FY19 EV/EBITDA. We expect EBITDA to increase to Rs. 8.4 bn in FY19 from Rs. 1.8 bn in FY17 driven by operating leverage benefits materialising from improvement in realisations and capacity utilisation across plants. On FY19 EBITDA of Rs. 8.4 bn, the fair value is Rs. 206 per share. At the current market price of Rs. 160, our valuation grade is 5/5.

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