Mr. Rajesh Ravi, Institutional Research Analyst, HDFC Securities
We maintain our BUY rating on Orient Cement with a revised target price of INR 187/share (7.5x Jun'23E consolidated EBITDA). In line with the performances of its peers in the south, Orient reported strong margin expansion during Q1FY22. Solid pricing gains across the south and west regions offset the impact of 26% QoQ volume decline and rising fuel, diesel and packing costs. Thus, unitary EBITDA expanded 25% QoQ to INR 1368/MT (Orient's best-ever margin) and moderated the profit decline. In Q1FY22, its revenue/EBITDA/APAT declined 17/8/10% QoQ to INR 6.91/1.86/0.9bn respectively. We continue to like the company due to a healthy demand outlook, its comfortable balance sheet, and its 3mn MT expansion plan.
All-time high margin in Q1FY22: While volume fell 26% QoQ during the lockdown, robust pricing gain (+13% QoQ) buoyed unitary EBITDA to an all-time high of INR 1,368/MT. ORCMNT increased the share of blended cement sales (70% vs ~55% in FY20). In its key markets, the share of its premium cement sales has increased to 15-18% of its trade sales (from ~8% in FY20). Orient has also stocked up domestic coal inventory ahead of the price increase, thereby moderating fuel inflation impact Q2 onwards. Amid no major ongoing Capex currently, Orient reduced debt by 15% in H1FY22.
Outlook: Orient expects to deliver 6mn MT sales in FY22E despite the lockdown impact in Q1. The ongoing grinding debottlenecking will increase its capacity by 0.5mn MT in FY22. In FY23, it will start work to expand capacity by 3mn MT (~1/2mn MT grinding/clinker at Devapur and 2mn MT SGU in Maharashtra) to be completed by FY24E (entailing Capex of INR 16bn). In FY23, it expects to commission a WHRS plant in Karnataka. As major Capex will start in FY23, we estimate its net debt/EBITDA to remain under 2.5x, as ORCMNT's capacity increases to 11.5x by FY25E. Factoring in healthy demand and pricing, we raise our EBITDA estimates for FY22/23/24E by 9/3/6% respectively. We remain positive on the company's outlook and maintain our BUY rating with a revised target price of INR 187/sh (7.5x its Jun'23E EBITDA).
Shares of ORIENT CEMENT LIMITED was last trading in BSE at Rs. 169.4 as compared to the previous close of Rs. 167.3. The total number of shares traded during the day was 396837 in over 5790 trades.
The stock hit an intraday high of Rs. 173.1 and intraday low of 167. The net turnover during the day was Rs. 67496099.