Maintain BUY on Orient Cement - Healthy performance despite sharp volume decline - HDFC Securities

Ms. Rajesh Ravi, Institutional Research Analyst, HDFC Securities.

Orient's net sales/EBITDA/APAT fell 40/34/54% YoY to Rs 4.10/0.98/0.26bn respectively, hit hard by sharp 46% volume decline. However, the company was able to contain earnings decline, aided by strong fixed cost reduction and robust realisation gains. The pace of volume decline is slowing down, and expected demand acceleration from AP/T governments should also support sales recovery, going ahead. While we expect cement realisation to cool off from peak-1Q level, subdued fuel costs and healthy cost controls should drive profit uptick. We maintain BUY, with a revised TP of Rs 95/share.

1QFY21: Sales volume fell 46/48% YoY to 0.82mn MT, hit by weak demand across south and Maharashtra, and shaper demand contraction in non-trade. Amid this, robust price hike across its markets and an increased share of trade sales drove up NSR 10/20% YoY/QoQ, cushioning the volume loss impact. On the cost front, logistics disruptions and rise in fly ash-lead distance inflated input costs by 8% YoY. While Orient cut fixed costs sharply (other expenses down 44% YoY), significantly lower utilisation (41% vs 76% YoY) led to unitary fixed cost inflating by 21% YoY. These moderated the windfall from price hikes. Unitary EBITDA surged 21% YoY to Rs 1,198/MT.

Outlook: Orient expects the pace of volume decline to moderate, going forward. Cement demand from AP/T is expected to accelerate in 2H buoying sales. We thus model in 18% YoY fall in FY21E and a similar rebound in FY22E. We also factor in NSR to cool off from the peak of 1Q. We reduce our fixed cost estimates to factor in strong cost focus. Thus, we upgrade FY21/22E EBITDA estimates by 18/1% respectively. The management guided that it will decide on expansions at the end of FY21E. We maintain a BUY rating with a revised target price of Rs 95/share (7x June'22E EBITDA).

Shares of Orient Cement Ltd was last trading in BSE at Rs.64.2 as compared to the previous close of Rs. 65.45. The total number of shares traded during the day was 7191 in over 118 trades.

The stock hit an intraday high of Rs. 65.6 and intraday low of 64.2. The net turnover during the day was Rs. 465043.

Source : Equity Bulls

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