Orient Cement - Higher prices, lower costs drive outperformance - ICICI Securities

Orient Cement's (ORCMNT) Q2FY21 EBITDA at Rs1.13bn (more than doubled YoY) was ahead of our/consensus estimates led by lower costs. Total cost/te declined 4% YoY owing to strict cost control and better efficiencies; while realisation increased 13% YoY leading to 2.6x increase in EBITDA/te to Rs1,109/te (I-Sec: Rs1,028/te). Volumes declined 18% YoY, broadly in-line with demand in its key markets of South and Maharashtra. EBITDA to OCF conversion was strong at 125% owing to working capital release of Rs1bn leading to net debt reduction of Rs2.2bn (16% of mcap) during H1FY21. While we raise our FY21E EBITDA by 8%, we maintain our FY22E EBITDA and increase our target price to Rs93/share (earlier Rs84) based on 6x Sep'22 EV/E on half yearly rollover. Maintain BUY.

- Revenue declined 7% YoY to Rs4.8bn, broadly in line with our estimates. Realisation/te declined 6.5% QoQ (still up 13% YoY) to Rs4,677/te due to monsoon and increase in share of non-trade sales owing to higher demand from infrastructure segment. Volumes declined 18% YoY to 1.02mnte on higher impact of Covid-19 and heavy rains in all its key markets. As the demand from infra segment increased pushing demand of OPC, proportionate share of PPC declined marginally during the quarter. Management mentioned that cement demand rebounded in Sep'20 with further acceleration in Oct'20 led by pick-up in infra segment and increase in spending by AP/TEL government on irrigation and low-cost housing projects.

- EBITDA more than doubled YoY to Rs1.13bn (I-Sec: Rs1.07bn) owing to higher realisation and lower costs. Total cost/te declined 4% YoY/ 6% QoQ to Rs3,568/te. Raw material plus power & fuel cost/te declined 3% YoY/ 8% QoQ on increase in usage of petcoke and softer imported coal prices. Packing, Freight and forwarding cost increased 3% YoY on increase in sale of packed cement, higher diesel prices and marginal increase in lead distance to >300kms. Other expenses/te (including employees cost) declined 8% YoY/ 11% QoQ owing to strict control on overheads and improving efficiencies despite poor operating leverage.

- EBITDA to OCF conversion was strong at 125% in H1FY21. ORCMNT generated FCF of Rs2.4bn post working capital release of Rs1bn and capex spend of Rs176mn. Accordingly, net debt declined by Rs2.2bn to Rs9.6bn as of Sep'20 post dividend payment of Rs154mn. ORCMNT is still in the process of acquiring various government approvals / land for its Devapur expansion projects. Any decision on expansion is likely to depend upon demand recovery and comfort on leverage. We factor Rs5.7bn capex in FY23E and expect net debt to EBITDA to remain <3x over next few years. Valuations at EV/te of
Shares of Orient Cement Ltd was last trading in BSE at Rs.64.8 as compared to the previous close of Rs. 66.25. The total number of shares traded during the day was 137317 in over 1651 trades.

The stock hit an intraday high of Rs. 69.3 and intraday low of 63.85. The net turnover during the day was Rs. 9131249.

Source : Equity Bulls

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