Maintain BUY on Orient Cement - Strong show - HDFC Securities

Mr. Rajesh Ravi, Institutional Research Analyst, HDFC Securities

Orient Cement (ORCMNT) reported a solid 2QFY21 as it reported strong profitability, sharp working capital and debt reduction. While net sales fell 7% YoY to Rs 4.78bn on weak volumes, EBITDA soared 111% YoY to Rs 1.13bn on solid pricing and continued cost reduction. Thus, ORCMNT's APAT swelled to Rs 348mn vs net loss of Rs 77mn YoY. The company also reduced its working capital requirement, thus bolstering free cash on its books, which it used to reduce its debt by 20% from the Mar-20 level. We continue to like ORCMNT for its continued cost efficiencies and balance sheet focus. We maintain our BUY with an unchanged target price of Rs 105/share (7x Sep'22E EBITDA).

Results highlights: Poor demand across the south and Maharashtra markets drove 18% YoY volume decline. Trade sales accounted for 60% of its sales. However, NSR rose 13% YoY despite 6.5% QoQ cool-off, owing to the sustenance of a large chunk of price hikes of 1QFY21. Opex fell 4/6% YoY/QoQ, due to continued focus on fixed cost controls, lower maintenance cost, and tailwinds from lower fuel prices YoY. Thus, unitary EBITDA rebound 157% YoY to Rs 1,109/MT, driving 111% EBITDA jump. APAT (Rs 348mn vs net loss of Rs 77mn YoY) further benefitted from 18% YoY lower interest cost. During 1HFY21, OCF surged 5x YoY to Rs 3bn, driven by 4% higher EBITDA and sharp WC release. As Capex spend remained low, ORCMNT used the free cash to prepay debt by ~Rs1.6bn (20% from Mar-20).

Outlook: We maintain our earnings estimates. We like ORCMNT for its improved cost efficiencies (which is bolstering its profit outlook), and balance sheet focus. We maintain our BUY rating on the stock with an unchanged target price of Rs 105/share (7x Sep'22E EBITDA).

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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