Orient Cement - Balancing growth and leverage - ICICI Securities

Orient Cement's (ORCMNT) Q3FY21 EBITDA at Rs1.37bn (+2.5x YoY) was ahead of our/consensus estimates, led by better realisation and lower costs. Realisation increased 17% YoY (declined 5% QoQ) led by firm prices in South, while total cost/te stood flat YoY owing to low-cost fuel inventory and improved efficiencies. ORCMNT plans to set up 2mnte grinding unit at a capex of Rs5bn in Maharashtra, mainly to save logistic costs and also set up 10MW WHRS at a capex of Rs1bn by Q3FY23E. Net debt declined Rs1bn QoQ (Rs3bn YTDFY21) to Rs8.6bn as of Dec'20 and is unlikely to increase over FY22-23E even after factoring in the above capex. We maintain our FY22E-FY23E EBITDA and target price of Rs93/sh based on 6x FY23E EV/E. The stock has more than doubled post our upgrade in May'20; downgrade to ADD. Key risk: Lower-than-expected demand/pricing.

- Revenue increased 7% YoY to Rs6bn, broadly in-line with our estimates. Realisation/te declined 5% QoQ (still up 17% YoY) to Rs4,449/te (I-Sec: Rs4,389/te) on decline in prices and lower trade sales (declined 800bps QoQ to 52%). Management mentioned prices are largely stable till date with minor fall from exit of Q3FY21. Volumes declined 8% YoY to 1.36mnte implying 68% utilisation. Management indicated demand was broadly flat in Maharashtra, while it declined in mid-single digit in Karnataka and double digit in Telangana in Q3FY21. Given the low base of Mar'20, the company expects to report positive volume growth in Q4FY21.

- EBITDA increased 2.5x YoY to Rs1.37bn (I-Sec: Rs1.05bn) with EBITDA/te increasing 2.7x YoY to Rs1,006/te (I-Sec: Rs781/te) owing to higher realisation and lower costs. Total cost/te stood flat YoY (declined 3.5% QoQ) to Rs3,443/te. Raw material plus power and fuel costs/te declined 8% both QoQ and YoY owing to low-cost fuel inventory, usage of most efficient fuel combination with improved efficiencies. Freight costs/te increased 2% QoQ and 5% YoY owing to higher diesel prices. Other expenses grew 39% QoQ to normal level of Rs940mn for the quarter. Further increase in diesel prices/ packing costs/ fuel prices may increase cost structure in coming quarters.

- ORCMNT plans to set up 2mnte grinding unit at a capex of Rs5bn in North-East Maharashtra, mainly to save logistic costs on long distance sales (600kms). The company is in the process of acquiring various government approvals and aims to commission grinding units in 18-20 months. The said capex is likely to be calibrated depending upon demand / supply dynamics and may see delays, in our view. Besides, de-bottlenecking of 0.5mnte Devapur capacity may be commissioned at a capex of Rs200mn by Jun'21. Net debt declined by Rs1bn QoQ (Rs3bn YTDFY21) to Rs8.6bn as of Dec'20 owing to strong profitability and working capital release. The same is unlikely to increase even after factoring in the guided capex of Rs6.5bn-7bn over FY22-23E.

Shares of Orient Cement Ltd was last trading in BSE at Rs.84.9 as compared to the previous close of Rs. 82.3. The total number of shares traded during the day was 80606 in over 903 trades.

The stock hit an intraday high of Rs. 86.95 and intraday low of 83.7. The net turnover during the day was Rs. 6872161.

Source : Equity Bulls

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