Ori­ent Ce­ment Ltd

Money Times - - Bull’s Eye - By Pratit Nayan Pa­tel

(BSE Code: 535754) (CMP: Rs.175.35) (FV: Re.1)

Com­pany Back­ground: In­cor­po­rated in 1979, New-Delhi based Ori­ent Ce­ment Ltd (OCL) man­u­fac­tures and sells ce­ment. Formerly, it was a part of Ori­ent Pa­per & In­dus­tries Ltd and was de­merged in 2012. OCL’s plant at De­va­pur in Te­lan­gana com­menced ce­ment pro­duc­tion in 1982. In 1997, it set up a split-grind­ing unit at Jal­gaon, Ma­ha­rash­tra. In 2015, it started com­mer­cial pro­duc­tion at its in­te­grated ce­ment plant at Chit­ta­pur in Kar­nataka. Last year, it an­nounced its in­ten­tion to ac­quire 74% stake in Bhi­lai Jaypee Ce­ment Ltd with an in­te­grated ca­pac­ity of 2.2 MMTPA and a sep­a­rate grind­ing unit in Ni­grie (2 MMTPA ca­pac­ity) for Rs.1946 crore. This ac­qui­si­tion is ex­pected to en­hance its to­tal ce­ment man­u­fac­tur­ing ca­pac­ity to 12.2 MMTPA along with its en­try into the cen­tral and eastern markets of In­dia. In ad­di­tion, it has cap­tive power plants of 50 MW.

OCL sells ce­ment pre­dom­i­nantly in Ma­ha­rash­tra, Te­lan­gana, Kar­nataka, Andhra Pradesh and Mad­hya Pradesh be­sides Chat­tis­garh, Gu­jarat, Goa and Tamil Nadu. It pro­duces two ce­ment va­ri­eties (Or­di­nary Portland and Poz­zolana Portland Ce­ment) mar­keted un­der the ‘Birla A1 Pre­mium’ flag­ship brand. Its fa­cil­i­ties are ISO 9001:2008, ISO 14001:2004 and OHSAS 18001:2007 cer­ti­fied. It won the To­tal Plant Main­te­nance (TPM) Ex­cel­lence award from JIPM, Ja­pan and is the sec­ond com­pany in In­dia to earn this distinc­tion.

Fi­nan­cials: OCL has an eq­uity cap­i­tal of Rs.20.49 crore sup­ported by huge re­serves of Rs.966.69 crore (47x its eq­uity). The pro­mot­ers hold 37.5% of the eq­uity cap­i­tal, Mu­tual Funds hold 20.77%, FPIs hold 6.63%, LIC and NIC hold 4.41%, Pri­vate In­surance com­pa­nies hold 2.52%, which leaves 26.95% stake with the in­vest­ing pub­lic and non-in­sti­tu­tions. Big bull Rakesh Jhun­jhun­wala holds 1.22% stake in the com­pany.

Per­for­mance Re­view: For FY17, OCL posted higher sales of Rs.1875.14 crore v/s Rs.1509.19 crore in FY16 but re­ported a net loss of Rs.32.1 crore v/s net profit of Rs.62.24 crore in FY16. How­ever, it re­ported strong growth for H1FY18 with net profit of Rs.49.07 crore v/s loss of Rs.36.95 crore in H1FY17 on 24% higher sales of Rs.1179.57 crore. It posted an EPS of Rs.2.4. Div­i­dend: OCL is an in­vestor­friendly com­pany. In spite of re­port­ing a loss in FY17, it paid

50% div­i­dend on Re.1 paid-up for the fis­cal year. It paid 100% div­i­dend for FY16, 175% for FY15,

150% for FY14 and 200% for

FY13.

In­dus­try Over­view: In­dia’s ce­ment in­dus­try is ex­pected to ex­pand its man­u­fac­tur­ing ca­pac­ity at a slower rate go­ing for­ward, as the in­dus­try looks to bet­ter uti­lize ex­ist­ing large and unused ca­pac­i­ties prof­itably be­fore in­vest­ing fur­ther in clink­eri­sa­tion. The coun­try’s grind­ing ca­pac­ity would con­tinue to grow as the in­dus­try seeks to col­lec­tively in­crease its reach into new markets prof­itably. Most M&As in the ce­ment sec­tor ap­pear to have been com­pleted this year with most avail­able as­sets ac­quired by stronger play­ers. The suc­cess­ful in­te­gra­tion of these as­sets with ex­ist­ing op­er­a­tions and in­creas­ing over­all as­set uti­liza­tion lev­els are likely to be the two main themes for the sec­tor go­ing for­ward. Re­cently, the gov­ern­ment an­nounced Rs.6.92 lakh crore for high­way projects, which is highly ben­e­fi­cial for In­dia’s ce­ment in­dus­try. The In­dian ce­ment in­dus­try is ex­pected to grow 4-5% YoY in FY18, driven largely by in­fra­struc­ture growth and a ru­ral hous­ing re­vival.

Con­clu­sion: In FY17, OCL sold 26% more ce­ment com­pared to FY16, uti­liz­ing its new plant to es­tab­lish its brand in new markets. This en­abled it to out­per­form the

1.3% con­trac­tion in the coun­try’s ce­ment sec­tor in FY17. Av­er­age sales re­al­iza­tion at Rs.3371/tonne was 2.1% higher than in FY16. Its rev­enue grew 28% to Rs.2171.27 crore in FY17 fol­low­ing an im­prove­ment in sales vol­umes. EBIDTA stood at Rs.190.4 crore com­pared to Rs.193.1 crore in FY16. In­ter­est cost in­creased to Rs.135.34 crore from Rs.54.36 crore in

FY16 due to a large in­vest­ment in the green­field ca­pac­ity at Chit­ta­pur in Kar­nataka. Due to higher in­ter­est cost, it re­ported a loss in FY17. The man­age­ment ex­pects OCL’s bot­tom-line to im­prove in FY18. This C.K. Birla group com­pany stock cur­rently trades at a P/E of 66.67x, which will come down dras­ti­cally with FY18 num­bers. Based on its fi­nan­cial pa­ram­e­ters, the OCL stock looks quite at­trac­tive at the cur­rent level. We are very bullish on this stock and it is our top pick in the ce­ment sec­tor. In­vestors can

ac­cu­mu­late this stock on ev­ery dip with a stop loss of Rs.150 for a price tar­get of Rs.225-230 in the next 12-15 months. The stock’s 52-week high/low is Rs.182/114.8. Its mar­ket cap stands at Rs.3592.37 crore.

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