Orient Cement Ltd
(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
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.