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Strong show; balance sheet strengthened

Orient Cement’s (ORCMNT) Q4FY21 EBITDA at Rs2.0bn (+62% YoY) was ahead of our/consensus estimates, on account of higher realisation and lower costs. Realisation increased 8% YoY/1% QoQ also aided by higher contribution from premium products, while total cost/te was +1% YoY/-1% QoQ at Rs3,400/te due to low-cost fuel inventory, improved efficiencies and higher use of alternate fuels.

ORCMNT plans to complete 0.5mnte debottlenecking project by mid-June’21, while it targets to complete 3.0mnte expansion at its Devapur plant by FY24. Net debt declined from Rs12bn in FY20 to Rs6.6bn as on Mar’21. Factoring in the improved realisation, we increase our FY22E-FY23E EBITDA by 9-16% and raise our target price to Rs138/sh (earlier: Rs93/sh) based on unchanged 6x FY23E EV/E. Maintain Add. Key risk: Lower-than-expected demand/pricing.

* Revenue increased 18% YoY to Rs8.3bn (I-Sec: Rs7.8bn).

Realisation/te was up 1% QoQ (up 8% YoY) to Rs4,495/te (I-Sec: Rs4,451/te) also aided by higher contribution from premium products (~9% of trade sales in Q4FY21 and 10% of trade sales in the month of Mar’21). Management mentioned prices remained largely stable QoQ during Q4FY21. Volumes were up 17.5% YoY to 1.85mnte implying 92.5% utilisation in Q4FY21 (utilisation for the month of Mar’21 was +100%). Nontrade demand witnessed sharp surge in the last 6 weeks of Q4FY21.

* Targeting 20% YoY volume growth in FY22 with 6mnte volumes:

As per the management, in the first 6 weeks of FY22, industry volumes in the key markets of ORCMNT would have dropped by ~30% (vs usual fall of 10-15% every year) as compared to Q4FY21 levels on account of covid resurgence. While demand from rural housing and large infrastructure projects remained steady, demand from urban housing and small projects have been impacted due to various restrictions and manpower issues. However, the management expects demand to normalise with decline in covid cases, and as and when normalcy resumes.

* EBITDA increased 62% YoY to Rs2.0bn (I-Sec: Rs1.8bn) with EBITDA/te increasing 38% YoY to Rs1,095/te (I-Sec: Rs1,024/te) owing to higher realisation and better operating leverage. Total cost/te was +1% YoY/ -1% QoQ at Rs3,400/te. Raw material plus power and fuel costs/te was +2% YoY/ +4% QoQ on account of higher pet coke prices, the impact of which was partially neutralised by low-cost fuel inventory, improved efficiencies and use of alternate fuel. Freight costs/te increased 3% QoQ and 2% YoY owing to higher diesel prices. Further, fixed costs may see usual increase in FY22 on account of increase in employee costs, maintenance expenses and advertisement/marketing costs, after being optimised in FY21.

* Targeting net debt to come down to Rs1-2bn in FY22 from the current Rs6.6bn:

OCF generation was strong at Rs6.2bn during FY20 aided by working capital release of Rs2.2bn. Net debt declined from Rs12bn in FY20 to Rs6.6bn in FY21.

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