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Strong show in Q4, focus now on debt reduction…

The company’s stellar performance in Q4FY21 was backed by 17.1% YoY jump in sales volumes (1.85 MT) along with strong realisations (up 8.5% YoY) in the company’s key operating regions. Asset utilisation also remained healthy @ 93%. In turn, this provided operating leverage benefit leading to sharp margin expansion and robust profitability growth. EBITDA margin improved 530 bps YoY, 174 bps QoQ to 24.4%. The resultant EBITDA/t came in at | 1095/t vs. | 789/t last year and | 1005/t last quarter. PAT for the quarter was at | 99.9 crore (up 126.6% YoY, 85.4% QoQ).The company has declared a dividend of | 1.5/share.

Infra, rural demand to keep demand momentum strong

Orient Cement is a mid-sized (8.0 MT) cost-efficient player in the cement space. The company derives revenues largely from Maharashtra (50%), Telangana, Karnataka and MP. A revival in these markets would help the company improve its performance. Key factors driving demand over FY21- 23E are: a) strong rural demand b) irrigation projects c) housing projects in AP/Telangana and infrastructure projects like metro in Mumbai-Pune, Mumbai-Nagpur Expressway, etc. Also, the pricing has improved in the past 15 months. This should lead to better margins, going ahead.

Proximity to raw materials, market provide structural advantage

The company’s plants are located close to key raw materials like high quality limestone and coal reserves. Also, Orient Cement’s product mix is skewed in favour of PPC, thus enabling higher use of fly ash, resulting in lower raw material cost per ton. Further, lead distance has been ~300 km, indicating products being sold in nearby areas. This has helped the company to keep production cost (CoP) lower than the industry average.

Strong cash flow to aid in significant debt reduction

With targeted sales volume of 6 MT for FY22E, we expect the company to generate EBITDA of over ~| 650 crore for FY22E, majority of which would be utilised towards debt repayment. Further, plan to set up another 3.0 MT capacity by FY24E is also in the radar. However, details on its execution will be known later. Besides, de-bottlenecking of 0.5 MT Devapur capacity is under execution, which should come on stream by Q3FY22E.

Valuation & Outlook

The structural cost advantage and presence in rural centric market remain key positives for the company. At the CMP, the stock is still available at attractive valuations of 4.2x on FY23E EV/EBITDA post impressive performance. With a positive outlook, the growth tempo is expected to stay strong, going forward. We value the company at 6x EV/EBITDA and arrive at a target price of | 170/share (earlier | 105) while we maintain BUY rating (i.e. at 11x FY23E EPS, implied EV/tonne of $70/tonne).

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