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Result Synopsis 

Orient Cement's (ORCMNT) result was below expectation on all fronts, volume missed by 8% (+16% y/y) due to Chittapur plant maintenance shutdown, causing revenue 5% below YSECe (+16% y/y). Additionally, +10% higher total cost/te than est. resulted in EBITDA/PAT miss of 33/46% in Q1FY24. The inter-clinker movement & other cost surged due to the maintenance shutdown at Chittapur unit kept total cost elevated thereby dented EBITDA/te to Rs624, declined by 16% y/y (v/s Rs852/te YSECe) in Q1FY24.

Now management prioritized the Chittapur expansion (3MTPA cement & 2MTPA clinker) to improve the production headroom as the unit has only one kiln running on 100% utilization. Company plans to commission GU in central India (MP) instead of Tiroda GU (2MTPA). Further plans to add 3MTPA clinker & 1MTPA GU at Devapur to cater the GU in MP. All the capacities are expected to be commissioned by the end of FY25 and management guided +12% y/y volume growth to 6.5MT for FY24E. Management reiterates its policy to focus on better pricing over higher dispatches to offset cost inflation and improve the margins. We remain POSITIVE on ORCMNT prospects for being an efficient & low-cost producer and also believe it has a significant headroom to improve further through 1) Product-mix (Higher Blended Sales), 2) Augmenting Green Power 3) Higher use of alternative fuel (TSR of 25% by 2030). ORMNT to generate a OCF of Rs9bn over FY24-25E which would aid to fund its CAPEX partially (Rs25bn over FY24-25E). Therefore, Net Debt is expected to rise going forward, limiting the earning visibility (Net Debt/EBITDA guidance of <3x). Hence, we believe a strong pricing environment will be vital for ORCMNT to achieve better profitability and reduce its dependency on borrowings. We revised our TP to Rs160/share, valuing at 7x EV/EBITDA on FY25E with ADD rating.

Result Highlights

* Revenue came 5% below YSECe, up by 16% y/y but declined by 6% q/q.

* Volume grew by 16% y/y to 1.6MT (v/s YSECe of 1.7MT) but moderated by 8% q/q due to maintenance shutdown at Chittapur plant. Whereas NSR came flat y/y and up by 2% q/q in Q1FY24

* Total cost/te came 10% above YSECe (+2% y/y and 7% q/q) due to surge in RM & other cost/te by 36% & 12% y/y in Q1FY24, respectively.

* EBITDA came at Rs992mn, declined by 2% y/y and 29% q/q translates in EBITDA/te of Rs624 v/s YSECe of Rs852 in Q1FY24

* PAT came at Rs370mn, declined by 1% y/y and 45% q/q (v/s YSECe of Rs686mn).

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