Buy Orient Cement Ltd For Target Rs.174 - Anand Rathi Share and Stock Brokers
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To add 3m tonnes by FY26; retaining a Buy
Though good infrastructure demand boosted Orient Cement’s Q3 volume growth, high input costs curbed its operating performance. While cement capacity expansion continues to be delayed, the falling fuel cost benefit will be visible post-May’23. Cost savings from the 10MW WHRS, more government spending on infra and the firm B/S are positives. We retain a Buy rating on the stock, with a lower target price of Rs.174 (earlier Rs.176) on 7.5x FY25e EV/EBITDA.
Firm infra demand aided volume growth. Operating at 70% capacity, cement volumes grew 17.4% y/y (to 1.43m tons) on higher infra demand. Cement price hikes were restricted due to keen competition, leading to realisation/ton growing 1% y/y. While the better demand momentum post Oct is expected to continue, Q4 sales volumes were guided to at 1.7m tons. The sharper infra focus in the Budget and more government spending due to the coming election would help the cement sector grow 12-13% in FY24. We expect 7%/9% cement volume/revenue CAGRs over FY22-25.
10MW WHRS to push up cost savings. High fuel costs, longer lead distances, product-mix changes (to more OPC) led to EBITDA falling 23% y/y to Rs903m and EBITDA/ton, 34.5% y/y to Rs632. Because of high fuelcost stocks, the benefit of falling fuel prices will be visible post-May’23. Savings of Rs300m p.a. are expected on the commencement of the 10MW Chittapur WHRS. We expect EBIDTA/ton of Rs789/Rs887 in FY24/FY25.
Business outlook; Valuation. The cement capacity expansion continues to be delayed, pending clearances. Identifying land for the Raj IU expansion is ongoing. During 9M FY23, Rs1.17bn debt was repaid (at 31st Dec’22, gross debt was Rs4.03bn). On high B2B sales (longer credit periods), WC days were higher. Net D/E and debt-to-EBITDA were guided to be below 1.5x and 3x respectively, despite the expansions. We retain our Buy rating, with a lower target price of Rs174. Risks: Rising pet-coke/diesel prices, demand slowdown.
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