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Performance beat on all front led by strong volume & lower cost

Result Synopsis

Orient Cements (ORCMNT) reported a performance beat on all fronts, Revenue/ EBITDA/Adj. PAT came at Rs7.3/0.90/0.28bn (beats YSECe by +4/24/132%). Performance was largely driven by volume growth of +17% y/y (+16% q/q; +5% higher than YSECe) to 1.43MT owing to good demand from the infra segment (non-trade 51%). Whereas total cost/te came 3% below YSECe due to decline in RM/te and other cost/te. Consequently, EBITDA/te reported at Rs632 (v/s YSECe of Rs535/te) in Q3FY23. Given the 9MFY23 volume performance of 4MT, we believe ORCMNT is on track to achieve our volume estimate to 5.5MT (v/s management guidance 5.8MT) for FY23E. Ongoing expansion project of 3MTPA in Maharashtra & Telangana would take total capacity to 11.5MTPA by FY24-25E. Ongoing expansion will enhance the access to Chhattisgarh, Maharashtra & South MP markets and thereby diversify its geographical presence with higher blended sales & enabling optimization of logistic cost. Management to focus on pricing over higher dispatches to offset cost inflation and improve the margins going ahead. We remain POSITIVE on ORCMNT and believe, despite being amongst the low-cost producer, ORCMNT has significant headroom to improve on its efficiency parameters like: 1) Product-mix (Higher Blended Sales), 2) Augmenting Green Power 3) Higher use of alternative fuel 4) Targeting Average TSR of 25% by 2030. ORCMNT is expected to generate a CFO of Rs11bn over FY23-25E that would aid to fund its CAPEX plans partially thereby the Net Debt is expected to peak at ~Rs9.5bn with net debt/EBITDA of ~1.1x by FY25E. We retain our BUY rating with a TP of 195, valuing the stock at 5.5x EV/EBITDA on FY25E.

Result Highlights

* ORCMNT delivered volume growth of +17% y/y and +16% q/q to 1.43MT (+5% above YSECe) owing to good demand from the infra segment (non-trade).

* NSR increased by +1% y/y and +3% q/q but remained 1% below YSECe due to the higher OPC & Non-Trade sales in this quarter. As a result, Revenue came at Rs7.3bn, up by +19% both y/y and q/q (+4% higher than YSECe).

* EBITDA came at Rs903mn (+24% beat YSECe) declined by 23% y/y but sequentially improved by +178% in Q3FY23. This performance translates to EBITDA/te of Rs632 (v/s YSECe of Rs535/te) in Q3FY23, improved by +140% q/q on account of fuel/energy prices softening.

* Owing to higher-than-expected margins and lower finance cost, ORCMNT’s Adj. PAT beats YSECe by 133% to Rs275mn in Q3FY23, declined by 37% y/y v/s net loss Rs95mn in Q2FY23.

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