IGI Logo

Prioritizing value over volume

Orient Cement (ORCMNT IN) reported Q2FY27 consolidated EBITDA of ~INR 750mn, declining to ~55% YoY and ~48% QoQ, below our estimate of ~INR 1.2bn. The earnings miss was primarily driven by a ~6% QoQ decline in realization , reflecting higher master supply agreement (M SA ) sales, and an increase in operating cost , due to higher variable cost. Management ’s focus in Q2FY27 was profitability over market share, with a strategic exit from the non -remunerative markets ,resulting in lower sales volume. We expect recent price hikes in its core markets of Maharashtra , Telangana & Karnataka , and improved capacity utili zation & operational synergies , following the merger with Ambuja Cements to support a gradual recovery in performance. Further, integration with the Adani Group should provide greater operational and financial flexibility in the medium term. As our TP offers potential upside of ~18%, we revise our rating to Accumulate with a lower TP of INR 136. In view of the pending merger with Ambuja Cements ( ACEM IN, Accumulate, CMP: INR 355, TP: INR 4 11), we derive ORCMNT’s TP from ACEM’s TP of INR 4 11based on the announced swap ratio.

Disappointment on the volume front for another quarter:

Sales volume declined ~17% YoY and ~1% QoQ to ~1.5mn tonne, marking the second consecutive quarter of double -digit YoY decline. The sharp slump was primarily driven by the company’s strategic exit from non - remunerative markets, with management prioritizing profitability over market share. Blended realization improved ~6% YoY but declined ~6% QoQ to INR 3,792/tonne. Cement realization , adjusted for freight outward, increased 4% YoY but fell 6% QoQ.

Operating cost pressures intensify, weighing on EBITDA/tonne:

Operating cost/tonne increased ~24% YoY and ~7% QoQ to ~INR 3,289. YoY increase was driven by higher cost across major components, with a sharper rise in packing, freight & forwarding, and raw material cost. Sequentially, the increase was primarily attributable to higher raw material s consumption and other expenses. The sharp rise in operating cost, coupled with weaker sequential reali zation, resulted in a ~48% QoQ decline in EBITDA/tonne to INR 503, the lowest level since Q3FY25.

Revise to Accumulate with a lower TP of INR 136:

Near -term performance is likely to take a hit from elevated input cost . However , w e expect a recovery in H2FY27, supported by improved pricing . The proposed merger with the parent, set to be completed in FY27, should provide greater flexibility in cashflow deployment. We cut our EBITDA estimates by ~5% for FY27 and ~3% for FY28, while retaining FY29 estimates , after factoring in weak volume and reali zation. As our target price offers potential upside of ~18%, we revise our rating to Accumulate from Buy, with a lower TP of INR 136 from INR 141 . Considering the proposed merger with ACEM, we derive ORCMNT’s TP from our ACEM TP of INR 411 based on 14x (unchanged) FY29E EV/EBITDA, implying 4.1x FY2 9E EV/EBITDA for ORCMNT. Sub -par demand, weak cement prices , and a sharp rise in fuel prices remain key risks.

Please refer disclaimer at Report
SEBI Registration number is INH000000933