Accumulate Orient Cement Ltd for Target Rs 163 by Elara Capital
Cost normalization drives margin
Orient Cement (ORCMNT IN) reported Q1FY27 consolidated EBITDA of ~INR 1.4bn, declining ~21% YoY but improving ~34% QoQ, ahead of our estimate s of ~INR 1.1bn. The earnings beat was primarily driven by a 9% QoQ decline in cost per tonne, reflecting normalization in operating cost after a sharp escalation for the previous two quarters. We note cost per tonne had increased by ~27% between Q 2FY26 and Q4FY2 6, creating a high base. On the back of normalization of cost, EBITDA per tonne recovered by ~INR 290 QoQ to ~INR 960. T he ongoing integration with the Adani Group is likely to provide cashflow flexibility to the Group . W e reiterate Accumulate with a TP of INR 163. I n view of the pending merger with A mbuja Cements (ACEM IN, Accumulate, CMP: INR 430 , TP: INR 494), we derive ORCMNT’s TP from ACEM’s TP of INR 494 based on the announced swap ratio.
Volume falls to a 1.5-year low as the company exits non-remunerative markets:
Sales volume declined ~21% YoY and ~6% QoQ to ~1.5mn tonne, ~ 5% below our estimate, marking the company's first double -digit YoY volume decline since September 2024. The sharp decline was primarily driven by its strategic exit from non -remunerative markets, with management prioritizing profitability over market share. Blended reali zation fell ~12% YoY but remain s flat QoQ at INR 4,027/tonne. Cement reali zation after subtracting freight outward improved 9% YoY but fell 2% QoQ .
Lower cost drives margin recovery despite weaker realization:
Operating cost per tonne declined ~15% YoY and ~9% QoQ to ~INR 3,067, driven by lower raw material s consumption and a sharp reduction in Other operating expenses. Raw material s consumption slumped ~30% QoQ, resulting in a ~10% QoQ reduction in variable production cost, while Other operating expenses fell ~28% QoQ, reflecting effective cost rationalization. The sharp moderation in operating cost more than offset the impact of weaker realization, leading to a sequential improvement in profitability. As a result, EBITDA per tonne increased ~42% QoQ to INR 960, reaching the highest level in the p ast four quarters
Reiterate Accumulate with a TP of INR 163:
W hile near -term performance is likely to remain subdued by seasonally weak demand and soft pricing during the Monsoon , we expect volume to recover post Monsoon , supported by the Adani Group synergies and its extensive distribution network. Continued cost optimi zation initiatives are set to support margin recovery. In addition, the proposed merger with the parent company, set to be completed in FY27, should provide more flexibility in us e of cashflow. We raise our EBITDA estimates by ~1% for FY27 while keeping them unchanged during FY28 -29E , due to improvement in cost structure. W e re iterate Accumulate w ith a TP of INR 16 3. Considering the pending merger with A CEM , we derive ORCMNT’s TP from our A CEM’s TP of INR 494 based on an unchanged 15x FY28E EV/EBITDA, implying 5. 8x EV/EBITDA for ORCMNT . Sub -par demand, weak cement prices, and a sharp rise in fuel prices are key risks to our call.
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SEBI Registration number is INH000000933
