26 July 2017
1QFY18 Results Update | Sector: Cement
Orient Cement
Buy
BSE SENSEX
32,382
S&P CNX
10,021
CMP: INR160
TP: INR185 (+15%)
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Profitability uptick led by high pricing
Muted volume growth:
1QFY18 revenue increased 30% YoY (-5% QoQ) to
INR5.68b (est. of INR5.92b), as volume growth was flat YoY at 1.40mt (est. of
1.6mt) on account of destocking ahead of GST roll-out. Realizations
increased 18% QoQ (+30% YoY) to INR4,065/t (est. of INR3,693) due to sharp
pricing improvement in AP/Telangana and also Maharashtra (~84% of sales
volume). Realization improvement looks sequentially overstated by
~INR100/t due to lesser proportion of ex-factory sales in 1QFY18.
Favorable pricing improves margins:
Cost/ton rose 7% QoQ (+13% YoY) to
INR3,229 (est. of INR3,029), led by (a) increase of 6% YoY in power/fuel cost
due to higher petcoke prices, partially offset by a rise in proportion of
petcoke consumption, (c) increase of 43% YoY in freight cost/t due a shift in
invoicing toward FOR terms. EBITDA thus rose 189% YoY (+55% QoQ) to
INR1,169m (est. of INR1,065m), with margin at 20.6% (9.3% in 1QFY17).
EBITDA/ton grew INR400 QoQ (+INR546 YoY) to INR836 (est. of INR665).
Other key highlights:
(1) PPC sales at 68% of overall operations. (2) Petcoke
usage at 96% in Chittapur and 32% in Devapur on calorific value. 3) Lead
distance maintained at ~280km. (4) Market mix tilted toward west at 47%,
with south at 37% and others at 16%.
Valuation view:
Proposed acquisition of JPA’s assets would help ORCMNT to
raise capacity by 38% at reasonable valuation and significantly reduce lead
time. While the move would be dilutive to earnings and return ratios over
the near term, it will help the company to become a pan-India player by
diversifying into the newer markets of central/east India. We like the quality
of asset, and thus, believe that the combined valuation of USD84/t (i.e.
Orient’s current + proposed asset valuations) is attractive. The stock trades
at EV of 9.8x FY19E EBITDA and USD79 per ton on standalone operations.
We value ORCMNT at EV/ton of USD88 on FY19E, at a 20% discount to
replacement cost, and accordingly assign a TP of INR185. Maintain
Buy.
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
Avg Val, INRm
Free float (%)
ORCMNT IN
204.9
32.9/0.5
241 / 115
8/5/-20
58
62.5
Financials & Valuations (INR b)
2017 2018E
Y/E Mar
Net Sales
18.8
23.6
EBITDA
1.8
3.5
NP
-0.3
0.9
EPS (INR)
-1.6
4.4
EPS Gr. (%)
-151.5 -382.2
BV/Sh. (INR)
48.2
52.0
RoE (%)
-3.2
8.8
RoCE (%)
1.4
7.9
EV/EBITDA (x)
24.7
12.4
EV/Ton (USD)
83
81
2019E
26.5
4.3
1.5
7.1
60.5
58.5
12.8
9.0
9.8
79
Estimate change
TP change
Rating change
Abhishek Ghosh
- Research Analyst
(Abhishek.Ghosh@MotilalOswal.com); +91 22 3982 5436
Pradnya Ganar
- Research Analyst
(Pradnya.Ganar@motilaloswal.com); +91 22 3980 4322
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

Orient Cement
Exhibit 2: Realization increase QoQ due to better pricing
AP/Telangana and Maharashtra (INR/T)
Exhibit 1: Flat volume growth in 1QFY18 due to GST impact
Volume (MT)
13
20
Growth (%)
40 43
2 2
16 19
25
0
7
2 5 1 4 4
0 3
-4
-10
-18
Source: Company, MOSL
Source: Company, MOSL
Exhibit 3: Margin expanded QoQ led by favorable pricing
32
26
20
18 18 19
11
14 13
17
20
16
EBITDA (INR m)
24
17
11
6
14
9
10
4
13
Margin (%)
Exhibit 4: Trend in EBITDA/ton (INR)
21
Source: Company, MOSL
Source: Company, MOSL
Exhibit 5: Key assumptions
Capacity (mt)
Dispatch (mt)
Volume Growth (%)
Utilization (%)
Net Realization (INR/ton)
Change YoY (INR/ton)
Raw Material
Staff Cost
Power and Fuel
Freight
Other expenditure
Total Expenditure
Cement EBITDA/ton
Margins (%)
FY12
5.0
3.8
8.1
76
3630
682
543
97
784
703
410
2538
1092
30.1
FY13
5.0
4.1
8.1
82
3629
-1
553
128
927
759
525
2892
737
20.3
FY14
5.0
4.2
2.8
84
3402
-227
615
138
926
744
487
2911
491
14.4
FY15
5.0
4.1
-2.9
82
3763
361
481
175
983
778
623
3040
723
19.2
FY16
8.0
4.4
8.0
55
3318
-445
474
204
904
723
592
2897
421
12.7
FY17
8.0
5.6
25.9
69
3379
60
493
219
948
811
587
3058
321
9.5
FY18E
8.0
6.1
10.0
76
3859
480
498
213
996
1013
560
3280
579
15.0
FY19E
8.0
6.6
8.0
82
4024
165
508
217
1016
1064
571
3375
649
16.1
FY20E
8.0
7.3
10.0
91
3693
-331
480
194
935
875
545
3029
829
19.4
Source: Company, MOSL
26 July 2017
2

Orient Cement
Story in charts
Exhibit 6:
Capacity mix improves further with expansion (%)
North
40
South
East
25
West
Central
4
Exhibit 7: 1QFY18 market mix (%)
South
16%
37%
West
Others
68
60
75
2
26
Cap mix FY14
Cap mix FY16E
Volume mix
Source: Company, MOSL
47%
Source: Company, MOSL
Exhibit 8: Expansion to drive next leg of volume growth
Capacity (mt)
85
70
61
4.1
4.2
5.0
4.1
5.0
76
82
Dispatch (mt)
84
82
55
4.4
8.0
Utilization (%)
76
82
91
Exhibit 9: Trend in EBITDA/ton
1165
876
754
1092
737
491
723
421
321
829
579
649
69
5.6
8.0
6.1
8.0
6.6
7.3
3.5 3.8
2.9 3.0
3.4 5.0 5.0 5.0 5.0
8.0
8.0
Source: Company, MOSL
Source: Company, MOSL
Exhibit 10: Return ratios under check (%)
25.0
20.0
15.0
10.0
5.0
0.0
-5.0
FY13
FY14
FY15
FY16
FY17
FY18E
FY19E
FY20E
Source: Company, MOSL
RoE
RoCE
26 July 2017
3

Orient Cement
Financials and Valuations
Income Statement
Y/E March
Net Sales
Change (%)
Total Expenditure
% of Sales
EBITDA
Margin (%)
Depreciation
EBIT
Int. and Finance Charges
Other Income - Rec.
PBT bef. EO Exp.
EO Expense/(Income)
PBT after EO Exp.
Current Tax
Deferred Tax
Tax Rate (%)
Reported PAT
PAT Adj for EO items
Change (%)
Margin (%)
Net Profit
Balance Sheet
Y/E March
Equity Share Capital
Total Reserves
Net Worth
Deferred Liabilities
Total Loans
Capital Employed
Gross Block
Less: Accum. Deprn.
Net Fixed Assets
Capital WIP
Total Investments
Curr. Assets, Loans&Adv.
Inventory
Account Receivables
Cash and Bank Balance
Loans and Advances
Curr. Liability & Prov.
Account Payables
Provisions
Net Current Assets
Appl. of Funds
2013
14,844
8.1
11,829
79.7
3,015
20.3
561
2,455
187
219
2,486
0
2,486
794
76
35.0
1,617
1,617
-32.0
10.9
1,617
2014
14,302
-3.7
12,237
85.6
2,065
14.4
564
1,501
144
175
1,532
0
1,532
522
0
34.1
1,010
1,010
-37.5
7.1
1,010
2015
15,353
7.4
12,403
80.8
2,950
19.2
473
2,477
141
176
2,512
0
2,512
564
0
22.5
1,948
1,948
92.8
12.7
1,948
2016
14,624
-4.7
12,769
87.3
1,856
12.7
778
1,077
544
76
608
0
608
2
-17
-2.5
624
624
-68.0
4.3
624
2017
18,751
28.2
16,970
90.5
1,781
9.5
1,215
566
1,353
123
-665
0
-665
0
-344
51.7
-321
-321
-151.5
-1.7
-321
2018E
23,557
25.6
20,025
85.0
3,532
15.0
1,240
2,292
1,224
140
1,208
0
1,208
302
0
25.0
906
906
-382.2
3.8
906
2019E
26,529
12.6
22,252
83.9
4,277
16.1
1,290
2,987
1,031
120
2,076
0
2,076
581
42
30.0
1,453
1,453
60.5
5.5
1,453
(INR Million)
2020E
30,996
16.8
24,984
80.6
6,012
19.4
1,285
4,727
1,031
175
3,871
0
3,871
1,084
77
30.0
2,710
2,710
86.5
8.7
2,710
(INR Million)
2020E
205
14,376
14,581
868
12,885
28,335
33,014
11,001
22,013
1,000
875
9,195
1,359
1,104
4,779
1,953
4,139
3,906
232
5,056
28,335
2013
205
7,363
7,567
1,293
1,489
10,350
12,766
4,228
8,538
397
875
4,391
869
765
1,699
1,059
3,261
2,649
612
1,130
10,350
2014
205
8,083
8,288
1,266
3,286
12,840
12,934
5,300
7,635
3,897
875
3,774
713
647
816
1,598
2,773
2,442
331
1,001
12,840
2015
205
9,551
9,755
1,250
11,057
22,063
13,174
5,192
7,981
13,194
875
4,161
1,099
832
427
1,802
3,594
3,130
464
567
22,063
2016
205
9,958
10,163
1,228
13,409
24,799
27,864
5,970
21,894
2,000
875
4,486
1,410
921
384
1,771
3,845
3,407
438
641
24,799
2017
205
9,667
9,872
750
12,885
23,506
29,633
7,186
22,447
981
875
4,104
1,182
771
662
1,490
4,291
3,853
438
-187
23,506
2018E
205
10,453
10,658
750
12,885
24,292
30,164
8,426
21,738
1,250
875
4,740
1,291
968
738
1,743
3,701
3,550
151
1,039
24,292
2019E
205
11,786
11,991
791
12,885
25,667
31,214
9,716
21,498
1,000
875
6,871
1,381
1,018
2,655
1,817
3,966
3,780
187
2,904
25,667
26 July 2017
4

Orient Cement
Financials and Valuations
Ratios
Y/E March
Basic (INR)
EPS
Cash EPS
BV/Share
DPS
Payout (%)
Valuation (x)
P/E
Cash P/E
P/BV
EV/Sales
EV/EBITDA
EV/Ton (USD)
Dividend Yield (%)
Return Ratios (%)
RoIC
RoE
RoCE
Working Capital Ratios
Asset Turnover (x)
Inventory (Days)
Debtor (Days)
Leverage Ratio (x)
Current Ratio
Debt/Equity
2013
7.9
10.6
36.9
2.0
29.5
20.3
15.1
4.3
2.2
10.7
97
1.3
43.3
21.4
19.2
1.4
21.4
10.3
1.3
0.2
2014
4.9
7.7
40.5
1.5
47.5
32.4
20.8
4.0
2.2
15.2
94
0.9
13.5
12.7
10.7
1.1
18.2
8.1
1.4
0.4
2015
9.5
11.8
47.6
1.5
24.4
16.8
13.5
3.4
2.0
10.2
91
0.9
25.9
21.6
12.7
0.7
26.1
9.2
1.2
1.1
2016
3.0
6.8
49.6
1.0
76.4
52.6
23.4
3.2
3.0
23.6
82
0.6
7.6
6.3
5.3
0.6
35.2
9.3
1.2
1.3
2017
-1.6
4.4
48.2
0.5
-148.3
-102.1
36.7
3.3
2.3
24.7
83
0.3
1.3
-3.2
1.4
0.8
23.0
6.3
1.0
1.3
2018E
4.4
10.5
52.0
0.5
0.0
36.2
15.3
3.1
1.9
12.4
81
0.3
8.1
8.8
7.9
1.0
20.0
6.4
1.3
1.2
2019E
7.1
13.4
58.5
0.5
0.0
22.6
11.9
2.7
1.6
9.8
79
0.3
9.8
12.8
9.0
1.0
19.0
5.7
1.7
1.1
2020E
13.2
19.5
71.2
0.5
17.6
12.1
8.2
2.2
1.3
6.6
75
0.3
15.5
20.4
13.1
1.1
16.0
5.2
2.2
0.9
Cash Flow Statement
Y/E March
Oper. Profit/(Loss) before Tax
Interest/Dividends Recd.
Depreciation
Direct Taxes Paid
(Inc)/Dec in WC
CF from Operations
EO expense
CF from Operating incl. EO
(inc)/dec in FA
Free Cash Flow
(Pur)/Sale of Investments
CF from investments
Issue of Shares
(Inc)/Dec in Debt
Interest Paid
Dividend Paid
CF from Fin. Activity
Inc/Dec of Cash
Add: Beginning Balance
Closing Balance
2013
2014
1,501
175
564
-522
754
964
0
964
-3,161
-2,197
90
-3,071
70
1,797
-144
-360
1,363
-744
1,699
816
2015
2,477
176
473
-564
-45
2,607
0
2,607
-10,117
-7,509
0
-10,117
-120
7,771
-141
-360
7,150
-359
816
456
2016
1,077
76
778
-2
117
1,811
0
1,811
-3,497
-1,685
0
-3,497
24
2,352
-544
-240
1,591
-94
427
333
2017
566
123
1,215
0
-1,106
3,010
0
3,010
-750
2,260
0
-750
150
-524
-1,353
-120
-1,847
413
384
797
2018E
2,292
140
1,240
-302
1,150
2,220
0
2,220
-800
1,420
0
-800
0
0
-1,224
-120
-1,344
76
662
738
2019E
2,987
120
1,290
-581
-52
3,867
0
3,867
-800
3,067
0
-800
0
0
-1,031
-120
-1,151
1,917
738
2,655
2020E
4,727
175
1,285
-1,084
28
5,075
0
5,075
-1,800
3,275
0
-1,800
0
0
-1,031
-120
-1,151
2,124
2,655
4,779
26 July 2017
5

Orient Cement
Corporate profile
Company description
Orient Cement is part of the CK Birla Group
company. It has cement capacity of 5mtpa in
Andhra Pradesh and Maharashtra, along with
captive power plants of 50MW. It is expansion
capacity to 8mt through 3mt of Greenfield plant in
Gulbarga by 1QFY16. It is considered among one of
the lowest cost cement producers.
Source: MOSL/Bloomberg
Exhibit 1: Sensex rebased
Exhibit 2: Shareholding pattern (%)
Mar-17
Promoter
DII
FII
Others
37.5
25.0
7.5
30.0
Dec-16
37.5
25.4
7.4
29.7
Mar-16
37.5
32.3
6.5
23.7
Source: Capitaline
Exhibit 3: Top holders
Holder Name
ICICI PRUDENTIAL LONG TERM EQUITY FUND
TAX SAVINGS
India Capital Fund Limited
FRANKLIN TEMPLETON MUTUAL FUND A/C
FRANKLIN INDIA HIGH GROWTH COMPANIES
FUND
RELIANCE CAPITAL TRUSTEE CO. LTD.-A/C
RELIANCESMALL CAP FUND
Government Pension Fund Global
% Holding
3.1
2.5
2.4
2.2
2.1
Source: Capitaline
Note: FII Includes depository receipts
Exhibit 4: Top management
Name
Chandra Kant Birla
Desh Deepak Khetrapal
Amita Birla
Designation
Chairman
Managing Director & CEO
Director
Exhibit 5: Directors
Name
Janat Shah
R Jhawar
Rabindranath Jhunjhunwala
Name
Swapan Dasgupta
Vinod Kumar Dhall
Source: Capitaline
*Independent
Exhibit 6: Auditors
Name
Ranjeet Pandey & Associates
S R Batliboi & Co LLP
Somnath Mukherjee
Type
Secretarial Audit
Statutory
Cost Auditor
Exhibit 7: MOSL forecast v/s consensus
EPS (INR)
FY18
FY19
FY20
MOSL forecast
4.4
7.1
13.2
Consensus
forecast
4.9
9.7
18.4
Variation (%)
-9.9
-26.6
-28.3
S
Source: Capitaline
26 July 2017
6

Orient Cement
NOTES
26 July 2017
7

Disclosures:
The following Disclosures are being made in compliance with the SEBI Research Analyst Regulations 2014 (herein after referred to as the Regulations).
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a)
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Disclosure of Interest Statement
Analyst ownership of the stock
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Research Analyst views on Subject Company may vary based on Fundamental research and Technical Research. Proprietary
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products and services in any jurisdiction where their offer or sale is not qualified or exempt from registration. The Indian Analyst(s) who compile this report is/are not located in Hong Kong & are not conducting Research
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therefore, may not be subject to NASD rule 2711 and NYSE Rule 472 restrictions on communication with a subject company, public appearances and trading securities held by a research analyst account.
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The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person
or to the media or reproduced in any form, without prior written consent. This report and information herein is solely for informational purpose and may not be used or considered as an offer document or solicitation of
offer to buy or sell or subscribe for securities or other financial instruments. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or
appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment
objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. Each recipient of this document should make such investigations
as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved), and should consult its own advisors to
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products as well as non-investment grade securities - involve substantial risk and are not suitable for all investors. No representation or warranty, express or implied, is made as to the accuracy, completeness or fairness of
the information and opinions contained in this document. The Disclosures of Interest Statement incorporated in this document is provided solely to enhance the transparency and should not be treated as endorsement of the
views expressed in the report. This information is subject to change without any prior notice. The Company reserves the right to make modifications and alternations to this statement as may be required from time to time
without any prior approval. MOSL, its associates, their directors and the employees may from time to time, effect or have effected an own account transaction in, or deal as principal or agent in or for the securities
mentioned in this document. They may perform or seek to perform investment banking or other services for, or solicit investment banking or other business from, any company referred to in this report. Each of these entities
functions as a separate, distinct and independent of each other. The recipient should take this into account before interpreting the document. This report has been prepared on the basis of information that is already
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Registration details of group entities.: MOSL: NSE (Cash): INB231041238; NSE (F&O): INF231041238; NSE (CD): INE231041238; BSE (Cash): INB011041257; BSE(F&O): INF011041257; BSE(CD); MSE(Cash): INB261041231;
MSE(F&O): INF261041231; MSE(CD): INE261041231; CDSL: IN-DP-16-2015; NSDL: IN-DP-NSDL-152-2000; Research Analyst: INH000000412. AMFI: ARN 17397. Investment Adviser: INA000007100. Motilal Oswal Asset
Management Company Ltd. (MOAMC): PMS (Registration No.: INP000000670) offers PMS and Mutual Funds products. Motilal Oswal Wealth Management Ltd. (MOWML): PMS (Registration No.: INP000004409) offers wealth
management solutions. *Motilal Oswal Securities Ltd. is a distributor of Mutual Funds, PMS, Fixed Deposit, Bond, NCDs, Insurance and IPO products. * Motilal Oswal Commodities Broker Pvt. Ltd. offers Commodities
Products. * Motilal Oswal Real Estate Investment Advisors II Pvt. Ltd. offers Real Estate products. * Motilal Oswal Private Equity Investment Advisors Pvt. Ltd. offers Private Equity products
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