26 July 2017
1QFY18 Results Update | Sector: Cement
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%.
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
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
Avg Val, INRm
Free float (%)
241 / 115
Financials & Valuations (INR b)
EPS Gr. (%)
- Research Analyst
(Abhishek.Ghosh@MotilalOswal.com); +91 22 3982 5436
- 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.
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