A 63 per cent surge in profit, despite a spike in power and freight costs, has impressed analysts, who now have set price targets as high as Rs 250 on the stock. On Friday, the scrip traded at Rs 161.45, up 0.44 per cent. At this level, the price targets suggest up to 55 per cent potential upside.
Orient Cement is a mid-sized cost-efficient cement player with a capacity of 8 million tonnes (mt). The company’s plants are located in Telangana (3 mt, integrated), Karnataka (3 mt, integrated) and Maharashtra (2 mt, grinding unit). Nearly half of the company’s revenues come from Maharashtra (50 per cent), Telangana, Karnataka and MP markets.
Jhunjhuhwala — called Big Bull for his positive outlook — has been keeping his stake in this company mostly unchanged at 1.2 per cent for many years now.
The company reported a 63.37 per cent YoY rise in net profit to Rs 56.9 crore against Rs 34.8 crore in the year-ago quarter. Sales for the quarter were up 28.4 per cent to Rs 613.1 crore from Rs 477.5 crore YoY. That said, volume fell 6 per cent sequentially to 1.28 million tonnes, even as the June quarter numbers were affected by Covid. Heavy rains in September in its core market — south India and Maharashtra — affected its trade volume. Low seasonal demand also led to a fall in derived cement realisation by 5.5 per cent sequentially to Rs 4,797 per tonne. On a YoY basis, volume rose 25 per cent and realisation increased 2.6 per cent, analysts said.
Centrum Broking said it expects cement price hikes to offset cost increases in the December quarter. The cement maker has increased prices per bag by Rs 15-20 from the second quarter. “We revise our FY22 EBitda by 18 per cent and FY23E EBitda by 5 per cent to factor in higher increase in cement prices. We value the stock at 7 times FY23 EV/Ebitda and arrive at a target price of Rs 220,” Centrum said.
Orient has repaid Rs 204 crore debt in the first half of FY22 and Rs 40 crore in October, reducing its gross debt to Rs 550 crore. The cement maker intends to reduce this debt to Rs 250-300 crore in FY22.
While deleveraging continued, said Anand Rathi, the announced expansion would give volume growth a fillip. “Cost optimisation measures, a rake-handling system, the WHRS setup and solar power are positives,” it said, while raising its target on the stock to Rs 240 from Rs 200 earlier.
ICICIdirect said the company management has maintained its volume growth guidance for FY22. It said price hikes might provide a cushion against further erosion in margins.
The company is planning to reduce debt significantly before moving into the next phase of expansion. It aims to reach 14.5 million tonnes of cement capacity by FY26, with an eye on the Rajasthan market, entailing a capex of Rs 3,600 crore.
“Likely transfer of mines in Rajasthan from Orient Paper to the company after favourable changes in the MMDR Act will speed up the expansion in Rajasthan. Close proximity to raw materials, higher share of blended cement, lower lead distance will keep production costs lower than industry average,” ICICIdirect said, while suggesting a target of Rs 250 on the stock.
