MOSL: ORIENT CEMENT (Buy)-Profitability uptick led by cost efficiencies
Orient Cement: Profitability uptick led by cost efficiencies
(ORCMNT IN, Mkt Cap USD0.5b, CMP INR160, TP INR185, 15% Upside, Buy)
- Strong volume growth: 4Q revenue grew 37% YoY (+31% QoQ) to INR5.97b (est. of INR5.44b), as volumes rose 25% YoY to 1.73mt (est. of 1.5mt) due to ramp-up of the new unit at Chitapur and higher sales from the old unit. Realizations declined 6% QoQ (+10% YoY) to INR3,443/t (est. of INR3,700/t) due to a sharp price decline in AP/Telangana. However, prices increased sharply in AP/Telangana and Maharashtra in April/May 2017, which should result in higher profitability for ORCMNT in 1QFY18.
- Cost efficiency leads to margin improvement: Cost/ton fell 8% QoQ (+12% YoY) to INR3,007 (est. of INR3,146), led by (a) lower RM cost as there was no sourcing of clinker from third parties in 4QFY17, (b) decline of 2% QoQ in power/fuel cost on improved power consumption at the Chitapur unit and higher proportion of petcoke used, (c) fall of 3% QoQ in freight cost/t due to freight optimization measures. EBITDA thus rose 22% YoY (+66% QoQ) to INR755m (est. of INR813m), with the margin at 12.7% (14.2% in 4QFY16). EBITDA/ton grew INR72 QoQ (-INR10 YoY) to INR436 (est. of INR553).
- Other key highlights: (1) PPC sales at 76%/44% at old/new operations. (2) Petcoke usage at ~53% on calorific value. 3) Lead distance maintained under 300km. (4) Market mix tilted toward west at 47%, with south at 40% and others at 13%. (5) With sharp price hikes in AP/Telangana and Maharashtra in April/May, EBITDA/t is likely to see meaningful increase QoQ in 1QFY18.
Orient Cement Limited is an India-based company engaged in the manufacturing and sales of cement. The Company's products include Birla A1 Premium Cement, Birla A1 Premium Cement-OPC 53 Grade and Birla A1 Premium Cement-OPC 43 Grade. The Company's product mix includes ordinary Portland cement (OPC) and Pozzolana Portland cement (PPC), which are sold under the brand name of Birla A1. The Birla A1 Premium Cement is an inter-grinding of Portland cement clinker, gypsum and fly ash. The Company is part of the CK Birla Group. The Company's manufacturing facilities are located at Devapur in Telangana, Jalgaon in Maharashtra and Chittapur in Karnataka. The cement production capacity of the Devapur plant is approximately three metric tons per annum (MTPA). The Company operates a clinker grinding plant in Jalgaon, Maharashtra of approximately two MTPA cement production capacity.
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