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MOSL: ORIENT CEMENT (Buy)-Margin miss due to higher-than-estimated cost

Orient Cement: Margin miss due to higher-than-estimated cost

(ORCMNT IN, Mkt Cap USD0.2b, CMP INR66, TP INR82, 23% Upside, Buy)

 

• Utilizations at 75%: Revenue grew 12% YoY (+2% QoQ) to INR5.7b and volumes increased 10% YoY to 1.51mt; both were in line with our estimates. Realizations at INR 3,782/t (+1%YoY;-1% QoQ) also came in line with our estimate due to weaker prices in underlying markets.
• Cost push impacts profitability: Cost/t increased 2% YoY (-1%QoQ) to INR3531/t as freight cost/t increased 18%YoY. Freight costs were higher primarily on account of higher diesel prices and higher FOR mix v/s last year. Power and fuel prices declined 4% YoY due to increasing AFR usage, and significantly better consumption metrics across plants, especially Chittapur. Thus, EBITDA/t stood at INR251 (-12% YoY; +3% QoQ), resulting in EBITDA of INR379m, -3%YoY (v/s our est. of INR452m). Margins came in at 6.6% (-1pp YoY, +0.3pp QoQ). Orient Cement reported PBT loss of INR202m (v/s loss of INR248m in 3QFY18) as against our estimate of loss at INR161m. As a result, there was a loss of INR137m (PAT) as against our estimate of INR105m loss (v/s INR177m loss in 3QFY18).
• Other key highlights: (1) PPC sales were at 60% of overall operations. (2) Significantly better consumption metrics was seen across plants and increasing AFR usage alleviated overall P&F costs. (3) Distance travelled was well under 300kms for the quarter.