Orient Cement (2QFY15) : Solid quarter, execution on track. Maintain BUY :: HDFC Securities, PDF link

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Solid quarter, execution on track
Orient Cement (Orient) delivered a solid quarter with
a 115% jump in EBITDA/t (Rs 785/t). Volumes
improved ~4.2% YoY to 0.99 mTPA (~80% utilization
level in an off peak quarter in South). Realizations
improved ~11% sequentially (Rs 3,900/t, 14.7% YoY)
reflecting the price increase in Telangana and
Maharashtra in the quarter. Per tonne costs
remained well managed and all cost components
were stable, allowing for seasonality (Rs 3,115/t,
6.2% QoQ, 2.7% YoY).
Prices have corrected marginally in Orient’s markets
driven by lackluster demand during festive season,
which followed monsoon. With demand traction
likely to return, especially from Telangana, prices are
expected to firm up. Given the expectation of a
broadly stable trend in costs, Orient will likely see
further improvement in profitability and its EBITDA/t
may move closer to Rs 1,000/t mark for the
remainder of the year. Maintain BUY with a TP of Rs
177 (9.5x FY16 EV/EBITDA).
 Updates on Gulbarga project : Execution remains
broadly on track with civil work & kiln erection largely
complete and pre-heater close to completion. Raw
mill, cement mill and limestone mine preparation form
the bulk of remaining work. Environmental clearance
was received during 2QFY15 and mining lease needs to
be obtained from the state government. As such Orient
is very much on track for delivering substantial
volumes from the Gulbarga plant.
 Outlook and view : We have not changed our
earnings estimates. Given the likely boost from
Gulbarga volumes, EBITDA/PAT can grow by a healthy
44/40% CAGR over the FY14-17 period even if the
blended profitability may get dragged down somewhat
as the new operation ramps up. Orient trades at a
considerable discount to its South peers over which it
enjoys a substantial cost advantage. The discount
should narrow as the operations scale up to 8 mTPA in
FY16.

LINK
http://www.hdfcsec.com/Share-Market-Research/Research-Details/StockReports/3009612