One step closer - Orient Cement :: HDFC Securities

Please Share::

�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��

��

-->
One step closer
Orient Cement (Orient) delivered a weak quarter
with EBITDA/t at Rs 591 (vs est. 683), driven largely
by subdued pricing. Realisations dropped ~4.3%
sequentially (Rs 3,734/t, lower than estimated).
Volumes remained range-bound (+ ~3.7% YoY
growth), as its 5 mTPA capacity operates at 80%+
utilization levels already. Operating costs remained
flat (Rs 3,143, 0.9% QoQ, 6.8% YoY) despite some
expected relief in P&F/freight costs. This was on
account of seasonal maintenance charged in 3Q (vs
2Q earlier) and higher overheads.
While Gulbarga remains on track for a 1QFY16
commissioning, management indicated likely cost
increases for the plant (Base cost: Rs 17.5bn).
However, the plant cost is not expected to exceed
benchmark costs (~US$120/t). Our capex/debt
estimates are already higher by Rs 2.5bn (vis-a-vis
earlier mgmt guidance) to account for any such cost
escalations. As such, our estimates remain
unaffected.
 3QFY15 updates: EBITDA/t was lower than estimated
(Rs 591 vs est. 683) due to weak realizations (down
4.3% QoQ). Operating costs remained flat, despite
moderation in both P&F and freight costs. Reported
PAT at Rs 311mn (35.8% YoY, -28% QoQ) was below
estimates due to the EBITDA miss.
 Outlook and view: Pricing has improved substantially
in South and Maharashtra since December. We expect
a substantial jump in realizations and profitability for
Orient. Our earnings estimates are largely unchanged
despite a weak 3QFY15. We roll forward our valuations
to FY17, when the new capacity will contribute
significant volumes. With an 8 mTPA capacity
operating at high utilizations, Orient will not lag
Ramco, constrained due to geography, by much.
Given its clear cost advantage and return ratios vs
Ramco, we believe Orient should eventually trade at
similar valuations (Currently US$140/t). At 9.0x FY17
EV/EBITDA (implied US$120/t), our target price works
out to Rs 230/sh. Maintain BUY

LINK
http://www.hdfcsec.com/Share-Market-Research/Research-Details/StockReports/3010892