ICICI Direct recommended hold rating on Oriental Carbon with a target price of Rs 1300 in its research report dated February 04, 2019.
ICICI Direct's research report on Oriental Carbon
Oriental Carbon & Chemicals (OCCL) reported a robust operational performance in Q3FY19 led by volume growth in its base business (insoluble sulphur) and operating leverage benefits arising out of brownfield nature of capacity expansion (11,000 tonne- two phases) Net sales in Q3FY19 came in at Rs 94.5 crore, up 9.6%YoY. EBITDA in Q3FY19 was at Rs 34.5 crore with corresponding EBITDA margins at 36.5%. Reported margins look unusually high as it includes forex gains, adjusted for same, the normalised margins stood at ~33%. Consequent PAT for Q3FY19 came in at Rs 20.7 crore, up 35.3% YoY In the past, OCCL has successfully commissioned Phase 2 of expansion (5500 tonne) and is progressing well to reach peak utilisation in FY20E, thereby triggering the next level of capex in the similar business domain (insoluble sulphur) Currently, OCCL is also executing a buyback plan wherein the company intends to spend ~Rs 35 crore on buyback of shares from open market at a price not exceeding Rs 1150/share. It intends to buy ~3.04 lakh shares (~3% of share capital). As on date (February 1), it has already completed ~57% of intended buyback (1.74 lakh shares).
Outlook
We value OCCL at Rs 1300 i.e. 16x P/E on FY20E EPS of Rs 81.2/share and assign a HOLD rating to the stock. We draw comfort from healthy cash flow generation at OCCL with present CFO yield at ~8%. We also build in successful closure of buyback amounting to ~Rs 35 crore in FY19E.
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