Emkay Global Financial recommended hold rating on Orient Cement with a target price of Rs 69 in its research report dated July 29, 2020.
Emkay Global Financial's report on Orient Cement
Q1 results were marginally weaker than our estimates, dragged by a 45.7% yoy fall in volume (vs. estimated 42.1%) and higher opex. EBITDA stood at Rs982mn (vs. estimated Rs1,080mn) and EBITDA/ton came in at Rs1,198 (vs. estimated Rs1,234). Key positives: 1) 20.4% qoq growth in realization 2) reduction in working capital as receivables down by Rs1bn qoq 3) EBITDA/ton growth of 21% yoy/51.3% qoq. Key negative was a 45.7% yoy decline in volume. Management mentioned that current capacity utilization is approx. 50% vs. mid-50% in May/Jun’20. Volume generally drops 15-20% mom in July in the normal scenario, but this year, the volume drop is lower. Realization could drop when non-trade volumes pick up.
Outlook
Considering the current pricing trend in its key markets, we raise EBITDA for FY21/22/23E by 38.5%/15.4%/8.6%. The sustainability of cement prices is a key thing to watch out for as AP/Telangana markets operate at low utilization. We maintain Hold on the stock.
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