NEW DELHI: This smallcap cement maker has been seeing delays in capability growth because of bad coins generation and hassle in environmental clearances.
But cement call for in its key markets, specifically southern location, has been strong of past due, which helped the organization log a four-fold jump in March area profit.
Analysts anticipate realizations to stay sturdy for the cement maker in June sector as properly. And this is one of the reasons at the back of the seventy-three in step with cent bounce in the stock from a five-12 month low of Rs 61.90 hit on February 6 this 12 months.
The employer is CK Birla Group company Orient Cement. On Monday, in a depressed market, the inventory traded around Rs 107.
Big Bull Rakesh Jhunjhunwala has been maintaining a 1.22 percent stake on this employer at least when you consider that March quarter of 2016.
Analysts have upped rate objectives for the stock sharply post robust Q4 numbers, yet maximum goals suggest most effective a confined upside potential from here on.
Kotak Institutional Equities has revised the goal from Rs 80 to Rs 106, which is in which the stock traded on Monday. Motilal Oswal Securities and Antique Stock Broking have set charge objectives of Rs 119 and 115, respectively, suggesting 7-eleven percent upside capability.
ICICI Securities has upped its charge target to Rs one hundred thirty-five from Rs 77 earlier, giving a ‘buy’ advice on the stock from ‘upload’ in advance. This is 26 according to cent above the winning charge.
Elara Capital appears maximum bullish amongst all, having raised its charge target from Rs 80 to Rs one hundred fifty, almost 40 percent from prevailing price.
The enterprise seems to be in no hurry to go in for capex, even though ability utilization touched 80 consistent with cent for the duration of FY19.
Analysts say low margin profile and economic leverage make this agency’s earnings sensitive to cement prices. They believe any capex rollout will rely upon sustainable development in profitability, which itself will hinge on cement fees in middle markets.
The Maharashtra marketplace on my own debts for forty-five in keeping with cent of Orient Cement’s revenue. That market noticed a 2 according to cent sequential rise in cement fees in March zone. Prices rose 3 in keeping with cent sequentially in Andhra and 7 in step with cent QoQ in Karnataka.
At its winning fee, Orient Cement trades at a 40-50 in line with cent discount to its replacement fee.
Kotak Institutional Equities believes the postpone in capex could help it deleverage from 4 times net debt/Ebitda in FY2019 to 2 instances FY2021. The inventory trades at an EV in line with tonne of $60 due to susceptible profitability towards the replacement value of $eighty-100 consistent with tonnes, it said.
March zone wonder
The cement maker pronounced a 21.14 in line with cent YoY bounce in general earnings at Rs 754.89 crore on a 9 per cent growth in extent to at least one.83 million tonnes. Profit climbed 4-folds to Rs 61.Ninety eight crore from Rs 12.Eighty two crore in the year-in the past sector.
This is in opposition to a lack of Rs thirteen.7 crore pronounced for December zone and Rs sixteen.7 crore loss in September area, facts available with company database AceEquity confirmed.
Realisations for March sector rose 11 in line with cent YoY to Rs four,one hundred and one according to tonne, thanks to healthy prices in underlying markets. Ebitda jumped 104 per cent YoY to a file Rs 153 crore, with margins increasing 834 basis points YoY to 20.4 in keeping with cent. Ebitda consistent with tonne became at sixteen quarters excessive at Rs 835.
History holds the cue
Antique Stock Broking said despite the fact that March area changed into sturdy, overall performance in past five years indicates such strong quarterly Ebitda has not often stayed with the agency.
Antique Stock Broking stated the current fee increases in southern and western markets need to help June quarter overall performance. This brokerage has upped its truthful cost for the stock to Rs one hundred fifteen, based totally on 7 times FY21 EV/Ebitda.
Kotak Securities expects a 2-3 in keeping with cent upward thrust in realisations in FY2020-21.
Earnings, it stated, are notably touchy to prices due to low margins, financial leverage and this will pressure 15-18 consistent with cent increase in FY2020-21 Ebitda estimates.
Catch-22 scenario
Reliance Securities said the agency is in Catch-22 state of affairs, thinking about the urgency of ability enlargement and financial constraints, which could be just like the situation in India CementsNSE -1.41 %.
“Sustainability of recent charge hikes in its key markets can also enhance its unitary Ebitda from Rs 251 to Rs 750-850 in ensuing quarters, which bodes nicely for higher cash glide,” it said.
The brokerage said debt-to-equity for Orient Cement at 1.2 times appears to be on the higher side and considering its mixture interest-adjusted coins waft from operations at Rs 480 crore in closing three years (FY16-FY18), it’d be a daunting project for the employer to enlarge ability with out similarly straining the stability sheet.
“Though the stock has witnessed a first rate rebound after rate hikes in key markets, valuations appear like cozy. However, ambiguity over capacity enlargement will continue to be an overhang within the medium time period,” the brokerage said.
The employer become targeting capex at Devapur in two stages; the first for 1 million tonne through debottlenecking, observed with the aid of 3 million tonnes of brownfield enlargement.
Split GU, which turned into originally planned at the Orissa facility, may not be viable now, owing to excessive slag fees, which makes break up GU untenable, Antique said.
“Even though there’s already a put off in growth, outlook for capex rollout going ahead hinges at the environmental clearances in addition to the sustainable improvement in expenses/profitability,” Antique stated.
