Orient Cement reports 63% YoY growth in Net Profits, target price set to Rs. 240 | Orient Cement Q2 results

Orient Cement’s sales volumes grew by 25% YoY to 1.28 million tons despite a heavy monsoon this year along with high raw material costs. In Q2 FY22 the sales in the key markets was as follows- Maharashtra/Gujarat:54%, South:37% and MP/Chhattisgarh:9%. Sales volume is expected to clock a 10% CAGR over FY21-24.

Due to the raw material costs being much more than normal, the extra cost was passed on to the cement prices, increasing it to Rs.15-20 per bag and the sale price of premium cement was up 8% up from Q1 FY22.

The EBITDA/ton decreased to Rs.1048 per ton and the EBITDA increased by 18% to Rs.1.3 billion. EBITDA is estimated to record a 12% CAGR during a period of FY21-24. The Profit After Tax grew by a whopping 63% YoY standing at Rs.569 million due to the interest costs being lower by 43.5% YoY and a higher value of operating profits.

The cost of fuel and power increased by 19.6% YoY. Keeping a fuel stock of 1-4 months will be very helpful for the company to overcome the problems occurring due to the fuel costs being at an all time high along with a relative scarcity of the resource. One of the plants of the company has a 3-4 month fuel stock whereas the other plants have 1 month of stock. The costs of raw material displayed an increase of 12% whereas the freight cost per ton increased by 18%. It is estimated that these high costs may start showing a downtrend from December of this year or January of the next year.

The demand for cement has been relatively stable for Q2. In September FY22 the demand saw a drop due to the unseasonal heavy rainfall. The ratio of sales in West, South and MP/Chhattisgarh is 54:37:9. It is expected by analysts that the sales volumes will go up by 6 million tons in FY22.

In H1 FY22 the company paid back a debt of Rs.2.04 billion and another Rs.400 million in October 2021. The gross debt has been thus reduced to Rs.5.5 billion from the Rs.7.74 billion on 31 March 2021. The company has intentions to reduce the total debt to Rs.2.5-3 billion in FY22.

The company recently acquired a stake of 26% in AMP Solar System Pvt Ltd. The Jalgaon plant is expected to carry out the solar power operation by November 2021.

An expansion in the Devapur plant of a 2m ton clinker installation is scheduled to be over by the end of FY24 whereas the 10MW WHRS expansion has been delayed to the end of FY22 and will get over in FY23 and requires a capex of Rs.1 billion. The total capex for FY22 is expected to be Rs.500 million.

The planned expansions will provide a helping hand in increasing market diversification and a higher sales volume growth. The debt is being kept in check by the continuously improving operational efficiency and also better cash flows.

The revenue growth estimate for FY22 and FY23 has been reported as 5.3% and 4.3% respectively. Similarly, the EBITDA and PAT growth estimate for FY22 and FY23 has been reported as 2.3%,1.9% and 2.3%,3%, respectively.

A BUY call has been given by analysts with a target price of Rs.240, providing an upside of 49.25%.