scorecardresearchWhy Axis securities sees over 23% upside in this cement stock despite a

Why Axis securities sees over 23% upside in this cement stock despite a 35% correction in last 6 months

Updated: 14 Jul 2022, 07:48 AM IST
TL;DR.

Orient Cement reported revenue of 2,725 Crore a 17% increase year on year.The sales volume stood at 5.5 mtpa with a growth of 8% in FY22. The Board declared an interim dividend of 0.75/share and has now proposed a final dividend of 1.75/share for FY22.

Shares of Orient Cement ended at Rs. 114.10 on the BSE in Wednesday's trade, down 1.72 per cent. The stock has fallen 38.37% from its 52-week high.

Shares of Orient Cement ended at Rs. 114.10 on the BSE in Wednesday's trade, down 1.72 per cent. The stock has fallen 38.37% from its 52-week high.

Shares of Orient Cement Ltd, engaged in the cement business, have the potential to reach Rs.140/share from its current market price of Rs.114, implying a 22.80 per cent potential upside, Axis Securities said in a research report dated July 12, 2022.

Despite high commodity inflation, Orient cement executed better cost management and reduced its outstanding debt in FY22 by 478 crore to 296 crore (as of March 31, 2022). The company reduced its net debt by 61% in FY22, strengthening its balance sheet. This will aid in its preparation for the next phase of growth, Axis securities highlighted in the research report.

The brokerage firm said that the company's blended realisation for the year stood at 4,975/tonne, an increase of 8% YoY. This was owing to the company’s clear focus on maintaining profitability rather than chasing volumes. The company leveraged its brand portfolio and product quality to seek a better cement price.

During the year, the company’s grinding capacity at its Devapur plant was enhanced by 0.5 mtpa, taking its total capacity to 8.5 mtpa. The company is also expanding its cement capacity by 3 mtpa and expects it to be operational in FY24. This would take its total capacity to 11.5 mtpa, Axis securities said.

"The current cost pressure is likely to persist due to prevailing higher fuel costs, and it is expected to moderate only from H2FY23 onwards." Nonetheless, the company’s capacity expansion plan is progressing well, which will enable it to feed rising cement demand moving forward. "Backed by the government's increased infrastructure spending, focus on affordable and low-cost housing, and encouraging real estate demand and pre-election spending, we believe cement demand will remain resilient going forward," it added.

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Stock Price Chart of Orient Cement 

Below are some of the key highlights stated by Axis Securities.

Strong revenue growth: The company reported revenue of 2,725 Crore a 17% increase year on year. Higher volume and better realisation contributed to improved sales during the year. The sales volume stood at 5.5 mtpa with a growth of 8% in FY22.

Strong performance by the premium product: The company’s premium product, Birla A1 StrongCrete, witnessed an overall growth of 64% YoY as a result of better market penetration, digitization, branding, and promotion activities.

Healthy capacity utilization: Capacity utilisation stood healthy at 66% during the year and, in view of improved profits, the Board declared an interim dividend of 0.75/share and has now proposed a final dividend of 1.75/share for FY22.

EBITDA de-growth: The company’s EBITDA margins declined to 21.7% from 23.7% in FY21 as the overall cost of cement production increased by 11% to 3,896/ton during the year.

Key Competitive Strengths: One of the lowest-cost producers of cement in India; Robust sales and distribution network; Strengthening financial position; Experienced management bandwidth, and Strong regional presence.

Shares of Orient Cement ended at Rs. 114.10 on the BSE in Wednesday's trade, down 1.72 per cent. The stock has fallen 38.37% from its 52-week high. The stock returned a negative 35.28% over the last six months. Furthermore, the stock returned 6.54% over the last three years, compared to a 43.67%  rise in the Nifty Smallcap 100.

On the financial ratio front, the company has consistently increased ROE in the last 5 years, with the majority of profits being added to its reserves last year. It has a return on equity of 17.25%.

An average of 11 analysts polled by MintGenie have a 'buy' call on the stock.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.

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First Published: 14 Jul 2022, 07:48 AM IST