OCL to gain from firm demand

OCL India, a leading player cement manufacturer in the eastern region, has gained from strong demand conditions in the region in the March 2010 quarter. Government-funded infrastructure and rural housing projects have been major contributors to OCL’s performance.

As a result, the company’s cement realisations improved by nearly 21.7% to Rs 4427.7 per tonne in the quarter under review, while its despatches were slightly higher on a y-o-y basis at 0.86 million tonne. Improved realisations in the eastern region were in broad contrast to the situation in southern and western regions in the March 2010 quarter. Apart from the cement business, OCL’s refractory business contributed 17.7% to segment sales in the fourth quarter. The company also benefited from a revival in the steel sector, key user industry.

Meanwhile, improved performance in both the divisions helped OCL India’s operating profit margin improve by 840 basis points y-o-y to 29.8% in the fourth quarter, while its total operating income also rose 20.2% to Rs 426.5 crore. The results were declared on Monday and over the past two trading days, the stock rose nearly 6.4% to close at Rs 138.9 on Tuesday and it is not too far from its 52-week high of Rs 144.35 reached in January 2010.

OCL’s strong fourth-quarter realisations also helped it offset higher operational costs. For instance, its power & fuel costs rose 22.1% y-o-y to Rs 636.9 per tonne, while other expenditure rose 23.6% on a per tonne basis. In its refractory division also, segment result (profit before tax and interest) rose 59.6% in the fourth quarter. OCL

India’s net profit also more than doubled to Rs 55.4 crore in the quarter. Going forward, OCL is expected to continue to benefit from strong demand conditions in both the cement and refractory division. Also, Dalmia Cement (Bharat), which has a 45.4% stake in OCL, as per the restructuring announced earlier, had transferred its stake to Dalmia Bharat Enterprises and its subsidiaries. OCL India trades at just 4.7 times on a trailing four-quarter basis and is a value buy.