Orient Cement valuations mouth-watering from 2-3 years perspective
Hyderabad co's valuation looks attractive over a 2-3 year time frame given cost efficiencies, capacity addition & hopes of higher cement usage.
By Rajesh Naidu, ET Bureau | Updated:
ET INTELLIGENCE GROUP: For investors with a horizon of two to three years, the current valuation of Orient Cement may appear to be attractive considering factors such as cost efficiency, capacity addition and expectations of improvement in cement utilisation.
The mid-sized Hyderabad-based cement company has a capacity of 8 MT including the recently commissioned capacity in Karnataka. It sells 60% of its cement production in Maharashtra and close to 40% in Telangana. Nearly 80% of its sales are in the trade segment with a focus on rural housing.With slowdown in rural construction activities due to low growth in rural income, the company's cement volume fell by 2.4% in a year-to-date. It operates at 75% utilisation rate against 80-82% in FY15. Once the demand picks up, there is room for enhancement in its utilisation.
Maharashtra has capacity of close to 32 MT and it consumes close to 13% of India's cement consumption.The state government's measures such as the hybrid business model where the government will fund 40% of project costs and extension of period of premium payment are expected to speed up construction.
If the 2016 monsoon is good, it will improve rural income.im prove rural income.
It is estimated that the company's new plant in Karnataka would enhance its volume growth. According to Karvy Research, the volume growth in FY15-18 will be close to 17% annually. Karvy Research, the volume growth in FY15-18 will be close to 17% annually.
FINANCIALS In the December 2015 quarter, the company's net sales declined by 8.6% to Rs 350 crore year-on-year. It recorded a loss of `13 crore as against net profit of Rs 31.1 crore a year ago. Due to weak cement prices in Maharashtra, realisations fell by 10% to `3,340 per tonne.Low utilisation of its new plant in Karnataka impacted its sales volumes which showed muted growth of 1.9%.
VALUATION On the valuation front, considering FY17 earnings' estimates, the cement producer's enterprise value works out to be $83 per tonne.
In the mid-sized cement space, this is attractive given the company's size, geographical presence, capacity and, more impor tantly, its light balance sheet with net debt-equity ratio of 1.3.
The mid-sized Hyderabad-based cement company has a capacity of 8 MT including the recently commissioned capacity in Karnataka. It sells 60% of its cement production in Maharashtra and close to 40% in Telangana. Nearly 80% of its sales are in the trade segment with a focus on rural housing.With slowdown in rural construction activities due to low growth in rural income, the company's cement volume fell by 2.4% in a year-to-date. It operates at 75% utilisation rate against 80-82% in FY15. Once the demand picks up, there is room for enhancement in its utilisation.
Maharashtra has capacity of close to 32 MT and it consumes close to 13% of India's cement consumption.The state government's measures such as the hybrid business model where the government will fund 40% of project costs and extension of period of premium payment are expected to speed up construction.
If the 2016 monsoon is good, it will improve rural income.im prove rural income.
It is estimated that the company's new plant in Karnataka would enhance its volume growth. According to Karvy Research, the volume growth in FY15-18 will be close to 17% annually. Karvy Research, the volume growth in FY15-18 will be close to 17% annually.
FINANCIALS In the December 2015 quarter, the company's net sales declined by 8.6% to Rs 350 crore year-on-year. It recorded a loss of `13 crore as against net profit of Rs 31.1 crore a year ago. Due to weak cement prices in Maharashtra, realisations fell by 10% to `3,340 per tonne.Low utilisation of its new plant in Karnataka impacted its sales volumes which showed muted growth of 1.9%.
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VALUATION On the valuation front, considering FY17 earnings' estimates, the cement producer's enterprise value works out to be $83 per tonne.
In the mid-sized cement space, this is attractive given the company's size, geographical presence, capacity and, more impor tantly, its light balance sheet with net debt-equity ratio of 1.3.
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