Rakesh Jhunjhunwala: Analysts eye up to 40% upside in this Jhunjhunwala cement bet despite tepid Q3 show


NEW DELHI: Orient Cement’s December quarter was tepid on several fronts. Yet the stock has earned a ‘buy’ rating from many brokerages as analysts believe the cement maker’s focus on prices over volumes, growing premium cement portfolio and deleveraging drive will pay off. They suggest up to 40 per cent upside potential for the stock.

The C K Birla group firm clocked an 18.9 per cent year-on-year (YoY) drop in net profit at Rs 43.67 crore for the quarter. Revenue was up 2.13 per cent at Rs 617.52 crore, even as volumes declined 10 per cent YoY to 1.22 million tonnes. The company did not resort to selling cement at unremunerative prices and maintained price discipline.

The conscious focus on realisations led to a dip in volumes but a steeper rise in costs more than offset the realisation uptick, analysts said.

Demand was also a bit low due to the festive season and an extended monsoon.

The management indicated direct costs will be stable sequentially in the March quarter as the current consumption cost of fuel is similar to procurement costs.

JM Financial said the management has changed its go to market strategy to focus on the prices over volumes and is, thus, targeting increasing the proportion of trade sales to 66 per cent from 60 per cent in the December quarter.

“This will drive the profitable growth for the company and will help reduce the price gap with grade A players. On the expansion front, the company’s 3 mtpa pipeline capacity is expected to be commissioned by FY24 end. The management expects to spend Rs 700-800 crore in FY23 and Rs 1,200-1,300 crore in FY24 on the capex. The back-ended expansion will help the company limit the peak debt to Rs 1,500 crore in FY24,” JM Financial said while suggesting a target of Rs 240 on the stock.

Arihant Capital said Orient Cement’s weak set of numbers were below its expectation on all fronts but added that the stock trades at 3.9 times FY23 and 3 times FY24 EV/Ebitda.

The company, it said, is confident of regaining its volume in coming times with an increase in sales from the B2B segment.

“The company’s replacement cost theory to control the cost will help to drive the margin growth going ahead. Also, boost given by the government in Union Budget 2022 to infrastructure development will aid cement demand to grow. We believe OCL is well-placed to take advantage of a revival in the cement demand in its operating regions by leveraging its planned capacity expansion, better monitoring of cost drivers, and improving financials,” it said while suggesting a target of Rs 238 on the stock.

Axis Securities foresees positive traction in the cement demand and expects the company to register revenue growth of 19 per cent, Ebitda of 19 per cent, PAT of 25 per cent over FY21-23.

“This will be driven by a volume CAGR of 12 per cent and a consistent realisation improvement of 4 per cent each over FY21-23. We retain our BUY rating on the stock and value the company at 6x FY23E EV/Ebitda to arrive at a target price of Rs 200,” it said.

ICICI Securities raised its FY23-24 Ebitda by 5 per cent and increased its target price to Rs 191 per share from Rs178 per share, based on 6 times Dec’23 EV/E.

Ace investor Rakesh Jhunjhunwala held a 1.2 per cent stake in the company at the end of the December 2021 quarter.


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