The shares of Oriental Hotels and UltraTech Cement are trading near to their 52-week high. Oriental Hotels' stock hit a 52-week high of Rs 61.80 and a 52-week low of Rs 21.65 on January 17, 2022 and April 19, 2021, respectively. UltraTech Cement's stock hit a 52-week high of Rs 8,269.00 and a 52-week low of Rs 5,260.00 on November 8, 2021 and February 1, 2021, respectively, according to NSE. This implies that currently, Oriental Hotels is trading 11 percent below its 52-week high and 154.04 percent above its 52-week low. UltraTech Cement, on the other hand, is trading 8.45% below its 52-week high and 43.91 percent above its 52-week low. The brokerage ICICI Direct has assigned both stocks a buy call rating, and the brokerage expects the stocks to reach their respective price targets within a year.
Oriental Hotels (OHL)
ICICI Direct has said that "On a replacement basis, the stock is trading at EV/room of ~Rs 1.5 crore, which is still at ~40% discount to current replacement cost. We remain positive on the company and maintain our BUY rating. We value the stock at Rs 73 i.e. 30x FY23E EV/EBITDA (vs. earlier TP of Rs 55/share)."
Key updates of the company according to the brokerage
- After witnessing severe financial strain in FY21 due to Covid, OHL achieved earnings before interest, taxes, depreciation, and amortisation (EBITDA) of Rs 4.6 crore during Q2FY22 (similar to pre-Covid levels i.e. Q2FY20) despite a 24% reduction in revenues. The same was attained via a slew of measures undertaken by the company to become more efficient and linear in terms of costs during the Covid era.
- We believe the corporate segment, which has remained a laggard so far due to work from home culture till date, would likely see healthy traction post end of the pandemic with a sharp uptick being expected in the Meetings, Incentives, Conferences and Exhibitions (MICE) segment.
- Further, the ongoing crisis may lead to a 15-18% room inventory reduction, which augurs well for the company in the long run. We expect a healthy 61.3% revenue compound annual growth rate (CAGR) in FY21-23E. We expect OHL's business to recover fully by FY23E with EBITDA to surpass pre-Covid levels in FY23E; margins seen at over 16% in FY23E that have the potential to further expand to 20%+.
- The company enjoys strong patronage from the Indian Hotels Company (IHCL). Operationally, OHL's properties are managed by IHCL apart from over 39% held by the Tata group. Hence, in our view, OHL has strong financial flexibility due to comfort arising from being an associate of IHCL.
According to the brokerage "Market leadership, strong brand with highest retail presence and robust balance sheet justify UltraTech's premium valuations. With a target to become net debt-free by FY23E and an expected RoCE of 17%+, we remain positive on the company and maintain a BUY rating. Valued at Rs 9,300 i.e.19.0x FY23E EV/EBITDA."
Q3FY22 results according to the brokerage
- UltraTech's results were weak on the margins front due to sharp cost escalations on the power, fuel and freight front.
- Clocked revenue of Rs 12,471 crore, up 5.4% YoY, 8.0% QoQ. Domestic sales volumes were at 21.9 MT (down 4.1% YoY). Demand across all regions except the north remained muted due to unseasonal rains and the festive season.
- EBITDA margin was down 707 bps YoY (down 470 bps QoQ) to 17.8%. EBITDA/t came in at Rs 1015/t (vs. I-direct estimate: Rs 1128/t).
- Profit after tax (PAT) was higher at Rs 1,632 crore, up 5.2% YoY (vs. our estimate: Rs 1,216 crore) due to positive tax adjustments and lower interest outgo.
Key triggers for future price performance of UltraTech Cement according to ICICI Direct
- Expect its capacity to increase at a CAGR of ~7.4% to 131 MT by FY23E against industry average capacity CAGR of 5.6% during the same period.
- The new organic capacities are being added at lower capital cost (US$60/t) that will help in boosting return ratios (to generate 16-18% IRR).
- Despite CAPEX plans, the company also aims to become net debt-free by FY23E supported by strong operating cash flows (from existing and acquired assets) and through efficient w/cap management.
The above stocks have been picked from the brokerage report of ICICI Direct. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.