Buy This Small-Cap Cement Stock For 23% Gains, 175% Final Dividend To Go Ex-Dividend Next Week

Orient Cement Stock Outlook

The current market price (CMP) of the stock is Rs 114.10/share. The stock's 52-week low is Rs 95.60/share. The 52-week high is 185.55/share. The stock hit the 52-week low last month on 20, currently, CMP is Rs 18.5 below its low.

ROE of the stock is 17.25%. TTM EPS is Rs12.85. PE ratio is 8.88. PB ratio is 1.54.

According to the CMP and the estimated Target price of Rs 140/share, the stock sees a potential-jump in its price by 23% in 12 months.

The data shows the stock slid 1.55% in the past 1 week, and 6.36% in the past 1 month, respectively. Whereas in the past 6 months and 1 year, its share price was 35.54% and 22.25%, respectively.

Orient Cement Dividend

Orient Cement Ltd for the year ending March 2022 has declared an equity final dividend of 175% equal to Rs 1.75 per share. According to the board meeting of Bajaj Auto Ltd held on May 11, 2022, the dividend has announced the dividend on 11 May 2022.

The ex-date for the final declared dividend is July 20, 2022, next week. The company is yet to announce the record date for the same.

The company has a good history of dividend payout. Since 2013, it has declared 14 dividends, out of which 4 are interim dividends and est 10 are final dividends. The company has not declared any special dividend. The company has consistently declared dividends for the last 9 years. Last year, the company declared an interim dividend of 75% equal to Rs 0.75 per share.

Business Updates

Orient Cement Ltd reduced its outstanding debt in FY22 by Rs 478 Cr to Rs 296 Cr (as of March 31, 2022). The company reduced its net debt by 61% in FY22, strengthening its balance sheet, which will aid in its preparation for the next phase of growth. The blended realization for the year stood at Rs 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 get operational in FY24. This would take its total capacity to 11.5 mtpa.

Key Highlights

Robust revenue growth: The company reported revenue of Rs 2,725 Cr, up 17% YoY. Higher volume and better realization 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 Strong Crete witnessed an overall growth of 64% YoY as a result of better market penetration, digitization, branding and promotion activities.

Healthy capacity utilization: Capacity utilization stood healthy at 66% during the year and in view of improved profits, the Board had 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 Rs 3,896/ton during the year.

Strategies, Drivers, Strength, & Key Focus

Key Competitive Strengths

a) One of the lowest cost producer of cement in India

b) Robust sales and distribution network

c) Strengthening financial position

d) Experienced management bandwidth

e) Strong regional presence.

Strategies Implemented

a) Focus on the sale of blended cement

b) Focus on profitable sales based on the replacement cost of resources consumed

c) Use of more alternative fuel to reduce power/fuel cost

d) Increase in Asset utilisation to improve the overall efficiency and minimise the logistics cost

e) Optimising routes and depot locations to decrease the travel distance, improve timely availability, and savings in fuel costs.

Growth Drivers

a) Rising Urbanization

b) Increase in Rural Income

c) Affordable housing

d) The government's keen focus on infrastructure development including roads, highways, metros, airports, and irrigation, and water projects

e) Supporting government policies.

Key Focus Areas Moving Forward

a) Capacity expansion

b) Improving sale of blended and premium cement

c) Cost optimization

d) Focus on a sustainable operation.

Outlook & Recommendation- Buy for a Target Price of Rs 140/share

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 higher infra spend by the government, focus on affordable and low-cost housing, and encouraging real estate demand and pre-election spending, we believe the cement demand is likely to remain resilient going ahead. The company's premium cement portfolio is growing well and any attempt to increase trade sales would augur well from the realization perspective. Furthermore, deleveraging the balance sheet has also strengthened the company's overall financial standing. The stock is currently trading at 6x and 5x FY23E and FY24E EV/EBITDA and EV/Tonne of $45 and $47 for FY23E and FY24E which is attractive. We value the company at 6x its FY24E EV/EBITDA and retain our BUY rating on the stock with a Target Price of Rs 140/share, implying an upside of 21% from the CMP.