Orient Cement hits over 3-year high on strong operational performance in Q1

In Q1FY22, Ebitda margins improved by 250 basis points to 27.25 per cent in June 2021 quarter, sequentially.

Shares of Orient Cement hit an over three-year high of Rs 169.90, up 5 per cent on the BSE in intra-day trade on Tuesday after the company reported good operational performance for the quarter ended June 2021. Its Ebitda (earnings before interest, taxes, depreciation, and amortization) margins improved 250 basis points (bps) sequentially at 27.25 per cent in Q1FY22. The stock of CK Birla group company was trading at its highest level since January 2018.

Orient Cements’ operating revenue declined 17 per cent quarter-on-quarter (QoQ) to Rs 690 crore from Rs 832 crore in the previous quarter. However, Ebitda declined only 8.5 per cent QoQ to Rs 185 crore. The company reported a profit after tax (PAT) at Rs 88.6 crore, down 10 per cent QoQ. On year on year (YoY) basis, the company’s PAT more-than-doubled from Rs 25.61 crore in Q1FY21.

Orient Cement said during the previous quarter, the company had reclassified mining expenditure incurred for limestone extraction from other expenses to cost of raw materials consumed for better presentation taking into consideration the nature of underlying expenditure.

During the quarter, the company has made a payment towards subscription and acquisition of 26 per cent stake in the share capital of AMP Solar Systems Private Limited through a combination of equity shares and compulsory convertible debentures (CCD), with the total cost of acquisition of Rs 4.05 crore approximately. The purpose of such acquisition is to set up a solar power plant in Maharashtra under captive scheme for the company's grinding unit at Jalgaon.

Orient Cement is a mid-sized (8.0 MT) cost-efficient player in the cement space. The company derives revenues largely from Maharashtra (50 per cent), Telangana, Karnataka and MP. A revival in these markets would help the company improve its performance. Key factors driving demand over FY21- 23E are strong rural demand, irrigation projects, housing projects in AP/Telangana and infrastructure projects like metro in Mumbai-Pune, Mumbai-Nagpur Expressway, etc.

“The cement industry is expected to witness a volume growth due to demand revival in infrastructure and urban housing segments, driven from a low base. However, the industry’s need to improve operating leverage with a focus on improving capacity utilisation is likely to limit price improvement. Concurrently, the recent increase in power and fuel prices may lead to margin compression, although higher volume is likely to support higher absolute profitability and debt reduction,” Orient Cement said in the financial year 2020-21 annual report.