Orient Cement Ltd

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About the Company

Orient Cement Ltd is primarily engaged in the manufacture and sale of Cement and its manufacturing facilities at present are located at Devapur in Telangana, Chittapur in Karnataka and Jalgaon in Maharashtra.

Q4FY23 Updates

Financial Results & Highlights

Detailed Results:

1. The company had an average quarter with revenue rising by just 9% while profits falling by around -8% YoY.
2. The volumes in this particular quarter at 17.2 lakh tons, which is up 6% over last year and up 20% QoQ.
3. Capacity utilisations were above 70% for the quarter.
4. EBITDA decreased by 20% YoY while EBITDA per ton stood at INR 840.
5. The board has recommended a final dividend of Rs. 1 per share (100%) for the year ended 31st March, 2023. 
6. The company granted in-principle approval to the proposal for entering into Share Subscription cum Shareholders Agreement (“SSSHA”) with Cleantech Solar India OA2 Pte. Ltd. and the Special Purpose Vehicle (“SPV”).
7.  This is incorporated for putting up solar power plants with capacity of 16 MWdc for Chittapur plant in the state of Karnataka and 5.5 MWdc for Jalgaon plant in the state of Maharashtra under Captive Scheme, for contributing towards 26% of the equity share capital of the SPV, amounting to ` 9.50 crore approximately.

Investor Conference Call Highlights 

1. The management admits to having a very disappointing Q2 and soft H1, after which recovery was seen. 
2. The management states that FY23 volumes were at 58 lakh tons, which were up 5% YoY. This was achieved with 60% contribution from trade sales.
3. B2C sales and prices slightly suffered in the market, which led the company to pivot leading to 9% de-growth in trade sales YoY and 29% growth in B2B sales. 
4. B2B sales for the company are primarily OPC sales for the company, which does not include blending of fly-ash. OPC sales contribution have gone upto 43% currently.
5. The capacity utilization for the company for Q4 on a cement level stands at 80% with clinker capacity utilization being at 98%.
6. The management states that there is an impact on the efficiencies when more OPC is sold, as OPC consumes more fuel and power.
7. The trade sales were at 52% this quarter vs 61% the previous year. 
8. The premium products are targeted only to the trade market, and are not offered to the B2B segment. The company’s super premium brand, Strong Crete is up 17% YoY in volumes. 
9. The company launched Orient Green, which is a premium brand, late during this year. This brand is priced INR 20 rupees less than Strong Crete.
10. In Q1 of the year, the management took the decision of increasing the premium gap of Strong Crete over PPC by another Rs. 10. Earlier it was sold at INR 35 plus PPC, which is now sold at INR 45 plus PPC, despite which there was a 17% growth in the brand.
11. For FY23, the full year capacity utilization at a cement level was 68% while on a clinker level was 78%.
12. The realisations for the company rose 3% for Q4 YoY and 3% for FY23 YoY. The company’s total costs went up to INR 570 per ton from which INR 467 per ton is coming from power and fuel and INR 66 is coming from logistics costs. 
13. The management plans to bring in more lower cost alternative fuels which are estimated to save INR 40 crores for the year with renewable power saving additionally INR 10 crore mainly in Jalgaon.
14. Renewable power for the company as a whole for the year has reached at 15%.
15. The management states a target of achieving renewable power contribution to the company of 35% by FY25.
16. The company will be again investing in a SPV to add 21.5 megawatts DC solar power at Jalgaon and Chittapur separately.
17. The company’s Waste Heat Recovery project has achieved completion and the plant is currently under commissioning.
18. The company has increased its market exposure to Western India, with volumes going up to 61% in Q4 from 53% the previous year. On  full year basis, the west is now 57% up from 54%.
19. The company’s fuel mix for the quarter was at 53% domestic coal, 35% pet coke and balance was alternative fuels.
20. EBITDA per ton for the company is at INR 840 in Q4 up 31% from Q3, while on a YoY basis it is down from INR 958 last year by -12%.
21. The company has repaid 148 Cr debt this year, with project debt down to INR 240 Cr this year. The company also has working capital debt of INR 100 crore.
22. The company has received INR 57 crores of soft-loan from the Karnataka government which is interest-free for the next 10 years, for investment purposes. The repayment will start after 10 years in yearly installments. 
23. For FY24, the management is targeting volumes in the range of 6.3 mn to 6.6 mn from about 5.8mn that the company did this year.
24. The company spent INR 130 crores for the full year on capex, including INR 28 crores in Q4.
25. The management plans to do a INR 1550 Cr to 1600 Cr capex at the Chittapur plant. Out of which INR 600 Cr is planned to be spent in this financial year, for setting up the kiln line.
26. The management also has plans for 100 crore capex on land acquisition in Rajasthan for a Greenfield project. 
27. The management states that the total capex for the company this year would be INR 1000 to INR 1050 Crores.

Analyst’s View

Orient Cement is a leading cement maker in the West and South Zones. The company had an average quarter with bottlenecks in capacities and low margins due to inflationary expenses, which saw revenues rise by 6% YoY while profits fell 8%. The company is set on its capex plans and is aggressive on expanding clinker capacities with which it expects to do a 1000 Cr+ capex in 2024. The company is clear with its strategy to maintain its branch by selling at a premium price and not reducing the prices. It remains to be seen how will the ongoing consolidation in the cement industry, the inflationary environment & lower demand from the B2C segment affect the company. Nonetheless, given its strong position in its native zones, recent turnaround growth and expansion despite being a small player, and relatively good EBITDA/ton, Orient Cement is a good small-cap cement stock to watch out for.

Q3FY23 Updates

Financial Results & Highlights

Detailed Results:

1. The company had another poor quarter with revenue rising by just 19% while profits falling by around 37% YoY.
2. The volumes in this particular quarter at 14.3 lakh tons, which is up 17% over last year.
3. Capacity utilisations were above 70% for the quarter.
4. EBITDA decreased by 25% YoY while EBITDA per ton stood at INR 640.

Investor Conference Call Highlights 

1. The OPC: blended mix stood at 47:53.
2. The volumes for 9M stand at 4.05 million & the company plans to end the year with 5.8 million.
3. Realizations per ton stood at INR 5,100, just 1% up YoY.
4. The share of B2B to total sales stood at 51%.
5. The share of its premium brand StrongCrete to its total revenues was reduced by below 15%.
6. The energy mix share for coal:petcoke: AFR stood as 42:41:17.
7. The benefits of the waste heat recovery plant at Chittapur will be visible in Q1FY24.
8. The company has already booked fuel till May 2023 since it was running out of the same, hence any softening of petcoke prices going forward will not be available to the company.
9. The power and fuel cost per ton for Q3 is INR 1,578, i.e.35% higher Y-o-Y.
10. The cost saving from AFR stood at Rs.10 Crs for the quarter.
11. The working capital increased due to a higher share of B2B biz. The total debt including working capital stood at INR 403 Crs.
12. The company will require 15-18 months to complete capex whenever it initiates a plan for one.
13. The railway’s share of total dispatch stood at 16%.
14. The company isn’t facing any capacity constraints & can easily produce above 85% utilization levels as per management.
15. The management explains that B2C sales have always given higher contributions because the cost of production of PPC is lower and the prices remain attractive on the cost for PPC while B2B is largely about OPC and prices typically get negotiated by the large buyers very hard.
16. The management when asked about the lack of price increase by the industry despite higher costs states that “Frankly, I am too small a player to be able to answer that question. I just take the prices as they are in the market. Within relative terms, I try to get better prices compared to other brands. But the overall level of prices is what the market gives to us. “
17. Part of the reason for locking petCoke till May 2024 is the lack of potential suppliers in the market.
18. The Rajasthan project will take at least 3 years to commercialize.
19. The company expects industry growth of above 10% owing to a strong capex-focused Budget.
20. The company believes EBITDA of INR1000 is fairly achievable in the coming financial year.
21. The management states that pricing in B2B & B2C is similar, but margins are better in B2C.
22. The lead distance is a little above 300 days.
23. The per Kcal costs stood well below INR 2,200.

Analyst’s View

Orient Cement is a leading cement maker in the West and South Zones. The company had a better  Q2 which saw revenues rise by 19% YoY while profits fell 37% YoY due to difficulty in raising selling prices and input cost inflation. The company is set on its capex plans with which it expects to increase capacity in 2024. The company is clear with its strategy to maintain its branch by selling at a premium price and not reducing the prices. It remains to be seen how will the ongoing consolidation in the cement industry, the inflationary environment & lower demand from the B2C segment affect the company. Nonetheless, given its strong position in its native zones, and relatively good EBITDA/ton, Orient Cement is a good small-cap cement stock to watch out for.

Q2FY23 Updates

Financial Results & Highlights

Detailed Results:

1. The company had a poor quarter with revenue rising by just 0.65% and profits falling by around 117% YoY.
2. The volumes in this particular quarter at 1.24 million tons, which is 3% down over last year.
3. Last year in Q2, the company sold about 24,000 tons, and 25,000 tons of clinker, due to uncertain coal supplies, no clinker sales in Q2FY23.
4. The drop in cement sales in volume is about 10%.
5. Realization in Q2 is 4% higher year on year. But on a sequential basis is down 4%.
6. B2B sales or non-trade sales has risen to 45% which was 39% in the same quarter last year.
7. In Q2, pet coke cost has been Rs. 2,568 per million kilocalories. It was Rs. 1,500 last year.
8. Domestic coal, in this quarter, has been around Rs. 1,900 per million kilocalories from about Rs. 1330 year-on-year.
9. The fuel cost at Rs. 2,379 as the weighted average cost per million kilocalories of fuel that we’ve had, which is up from Rs. 1,336
10. For H1, the blended fuel cost is Rs. 2,358 per million kilocalories versus Rs. 1,296 of last year.
11. Rrenewable power is 18% of overall mix.
12. Taken a hit of about Rs. 1.8 crore maybe on account of one-time settlement in the old sales tax cases.
13. The company has paid Rs. 37 crore toward project debt in this quarter, total in H1 becoming Rs. 74 crore. So the project debt is now down to Rs. 236 crore and working capital borrowings at the end of the quarter or at Rs. 172 crore, which makes it a total debt of Rs. 408 crore. Another 38 crores interest-free loans from Karnataka government, hence total debt is 446 crores.
14. OPC from about 39% year-on-year, has gone up to 45%. PPC which was 61% last year is down to 55%.
15. Fuel mix for Q2 58% Pet coke 28% Domestic coal – which used to have between 35%, 40%
    5-6% Imported coal Balance would be AFR.

Investor Conference Call Highlights

1. The company managed to migrate from SAP ECC volume to SAP S/4HANA on the cloud. The company is using the Google Cloud platform to host its dataOrient cement is perhaps the first cement company to have done this migration.
2. The company has launched another premium cement with the brand name Orient Green. This cement has about 15% less carbon footprint than the industry norms. And the byline also is ‘responsible cement for the responsible you’.
3. The company’s Strong Crete is today priced at Rs. 45 higher than its PPC. Orient Green is priced at Rs. 23 higher than PPC  because some of the customers have been telling they’re finding Rs. 45 premium to be a little too steep.
4. The company has currently launched Orient green cement only in a few districts of north Karnataka, as it’s closer to the Chitapur plant where the company is producing the cement. Within the north Karnataka market, the company’s average is 3 to 4 slabs per day from the time of launch.
5. The company faced heavy rainfall during the quarter. The management stated when rainfall happens, not only does the construction slows down, it also the mining of coal slows down, the gypsum availability goes for a toss, and the fuel they get is wet. The alternate fuels that they are using more and more during monsoon is very difficult to use them when they come wet. As it is, the calorific value is low. And when they come in wet form, it becomes very difficult to use them. The liquid hazardous waste that they were consuming became very short supply in these 3 months of monsoon. Moreover, transport costs have risen due to the unavailability of rakes due to rain.
6. In Telangana and Karnataka, which is the operating market of the company,  there are no mega projects to support volume in Q2.
7. Maharashtra has supported the company in terms of demand. Maharashtra and the west as a whole, they’re close to 55% against the normal 50%, 51%.
8. B2B sales went up. The management stated B2B market is all large customers who negotiate very hard and almost volumes are attractive, almost every cement manufacturer tries to book that order. So, the company gets prices, which are challenged and also they consume more of OPC, OPC being unblended costs more to make. So a higher proportion of non-trade sales and a higher proportion of OPC sales cost the company higher.
9. For the Chitapur plant, the company uses coal, but due to higher transportation costs, the company used petcoke and petcoke has suffered the highest inflation
10. At the Devapur plant, the company did not get enough of the higher quality domestic coal and for running the production, so the company has to use some of very expensive imported coal.
11. The entire fuel mix for the company as a whole has got driven in a way where the heavy costs or high inflation in the cost of petcoke has hurt the overall power and fuel costs.
12. The management stated waste heat recovery project at Chitapur which is under construction will be commissioning towards the end of the financial year.
13. EBITDA in Q2 is 37 crores compared to 157 crores last year in Q2, more than 72% drop.
14. The management stated this quarter, shortage of rakes was there, railway increased  their demurrage charges to 400%, 500% if it crosses a certain number of hours. So, as a result of that from a 20% share of volume that the company moved using rakes last year, has actually fallen to 15% in this quarter this year.
15. No CAPEX apart from the waste heat recovery plant and the flyash handling system, both will be commissioned by end of this year. The management thinks no need for capacity increase now due to low demand and too low capacity utilization levels.
16. The management stated it does seem that the costs are beginning to see some softening. Alternate fuels availability will also improve, which will again help fuel mix towards cheaper fuel.
17. The management stated in the month of November, they were hoping that the volumes will start picking up post Diwali, post Chhath puja also got over towards the end of October, but they are still waiting for the kick in demand.
18. The management stated reason for no kick in demand it seems to be the unavailability of labor.
19. The management stated the company the land and environment approval for fourth plant at Devapur in hand, there they are only waiting for the demand to look better before start putting up more capacity because utilization has been low. Chitapur have all the land and the environment approval process is on, it won’t take too long. In Rajasthan, the company has no land.
20. The management stated WHRS will lead to 30 crores of saving on power every year.
21. The management stated for Tiroda they still have not been able to make progress there because while the environment clearance application is under process.
22. On the competitive landscape, the management stated.Birla Corp, Dalmia and Shree Cement in south markets are coming with capacities, obviously when more capacities come, every new incumbent who put up a large CAPEX in an area, they will want to do something.

1. 1. So, Dalmia, they have invested money. As you said, Birla Corp has invested. So, they are beginning to push volumes. The challenge that Orient cement is having is do it start matching the low prices that competitiors are offering in the market to defend volumes or do it defend brand for the longer term
   2. Currently, Orient board is saying to keep staying on with branding because narrowing the price gap between Orient and the market leader will lead brand strategy and positioning for a toss.
   3. Chitapur capacity utilization has been a lot higher than our Devapur largely because the new capacities that are coming around the older plant
   4. So, the company is still believing that the way it has introduced branding and the power of branding to a small manufacturer; Orient will stick to its prices right now, not reducing them. As the management believe if they remain a commodity forever with these kind of capacities, they will never be able to sort of get goodthings.
   5. When your competition starts selling product at Rs. 20, Rs. 25 per bag lower than yours, the company would not sell the product for the same.
   6. The management stated other companies mentioned above are largely retaining B2B market with very low prices, so which is not a game that Orient Cement would want to play anymore.
2. The management stated the realizations should improve quarter to-quarter.
3. The management stated in FY24, the company will spend about Rs. 850 crore on CAPEX.
4. At Chitapur plant, it’ll be nearly 3 months of inventory. At Devapur, we’re keeping right now inventory between 2 to 3 weeks because the mines are close by, we pick up from there and then they go to our plant.
5. The management stated the Devapur expansion is linked to Tiroda grinding unit. Till Tiroda construction actually starts, starting Devapur too early would only be locking up the capital without any prospective utilizing the capacity.
6. The management stated to start the construction in Rajasthan it will take about 3 years.

Analyst’s View

Orient Cement is a leading cement maker in the West and South Zones. The company had a tepid Q2 which saw revenues rise of 0.65% YoY while profits fell 117% YoY due to difficulty in raising selling prices and input cost inflation. The company is set on its capex plans with which it expects to increase capacity in 2024. The company is clear with its strategy to maintain its branch by selling at premium price and not reducing the prices. It remains to be seen how will the ongoing consolidation in the cement industry and the entry of Adani in the sector affect smaller players like Orient and whether the company’s future plans will pan out according to expectations. Nonetheless, given its strong position in its native zones, and its good EBITDA/ton, Orient Cement is a good small cap cement stock to watch out for.

Q1FY23 Updates

Financial Results & Highlights

Detailed Results:

1. The company saw a weak quarter with revenue increasing by 3%.
2.  PAT decreased by 58% on a YoY basis.

Investor Conference Call Highlights

1. The company’s Rajasthan mines are being restored which were a matter of disagreement in the past.
2. The company couldn’t get the benefit of any operational leverage coupled with high input costs & no realization hike leading to dismal margin compression.
3. The cost per tonne rose by 100 to Rs.740 due to higher fuel costs.
4. The southern market especially the Telangana region was extremely lean & management sees further dampness in the region for the coming period.
5. The company’s realizations have increased by only 2% YoY & less than 5% QoQ Vs input costs hike of 20% & 1% for the respective period.
6. The company saw a volume decline in the B2C segment, partly covered up by B2B.
7. The company’s premium product ‘Strongcrete’ contributes 14-15% of the total trade segment.
8. The company’s poor cashflow situation led to the company borrowing 160 crores from the banking system on the working capital side.
9. The blended cement contribution stood at 60%.
10. The company’s volume break on the basis of the geographical market has been 9% in Central, 55% in West & 36% in South.
11. The rail’s contribution to the total volume movement stood at 19% Vs 25% sequentially.
12. The company has delayed Devapur’s brownfield expansion.
13. The management believes the cost of Greenfield capex will stand at Rs.1500-1600 Crs for a capacity of 2 Mn tonne
14. The company believes that it can strengthen the balance sheet if it sees good investment opportunities by diluting equity through rights issue Vs selling equity stake because the current lucrative valuations don’t make sense to sell equity stake.
15. The company expects Capex to not be around the earlier guided levels of Rs.800 Crs & it expects it to lean towards Rs.500-600 Crs.
16. The management states that increasing competition has reduced its pricing power & since the company wants to maintain its brand positioning, it isn’t decreasing its prices to garner larger volumes which is affecting its short term performance.
17. The premium charged on ‘Strongcrete’ has increased from Rs.35 to Rs.45.
18. The current trade: nontrade mix stands at 60:40.

Analyst’s View

Orient Cement is a leading cement maker in the West and South Zones. The company had a very weak quarter due to difficulty raising selling prices and input cost inflation. The company is set on its CAPEX plans with which it expects to increase capacity in 2024. It has also seen a good response to its premium offering. It remains to be seen how will the ongoing consolidation in the cement industry and the entry of Adani in the sector affect smaller players like Orient and whether the company’s future plans will pan out according to expectations. Nonetheless, given its strong position in its native zones, and its good EBITDA/ton, Orient Cement is a good small-cap cement stock to watch out for.

Q4FY22 Updates

Financial Results & Highlights

Detailed Results:

1. The company saw a weak quarter with revenue decreasing by 3% while PAT decreasing by 27% on YoY basis.
2. Net debt stands at Rs.260-270 Cr.
3. EBIDTA decreased by 24% YoY & increased by 29% on a QoQ basis.

Investor Conference Call Highlights

1. The company saw YoY decline in its current quarter’s performance due to higher base of previous year coupled with several headwinds in the current quarter.
2. The management states that it is declining several orders recently due to pricing issues in the market & considering the replacement cost of coal, they believe it would be prudent to not accept these orders.
3. The company’s strategy of being selective about its customers has led to lower volumes but at higher profit margins.
4. The volume rise for FY22 stood at 8% YoY.
5. EBIDTA per ton for Q4 stood at around Rs.950 while that for FY22 stood at Rs.1100 which is a decrease of Rs.20 on a YoY basis.
6. The management states that the company’s premium product – “ Strongcrete “ saw healthy growth of 64% YoY while its contribution to total B2C sales stood at 14%.
7. The company’s blended cement sales as a % of total sales has been close to 63%.
8. The company’s B2B:B2C sales mix is close to 40:60.
9. The company’s geographical wise sales mix stood as 53% in West, 37% in South and the rest 10%, largely in Central India.
10. The company has dispatched 25% of its material using railways in a bid to optimize freight & logistics cost.
11. The fuel mix for Q4 stood as AFR 17%, domestic coal 51%, pet coke 24% and imported coal at about 8%.
12. The management states that some components of AFR are available to company at negative costs like liquid hazardous waste because it has invested money into creating the infrastructure, which can handle this liquid hazardous waste.
13. The management states that it is completely on track to commission the enhanced Brownfield capacity at Devapur and a grinding unit at the Tiroda power plant of Adanis & expects both these project to be up & running by FY24.
14. The company will incur capex of Rs.750 Cr in FY22.
15. The company plans to commission its 10 MW WHRS plant by the end of FY23. 

Analyst’s View

Orient Cement is a leading cement maker in the West and South Zones. The company had a tepid Q4 which saw revenues decline 3.4% YoY while profits fell 27% YoY due to difficulty in raising selling prices and input cost inflation. The company is set on its capex plans with which it expects to increase capacity in 2024. It has also seen good response to its premium offering. It remains to be seen how will the ongoing consolidation in the cement industry and the entry of Adani in the sector affect smaller players like Orient and whether the company’s future plans will pan out according to expectations. Nonetheless, given its strong position in its native zones, and its good EBITDA/ton, Orient Cement is a good small cap cement stock to watch out for.