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Overview: Orient Refractories Limited Orient Refractories Ltd. (ORL), a part of RHI AG group; is primarily engaged in manufacturing, production and distribution of Refractories, Monolithics and Ceramic Paper and has a manufacturing facility in Bhiwadi (Rajasthan). ORL is the market leader for Special Refractories in India and is a global partner for over 600 customers in India and across the world. Refractory material is used to provide thermal insulating lining in Furnaces, Kilns, Reactors, etc. It is mainly used in the Iron & Steel industry, Metal Smelters, Cement, Glass Industries, etc. Investment Rationale RHI AG’s supply chain aids supply network RHI AG (the parent of ORL and global leader in refractories) is the second largest global supplier of molten getting metal flow engineering and complete refractory solutions. Being associated and supported by one of the largest global players, ORL’s customer base and sales network has increased. Moreover, it demonstrated double digit export revenue growth (17.72% CAGR over FY2012- 2017) trajectory. Industry leading margins Due to parent’s support and passing off the inflated cost of raw materials, ORL has been able to sustain its margins. It enjoys leading margins as compared to its peers and other global leaders. Benefit from Steel Demand in India Steel sector is one of the most crucial sectors for the economic and industrial development of any nation. With new government initiatives and focus on infrastructure development, refractories’ sector will directly get benefitted from the growth of steel industry. Zero-debt & healthy balance sheet ORL has turned down to virtually zero-debt company. It has maintained its consistency in working capital cycle since years. And, it has been able to generate free cash flow every year. Sector Sensex / Nifty CMP Recommended Target Price Time Horizon Refractories & Monolithics 35,934.72 / 10,852.90 180.10 “BUY” 220 12 Months Stock Details BSE Code 534076 NSE Code ORIENTREF Face Value (Rs.) 1.00 Market Cap (Rs. Cr.) 2,163.71 Book Value 26.87 CMP (Rs.) 180.10 EPS (Rs.) 7.15 P/E (x) 22.25 Beta (12M) 0.88 52W H/L 194.90/126.55 Shareholding Pattern % holding Promoter & Promoter group 69.62% DII / FI/ MF 5.23% FPI 5.13% Public & Others 20.02% 9 th June, 2018
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Page 1: Overview: Orient Refractories Limited · Overview: Orient Refractories Limited Orient Refractories Ltd. (ORL), a part of RHI AG group; is primarily engaged in manufacturing, production

Overview: Orient Refractories Limited Orient Refractories Ltd. (ORL), a part of RHI AG group; is primarily engaged in manufacturing, production and distribution of Refractories, Monolithics and Ceramic Paper and has a manufacturing facility in Bhiwadi (Rajasthan). ORL is the market leader for Special Refractories in India and is a global partner for over 600 customers in India and across the world. Refractory material is used to provide thermal insulating lining in Furnaces, Kilns, Reactors, etc. It is mainly used in the Iron & Steel industry, Metal Smelters, Cement, Glass Industries, etc.

Investment Rationale RHI AG’s supply chain aids supply network RHI AG (the parent of ORL and global leader in refractories) is the second largest global supplier of molten getting metal flow engineering and complete refractory solutions. Being associated and supported by one of the largest global players, ORL’s customer base and sales network has increased. Moreover, it demonstrated double digit export revenue growth (17.72% CAGR over FY2012-2017) trajectory. Industry leading margins Due to parent’s support and passing off the inflated cost of raw materials, ORL has been able to sustain its margins. It enjoys leading margins as compared to its peers and other global leaders. Benefit from Steel Demand in India Steel sector is one of the most crucial sectors for the economic and industrial development of any nation. With new government initiatives and focus on infrastructure development, refractories’ sector will directly get benefitted from the growth of steel industry. Zero-debt & healthy balance sheet ORL has turned down to virtually zero-debt company. It has maintained its consistency in working capital cycle since years. And, it has been able to generate free cash flow every year.

Sector Sensex / Nifty CMP Recommended Target Price Time Horizon

Refractories & Monolithics 35,934.72 / 10,852.90 180.10 “BUY” 220 12 Months

Stock Details

BSE Code 534076

NSE Code ORIENTREF

Face Value (Rs.) 1.00

Market Cap (Rs. Cr.) 2,163.71

Book Value 26.87

CMP (Rs.) 180.10

EPS (Rs.) 7.15

P/E (x) 22.25

Beta (12M) 0.88

52W H/L 194.90/126.55

Shareholding Pattern % holding

Promoter & Promoter group 69.62%

DII / FI/ MF 5.23%

FPI 5.13%

Public & Others 20.02%

9th June, 2018

Page 2: Overview: Orient Refractories Limited · Overview: Orient Refractories Limited Orient Refractories Ltd. (ORL), a part of RHI AG group; is primarily engaged in manufacturing, production

Company Background Orient Abrasives Limited (OAL) incorporated in 1974 by Rajgarhia group of industries as a venture to manufacture Abrasives grains, Refractories & Monolithics and Power. ORL was incorporated in November 26, 2010 as a subsidiary when OAL decided to demerge its refractory division with a view to de-risk and segregate the refractory business from the other two businesses. The refractory undertaking was transferred with effect from April 1, 2011. In 2013, Rajgarhia group entered into share purchase agreement for sale of stake of 43.62% with M/s. Dutch US Holdings B.V. Netherlands, an entity wholly owned subsidiary of M/s. RHI AG, Austria and a part of M/s. RHI group (Ranks 2nd on global level in refractory business). Presently, RHI group holds 69.62% stake in ORL.

Brief Profile of the Company Orient Refractories Limited, headquartered in Delhi, is in the business of Manufacturing and Marketing Special Refractory Products, Systems and Services to various industries with its global presence. Refractory products are the substances that can withstand high ranges of temperature of over 500° C and is produced from non-metallic minerals. It protects furnaces against thermal, mechanical and chemical stress. They are mainly used in production plants of metals, glass and lime where very high temperatures are required in the furnaces to melt metals and other elements.

ORL provides a wide range of special refractories and monolithics to meet the needs of the iron and steel industry. The wide range of products includes Isostatically Pressed Continuous Casting Refractories, Slide Gate Plates, Nozzles and Well Blocks, Tundish Nozzles, Bottom Purging Refractories and Top Purging Lances, Castables, Slag Arresting Darts, Basic Spray Mass, etc, which are custom made to suit the casting conditions and grade of steel being cast.

ORL customers are the complete spectrum of steel producers in India from the large domestic integrated steel producers to the small mini steel plants that include Steel Authority of India, Mukund Steel, Tata Iron and Steel Company, RINL – Vizag, Sunflag Iron, Lloyd Steel, Usha Martin and the Jindal Group. It also manufactures a wide range of slide gate plate refractories for various international systems including Flocon, Interstop (including LS Series), Vesuvius (including LV Series), Saflow and Sanac. With close to 300 small to medium sized iron and steel producing Indian companies as customers, ORL is a preferred vendor for a large number of steel producers in the country. The company also has a significant presence in the global market place and exports a fair share of output to various overseas customers in Germany, France, Spain, Turkey, Egypt, Indonesia, Saudi Arabia, Thailand, UAE and Greece.

ORL has the distinction of being ISO - 9001 quality certified. Its manufacturing facility is located in Bhiwadi, Rajasthan which began its commercial production in 1986. This facility is spread over 27 acres of land. It also has an allied plant based in Salem, Tamilnadu for manufacturing monolithic and basic spray mass. The refractory facility is divided into 3 independent sub-divisions one each for the manufacture of slide gate plates, continuous casting refractories and castables and pre-cast shapes. The division currently produces more than 70,000 pieces of slide gate plate, 30,000 pieces of Continuous Casting Refractory products and over 2,000 tons of castables and mortars on a monthly basis. It produces more than 40,000 tons of refractory per annum customized products and system solutions.

The current production capacity of Isostatic Pressed Products (ISO) at Bhiwadi plant is 9,300 tons per annum and works at 90% utilization capacity. Considering the growth of steel industry in India and growing demand of refractory worldwide, the expansion was carried out of ISO production capacity to 11,700 tons per year at Bhiwadi. The plant has been successfully commissioned on 17 May, 2018 and the commercial production will start from June 2018.

Customers:

Page 3: Overview: Orient Refractories Limited · Overview: Orient Refractories Limited Orient Refractories Ltd. (ORL), a part of RHI AG group; is primarily engaged in manufacturing, production

Products

Isostatically pressed Continuous Casting Refractories Tundish Nozzles

Slide Gate Plates Slag Arresting Darts

Castables Nozzles & Well Block

Page 4: Overview: Orient Refractories Limited · Overview: Orient Refractories Limited Orient Refractories Ltd. (ORL), a part of RHI AG group; is primarily engaged in manufacturing, production

Management

Mr. Parmod Sagar (Managing Director & CEO): He started his career in casting department of a Steel plant and continued to work there till 1992. He joined Orient Abrasives Limited on 15 April, 1992 as a Marketing Manager. He has vastly contributed in successfully implementation of various projects and in their growth. His technical expertise, industry experience and marketing knowledge have immensely helped the Company in production, maintenance and market development. He has over 34 years of experience.

Vijay Sharma (Chairman): Dr. Sharma was previously employed as Executive Director by Usha Martin Ltd. and Chief Executive Officer & Managing Director by JSW Steel Ltd. He joined the company in 2014.

Sanjeev Bhardwaj (Chief Financial Officer): He is a Chartered Accountant and Company Secretary by profession. Previously, he worked as a Vice President of Sterling Tools Limited. He is associated with the company since 2013 and has an experience of 29 years in this industry.

Overview of Industry

Refractory Industry The growth of global refractories market is fueled by the high potential of non-metallic minerals industry, increasing global demand for high grades of refractories, and increasing infrastructure development in emerging economies. Asia-Pacific is the global forerunner in refractories market, in terms of value and volume, and the trend is expected to continue till 2020. The countries in this region such as China and India are the fastest-growing markets for refractories due to increasing usage of refractories in iron & steel, cement, glass, non-ferrous metals, and other industries. The steel industry is one of the biggest consumers of refractory products, accounting for nearly 60-70% of the total production.

Global refractories market is expected to reach USD 40,007.33 million by 2025, from USD 29,518.47 million in 2017, at a CAGR of 4% in the forecast period 2018 to 2025 (source: ResearchAndMarkets.com).

The Rs. 6,500 cr. Indian refractory industry is expected to witness 7-8% uptick in demand, given pick up in infrastructure projects, leading to increased production of steel and cement.

(Source: IRMA)

Page 5: Overview: Orient Refractories Limited · Overview: Orient Refractories Limited Orient Refractories Ltd. (ORL), a part of RHI AG group; is primarily engaged in manufacturing, production

Refractories consumption by Key industries

(Source: RHIMagnesita)

Steel Industry India became the 3rd largest steel producer in the world in 2015 and is on track to emerge as the 2nd largest producer after China. Government program aims to reach 300 MT of steel production capacity by 2030 i.e. triple of 2016. This new policy envisages increased per capita steel consumption of 160 kgs by 2030 from present level of 60 kgs and increased demand for high automotive steel, electrical steel and special steels, improvement of productivity in MSME steel sector by adoption of newer technologies Typically, the demand for refractories is directly correlated to steel production. With focus of Government on infrastructure, affordable housing, a booming auto industry, Make in India initiative and implementation of the National Steel Policy, 2017, and production cut by China and import reduction, the Indian steel sector is poised for newer levels of growth. Critical, yet Refractories represent less than ~3% of the total steel manufacturing cost which provides less incentive for steel customers to switch it.

Amid all the positive outlook for India’s steel sector, American’s move to levy a steep tariff on steel imports and European Commission’s safeguard investigation into steel imports in response to America’s metal tariff plans to shield EU producers from excessive imports does not augur well for the steel sector.

Page 6: Overview: Orient Refractories Limited · Overview: Orient Refractories Limited Orient Refractories Ltd. (ORL), a part of RHI AG group; is primarily engaged in manufacturing, production

Analysis

Revenue Mix

Revenue Breakup (FY2017)

Composition of Sales

Taking FY2018 (unaudited) in consideration, 5Y CAGR from 2013-18 for sales is 11.69%, while EBITDA for the same period has grown at a CAGR of 15.03%, showing operating efficiency.

Though Refractories industry has been hit by increase in prices of raw materials, ORL has been able to maintain its margins on back of RHI and local procurement of raw materials.

Page 7: Overview: Orient Refractories Limited · Overview: Orient Refractories Limited Orient Refractories Ltd. (ORL), a part of RHI AG group; is primarily engaged in manufacturing, production

Operational Parameters

Return Ratios

Page 8: Overview: Orient Refractories Limited · Overview: Orient Refractories Limited Orient Refractories Ltd. (ORL), a part of RHI AG group; is primarily engaged in manufacturing, production

Investment Rationale RHI AG’s supply chain aids sales network RHI AG (the parent of ORL and global leader in refractories), Austria is one of the top global leaders in refractories. With roughly 14,000 employees, over 35 production facilities and more than 70 sales offices, RHI serves more than 10,000 customers from the steel, cement, nonferrous metals, glass, energy and chemical industries in nearly all countries of the world. Being associated and supported by RHI, gives ORL a continuous technology and sales support. ORL’s customer base has doubled approximately 300 to 600, since ORL management is taken over by the RHI AG. With the support of parent company, ORL has been able to increase its export share and target Tier-I steel manufacturers.

ORL is preferred vendor for a large number of steel producers in the country. The key clients are SAIL, Mukund Steel, RINL – Vizag, Sunflag Iron, Lloyd Steel, Usha Martin and the Jindal Group. ORL also has significant presence in the global market place with exports to over 35 countries across the globe including Germany, France, Spain, Turkey, etc. Industry leading margins India’s import of refractory material got a hit due to change in China’s environment policy last fiscal which triggered shut down of most of Beijing’s bauxite mines in Shanxi and Guizhou provinces. But due to ORL’s strong procurement ability on back of RHI AG’s large buying capability of raw material and its higher proportion of raw material sourced locally (76% of raw material consumed in FY2017), it has been able to sustain margins over the years even during the rising input scenario.

Sales CAGR from FY2013-18 is 11.69%, while Operating Profit has grown by 13.63% annually. It has been able to command better Operating margin within the range of 16-20% from past many years; while it’s immediate peer Vesuvius India Limited, operates within the range of 14-17.50%. IFGL Refractories Limited (Amalgmated), also have very low operating margin as compared to ORL. Benefit from Steel Demand in India Steel sector is one of the most crucial sectors for the economic and industrial development of any nation. Steel is widely used in various sectors like construction, industrial machinery and transportation. India’s steel sector might see huge growth due to rising demand by sectors such as infrastructure, real estate and automobiles. Favourable conditions to drive Steel demand in India:

Government push on Infrastructure and Housing sector

Page 9: Overview: Orient Refractories Limited · Overview: Orient Refractories Limited Orient Refractories Ltd. (ORL), a part of RHI AG group; is primarily engaged in manufacturing, production

Promising growth in the Automotive sector

Encouraging Government Policy measures like 100 new Smart City projects, Housing for All by 2022, Pradhan Mantri Awas Yojna, implementation of GST, RERA and most importantly National Steel Policy

Resolution of NPAs through NCLT, especially from the steel sector Zero-debt & healthy balance sheet ORL has unleveraged its business. From total loan of Rs. 15.85 cr. in March 2012, it has turned down to virtually zero –debt company. It has maintained its working capital turnover within the range of 2.3-2.9x. It is consistently free cash flow generating company with ROE of 26.59% in FY2018.

(Rs in cr.)

Risks and Concerns Scarcity of raw material across the globe and heavy dependence on China for raw material imports The company is largely dependent on a number of domestic and international suppliers for the raw materials. Earlier, apart from finished product, nearly, 40% of the raw materials such as alumina, bauxite, zirconium, magnetite, graphite and other commodities were imported from China. However, with China clamping down on mining and introducing stringent pollution control norms, the supply of raw materials has been impacted and the import of raw materials have decreased to 24%. Due to the shortage, the prices of raw materials have surged by 10-30% across various categories. Over dependence on Steel sector The fortunes of the refractory industry highly depend on the steel industry. In the event of any major alterations or slump in production in the steel sector, can directly affect the company. Exposure to foreign currency fluctuations The Company incurs significant expenses of the nature of foreign exchange on account of import of raw materials and export of products. Approximately 20% of the revenue is earned in foreign currencies.

Page 10: Overview: Orient Refractories Limited · Overview: Orient Refractories Limited Orient Refractories Ltd. (ORL), a part of RHI AG group; is primarily engaged in manufacturing, production

Financials

Consolidated Statement of Assets and Liabilities (in Cr.)

Particulars 2012

(Audited) 2013

(Audited) 2014

(Audited) 2015

(Audited) 2016

(Audited) 2017

(Audited) 2018

(Unaudited)

ASSETS

Non-Current Assets

Tangible Assets 26.98 29.16 30.26 32.59 37.78 40.48 39.92

Intangible Assets 0.12 0.13 0.19 0.64 0.51 0.37 0.26

Capital Work in Progress 0.23 0.49 1.52 3.96 1.57 4.67 14.01

Financial Assets

- Investments 0.01 0.01 0.01 0.01 0.01 0.00 0.00

- Loans 0.67 0.87 1.56 1.75 1.05 2.11 0.92

- Other Financial Assets 0.00 0.00 0.00 0.79 0.66 0.37 1.77

Other Non-Current Assets 0.86 0.60 0.50 0.51 0.19 0.16 5.16

28.87 31.26 34.04 40.25 41.77 48.16 62.04

Current Assets

Inventories 45.63 56.98 63.32 71.56 64.22 81.38 91.06

Financial Assets

- Trade Receivables 58.84 71.52 99.40 112.69 118.50 113.99 159.43

- Cash & Cash Equivalents 1.32 1.19 17.99 26.13 76.47 110.84 12.72

- Loans & Investments 2.65 7.75 1.76 2.03 2.09 2.00 107.67

- Other Financial Assets 0.00 0.00 0.00 0.00 0.00 3.84 4.28

Other Current Assets 5.64 1.76 1.06 0.99 2.95 0.00 11.56

114.08 139.19 183.53 213.40 264.23 312.05 386.72

TOTAL ASSETS 142.95 170.45 217.56 253.65 306.00 360.21 448.76

EQUITY AND LIABILITIES

Equity

Equity Share Capital 12.01 12.01 12.01 12.01 12.01 12.01 12.01

Other Equity 63.04 90.37 125.65 157.79 192.64 261.26 310.81

75.05 102.38 137.66 169.80 204.65 273.27 322.82

Non-Current Liabilities

Borrowings 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Deferred Tax Liabilities 1.59 1.28 0.21 0.00 0.00 0.00 0.00

Other Non-Current Liabilities 0.33 0.92 2.63 3.16 3.17 3.86 0.90

1.92 2.20 2.84 3.16 3.17 3.86 0.90

Current Liabilities

Financial Liabilities

- Borrowings 12.74 5.02 5.72 5.24 0.00 0.00 0.00

- Trade Payables 34.26 43.59 50.86 51.45 71.88 77.58 104.57

- Other Financial Liabilities 0.00 0.00 0.00 0.00 0.00 0.00 4.94

Other Current Liabilities 18.98 17.26 20.48 24.00 26.29 5.50 15.52

65.98 65.87 77.06 80.69 98.17 83.08 125.04

TOTAL LIABILITIES 142.95 170.45 217.56 253.65 306.00 360.21 448.76

Page 11: Overview: Orient Refractories Limited · Overview: Orient Refractories Limited Orient Refractories Ltd. (ORL), a part of RHI AG group; is primarily engaged in manufacturing, production

Consolidated Statement of Profit and Loss (in Cr.)

Particulars 2012

(Audited) 2013

(Audited) 2014

(Audited) 2015

(Audited) 2016

(Audited) 2017

(Audited) 2018

(Unaudited)

INCOME

Revenue from Operations 300.42 360.58 403.50 451.36 458.88 519.38 626.79

Other Income 4.31 1.31 4.10 4.64 5.37 8.26 10.62

Total Revenue 304.72 361.89 407.61 456.00 464.25 527.64 637.41

EXPENSES

Cost of Goods Sold 171.32 198.34 214.33 250.26 253.88 290.62 347.07

Employee Benefits Expenses

23.18 26.61 33.56 38.26 39.36 42.97 47.27

Other Expenses 57.55 68.58 76.43 82.31 80.43 82.81 105.40

Total Expenses 252.04 293.53 324.32 370.84 373.67 416.40 499.74

EBITDA 52.68 68.36 83.29 85.16 90.58 111.24 137.67

EBITDA Margin (%) 17.54% 18.96% 20.64% 18.87% 19.74% 21.42% 21.96%

Depreciation & Amortisation Expenses

2.97 3.79 3.63 5.49 5.91 6.37 6.83

EBIT 49.71 64.57 79.66 79.67 84.67 104.87 130.85

EBIT Margin (%) 16.55% 17.91% 19.74% 17.65% 18.45% 20.19% 20.88%

Finance Costs 3.88 1.31 0.07 0.04 0.00 0.00 0.00

Profit before Exceptional Item & Tax

45.84 63.26 79.58 79.63 84.67 104.87 130.85

Exceptional Item 0.00 1.82 0.00 0.00 0.00 0.00 0.00

PBT 45.84 61.44 79.58 79.63 84.67 104.87 130.85

PBT Margin (%) 15.26% 17.04% 19.72% 17.64% 18.45% 20.19% 20.88%

Tax Expenses 15.03 20.05 26.74 26.79 28.83 36.25 45.01

PAT 30.81 41.39 52.85 52.84 55.84 68.62 85.83

PAT Margin (%) 10.26% 11.48% 13.10% 11.71% 12.17% 13.21% 13.69%

Earnings Per Share 2.56 3.45 4.4 4.40 4.65 5.71 7.15

Cash Flow Analysis (in Cr.)

Particulars 2012

(Audited) 2013

(Audited) 2014

(Audited) 2015

(Audited) 2016

(Audited) 2017

(Audited)

Cash Flow from Operating Activities 32.07 37.54 28.94 33.80 80.22 60.45

Cash Flow from Investing Activities -6.57 -12.28 -1.57 -9.63 -4.19 -6.21

Cash Flow from Financing Activities -24.71 -25.80 -13.07 -17.64 -24.98 -20.50

Free Cash Flow to Firm 26.18 31.27 22.37 23.09 71.40 48.99

Free Cash Flow to Equity 4.92 20.44 20.80 22.76 71.40 48.99

Page 12: Overview: Orient Refractories Limited · Overview: Orient Refractories Limited Orient Refractories Ltd. (ORL), a part of RHI AG group; is primarily engaged in manufacturing, production

Financial Ratios

Particulars 2012

(Audited) 2013

(Audited) 2014

(Audited) 2015

(Audited) 2016

(Audited) 2017

(Audited) 2018

(Unaudited)

(A) Growth Ratios (%)

Revenue - 20.03% 11.90% 11.86% 1.66% 13.18% 20.68%

EBITDA - 29.77% 21.83% 2.25% 6.36% 22.81% 23.76%

Net Profit - 11.48% 13.10% 11.71% 12.17% 13.21% 13.69%

EPS - 34.77% 27.54% (0.03%) 5.68% 22.88% 25.08%

(B) Measures of Performance (%)

EBITDA Margin 17.54% 18.96% 20.64% 18.87% 19.74% 21.42% 21.96%

Net Profit Margin 10.26% 11.48% 13.10% 11.71% 12.17% 13.21% 13.69%

(C) As Percentage of Net Sales

COGS 57.03% 55.01% 53.12% 55.45% 55.33% 55.96% 55.37%

Employee Expenses 7.72% 7.38% 8.32% 8.48% 8.58% 8.27% 7.54%

Other Expenses 19.16% 19.02% 18.94% 18.24% 17.53% 15.94% 16.82%

(D) Working Capital Ratios

Inventory Days 97.22 104.86 107.84 104.37 92.33 102.21 95.77

Debtor Days 75.28 72.39 89.91 91.13 94.26 80.11 92.84

Creditor Days 41.62 43.93 46.01 41.61 57.18 54.52 60.90

Working Capital Days 130.88 133.31 151.75 153.89 129.41 127.79 127.71

(E) Turnover Ratios (x)

Inventory Turnover 3.75 3.48 3.38 3.50 3.95 3.57 3.81

Debtor Turnover 4.85 5.04 4.06 4.01 3.87 4.56 3.93

Working Capital Turnover 2.79 2.74 2.41 2.37 2.82 2.86 2.86

(F) Gearing Ratios

Current Ratio (x) 1.71 2.14 2.38 2.64 2.69 3.76 3.09

Total Loan (in Cr.) 15.85 5.02 5.72 5.24 - - -

Debt/Equity (x) 0.21 0.05 0.04 0.03 - - -

(F) Return Ratios (%)

ROCE 44.52% 43.08% 38.42% 31.13% 27.29% 25.11% 26.59%

ROE 41.05% 40.43% 38.39% 31.12% 27.29% 25.11% 26.59%

ROA 21.09% 24.28% 24.29% 20.83% 18.25% 19.05% 19.13%

(G) Per share Ratios

EPS (Rs.) 2.56 3.45 4.4 4.40 4.65 5.71 7.15

DPS (Rs.) 1.00 1.00 1.25 1.40 1.45 2.50 -

BVPS (Rs.) 6.25 8.52 11.46 14.13 17.04 22.75 26.87

Dividend Payout (%) 39.06% 28.99% 28.41% 31.83% 31.19% 43.77% -

(H) Valuation Ratios

P/E (x) 10.16 11.30 14.32 19.32 17.21 22.58 22.25

P/B (x) 4.16 4.58 5.50 6.01 4.69 5.67 5.92

Mcap / Sales (x) 1.04 1.30 1.88 2.26 2.09 2.98 3.05

Page 13: Overview: Orient Refractories Limited · Overview: Orient Refractories Limited Orient Refractories Ltd. (ORL), a part of RHI AG group; is primarily engaged in manufacturing, production

Peer Comparison

Particulars Market cap

(in cr.) CMP P/E EV/EBITDA D/E ROE ROCE

EBITDA Margin

ORL 2,163.71 180 24.80 15.35 0.00 26.59% 26.59% 21.96%

Vesuvius India* 2,577.40 1269 26.19 12.60 0.00 22.60% 22.60% 19.66%

IFGL Refractories 767.28 213 31.92 5.98 0.03 6.27% 6.49% 13.21%

* Dec 2017

View and Valuation ORL’s bottom line grew at a 5Y-CAGR of 15.70%, assuming the same will continue in the next year; PAT might be around Rs. 100 cr. in FY2019. The next best company in this sector operates with lesser margins as compared to ORL, though commands higher P/E; taking this into consideration P/E of 26 is assumed for the coming year. With projection of Rs. 2600 cr. market cap, a target price hike by 20% is expected i.e. Rs. 220

Rationale behind the Target Price Valuation:-

Particulars (in Cr.)

Current Net Profit (FY2018) A 85.83

5Y-CAGR B 15.70%

Projected Net Profit (A+B) C 99.31

Expected P/E D 26.20

Projected Market Cap (C*D) E 2601.92

Current Market Cap F 2163.97

Anticipated percentage increase (E/F) G 20.24%

Not a single tonne of steel, cement, glass can be produced without refractories. Indian refractory industry today stands at a point of inflexion, where on one side it is encouraged by an expected steep rise in demand due to increase in steel and cement industry and on the other side it faces the challenge from increasing prices in raw materials.

With the help of RHI AG and strong financial strength, a good prospects and strong competitive advantage for ORL can be seen going ahead. ORL’s good customer base, high margin command and high return ratios make it worth a look.

Page 14: Overview: Orient Refractories Limited · Overview: Orient Refractories Limited Orient Refractories Ltd. (ORL), a part of RHI AG group; is primarily engaged in manufacturing, production

Source : Company’s Annual Reports, RHP presentations, Proprietary Research, News

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