INSUBCONTINENT EXCLUSIVE:
HDFC Securities has a buy call on Orient Refractories (ORL) with a target price of Rs 294.
The current market price of Orient Refractories
is Rs 252.95.
Time period given by the brokerage is one year when Orient Refractories price can reach the defined target.
View and valuation
of the brokerage: MNC status, owned by globally number two player in refractories, having strong balance sheet, high return ratios, catering
to growing steel industry and inorganic growth through merger of group arms make ORL a strong bet
ORL has steadily grown its revenues and doubled them from Rs 3bn in FY12 to Rs 6.3bn in FY18 despite a sluggish patch of four years from
products to parent itself
Growth in steel industry in the longer term is inevitable given the disparity in steel consumption in India and across the globe
With various government initiatives to protect/promote domestic steel industry and various steel demand inducing steps of higher infra
spend and increased housing requirements we think demand for refractories is set to rise structurally
parent company signal possibility of strong growth in the exports for ORL
Also, a globally buoyant steel demand will result in higher demand from its global customers in the coming fiscals
The merger of Indian operations of group arms holds further upside for the company, given that on a combined basis it may be in a position
to improve its profitability due to various intangible synergies
balance sheet, company deserves a premium over its peers
We are valuing the company based on standalone financials though we have attempted to construct proforma merged financials
Any upside in merged EPS post the merger could bring more upsides
At CMP of Rs 244.55 the stock quotes at 26.5x FY20E EPS
We feel investors could buy the stock at the CMP and add on dips to Rs 219-223 band (24x FY20E EPS) for sequential targets of Rs 277 (about
30x FY20E EPS) and Rs 294 (32x FY20E EPS) in three to four quarters.
