CRISIL assigns grade 3/5 to OCL India

CRISIL assigns grade 3/5 to OCL India
Published: 22 July 2010

Credit rating agency, CRISIL Equities has assigned a CRISIL IER fundamental grade of `3/5` to OCL India (OCL). The grade indicates that the company`s fundamentals are good relative to other listed equity securities in India.

CRISIL Equities has assigned a valuation grade of 5/5, indicating that there is a strong upside from the current market price of Rs 126 (as on July 21, 2010). Our one-year fair value of the stock is Rs 197.

The grades are not a recommendation to buy, sell or hold the graded instrument, or a comment on the graded instrument`s future market price or its suitability for a particular investor.

The assigned fundamental grade reflects OCL’s dominant position in Orissa, the second largest market in East India in terms of capacity. As of FY10, Orissa accounts for 22% of 33.4Mta cement capacity in East India.

OCL is the second largest player in East India. CRISIL Research expects demand for cement in this region to grow at a four-year CAGR of 14% through FY10-14, the highest growth compared to other regions in India due to a pick-up in housing, infrastructure and industrial projects.

Further, in the eastern region cement prices are expected to remain flat in FY11 as against an anticipated decline in other regions. The grade takes into account OCL’s presence in refractory products, which enjoy high realisations (due to superior quality) compared to peers. The grade is supported by the vastly experienced management with sound knowledge of the cement and refractory industries.

However, CRISIL Research’s grade is moderated by the twin impact of high capacity additions of 6.5Mta in the Eastern region in FY11and the inflow of cement from the South. Both will lead to an oversupply in the short -term.