Orient Ceramics & Industries Ltd - 51.00 Rs

Orient Ceramics and Industries Limited (OCIL), was incorporated on 18th May, 1977 for the manufacture of ceramic tiles with an installed capacity of 5,000 TPA at Sikandrabad, 40 kms from Delhi. Since then it has emerged as one of the reputed and high quality ceramic tile manufacturer in North India with present capacity of 2,20,000 TPA. OCIL today possesses the most state of the art technology, which enables a finished tile to be packed untouched by hands within 2 hours from ceramic powder. It produces wall as well as floor tiles under the brand name “Orient” and offers one of the largest range by way of designs, colors, sizes, choice of surface finishes such as satin matt, vellum matt, high gloss & rustic finish etc. It also makes special tiles under various collections branded as Artline, Midline, Vivaldi, Novista, Goemetricos & Egyptian Rustic collection. Each of this collection is unique based on some theme, finish, pattern, cost etc. Besides, company has created a niche for itself thru “Rangoli” - its designer collection which is fusion of tradition with modernity. Although marginally company’s products are exported to Europe, South East Asia, Middle East and the SAARC countries.

In order to cater the rising demand, OCIL has last fiscal only increased the production capacity from 120,000 to 220,000 MT per annum without any cost escalation and contingency. For FY07 it worked at 100% capacity utilization with 141,642 MT of production which is expected to move up to 200,000 MT this year. Secondly, with the introduction of latest machinery, company is now able to produce high value glazed and polished vitrified tiles from current fiscal. Further, it has converted all manufacturing lines to fuel saving single fast firing technology. Hence, despite pressure on the selling price, it continues to maintain high operating efficiency by way of reduced wastage, fuel efficiency and lower inventory. OCIL is also expanding its product portfolio with long-term contract manufacturing agreements in India and China. Within this fiscal, it is expected to add approximately 20 per cent of its topline via outsourced products including ceramic, vitrified tiles and bathroom fittings under the brand name Iris. To focus more on the South, the company has opened a regional distribution centre in Bangalore recently and is now planning to further strengthen its primary retailer network to 750 and secondary retailers to 2,500 from the present 600 and 2,000 respectively. There is also noticeable increase in activity outside the Tier A cities which provides an opportunity for company to leverage its strong pan-India distribution.

Real Estate sector is booming and the key demand driver is four main sectors including residential, office space, retail & hotels. Although capacity in the residential & office space sectors has been steadily increasing over the past few years, there has been an unprecedented growth in the retail sector. Huge multi storey malls as well mid size shopping malls have been mushrooming all across India which presents a compelling opportunity for OCIL to increase its sale of larger format tiles. With the approach of the Commonwealth Games 2010 and further increase of tourism exposure to India, many new hotels are expected to be built. Moreover the government's much needed thrust towards improving infrastructure like airport, railways etc is also expected to directly benefit companies like OCIL. In short, the demand for ceramic tiles will continue to grow substantially in coming years. On the back in increased capacity company is expected to clock a turnover of 240 cr and PAT of 13 cr which translates into EPS of 12 Rs on expanded equity of 10.50 cr. Moreover, a company having a gross block of 157 cr, is available at an enterprise value of merely 110 cr which is extremely cheap by any standards. Hence investors are strongly recommended to buy at current levels with a price target of 75/- Rs (i.e. 50% appreciation) in 9~12 months.