ORIENT BELL LTD ------- BUY

Tiles become the preferred flooring material of Indian’s mainly due to its variety,affordability and durability.Led by Kajaria Ceramics  Indian organized Tiles industry showing decent growth in past few years which now stands around Rs.6500 Cr.Somany Ceramics,,Orient Bell,Nitco, HR Johnson..etc are the other major players in this industry..Orient Bell is one of the largest player in this industry with a market  share close to 12 -15 % .In 2010,company acquired Bell Ceramics and later merged this company with itself.With this acquisition Orient becomes a company with largest installed capacity in India and one and only company having plants in North ,West and South India and becomes the fourth largest Tiles company by sales in India.Orient’s manufacturing facilities are located at Sikandrabad (UP) ,Dora ( Gujarat) and Hoskote (Karnataka) with a total production capacity of 30 million square meter per annum. Company having a strong marketing network with 2500 direct dealers and 9000 Retailers and 30 Stock points across the country. Region wise contribution of sales is close to 41% from North India ,33% from South,17 % from East and 9 % from West.OBL selling its products under three different brands – Orient,Orient International and Bell.Out of these orient International is selling premium imported tiles from Italy ,Spain ..etc..For introducing most modern trends in tiles industry company operating a full fledged design studio in Castellon,Spain. Orient is  present in Ceramic ,Vitrified ,Ultra vitrified and Decorative Categories.

Financials

From the major companies mentioned above I am selecting orient on the basis of its cheap valuation .The No.1 Company in this sector – Kajaria Ceramics- with a sales of Rs.1300 Cr is trading with a market cap of Rs.1825 Cr where Orient  with a Sales close to Rs.600 Cr is trading with a market cap of just Rs.122 Cr. We may find that Orient’s lower bottom line may be a reason for this, but more than 10 fold difference is difficult to justify. When we take the Cash EPS for Orient and Kajaria ,it is Rs.31 for Orient and Rs.16 for Kajaria and EPS is Rs.13 for Orient and Rs.11 for Kajaria .It is clear that Orient’s Rs.180 Cr debt is playing the spoilsport .Orient is an uninterrupted dividend payer  too for the past many years.

My observations

Orient is a company driven by professionals and it is taking each and every step with utmost caution.Their recent acquisition of  loss making Bell Ceramics which is bigger than Orient in size  and the business acumen to turned it around to profit  within one and a half year without any additional investment is an excellent example for their ability to spot out opportunities and utilize it properly.Fuel cost consists about 35 % of the production cost of Tiles manufacturing .On commissioning of Ratnagiri- Bangalore Gas pipe line in 2013 ,fuel cost of ‘Bell ‘ unit will drop substantially.Orient is now concentrating in value added premium segment where competition is less from small players.Orient is silently taking all efforts – capacity addition,expansion of dealer network,establishing state of art design studio,filing patent application for tile with uniqueness like ‘germ free’ ..etc – to reap the benefit when the construction sector revive. As I mentioned above ,higher debt is the only concern at this point .But I believe promoters will take  steps to reduce it once they fully integrate the ‘Bell’ unit in near future.Before taking over ‘Bell’ ,Orient bought real estate with an intention to start a plant at Kakinada .After the take over of Bell manufacturing facility they dropped their plan and this asset is not a necessity for them now.Company’s another two plants are established in 75 acre land and I believe part of it can be used to retire a portion of debt.It is clear from available data that the promoters are buying its shares from open market even near its 52 week high price.Now their holding reached  near to the maximum permissible limit of 75 % .I believe promoters have some plan to raise funds by issuing fresh shares once its share price reached some higher level  to retire debt and their market purchase is an indication in this direction.Company is targeting  to reach Rs.1500 turnover by 2015 and its current equity is just Rs.13.5 Cr .Once company reduce its debt through any of these methods that will be a game changer for Orient.Any revival in construction sector will be an added advantage . Considering the nature of promoters and their sincere efforts  I believe  Orient Bell will emerge as a dark horse from this sector in another few years and is the best pick from this sector for long term investors at CMP around Rs.90/- .Stock is listed both in NSE and BSE.

TO WATCH CORPORATE VIDEO*(14 minute) CLICK HERE

Since company is maintaining an up-to-date website I am not explaining more about its product line .You can check it HERE

Latest Annual Report HERE

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* created by company itself 

Disc: I have vested interest in OBL.