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.
