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India Cement -Higher realisation cushions suffering…
India Cement’s Q3FY11 earnings were below our estimates, as it
reported net sales of | 781 crore and net profit of | 20.3 crore against
our expectation of | 804 crore and | 28 crore, respectively. The company
reported EBITDA of | 126.3 crore, which was in line with our
expectation of | 123 crore. Sales volumes declined 26% YoY (25% QoQ)
to 2.04 million tonnes (MT) on account of poor demand in the southern
region. However, selling price recovery in September 2010 helped
mitigate the lower sales volume and cushioned the topline. The
company reported EBITDA per tonne of | 619, which increased 47% YoY
(487% QoQ) due to noteworthy growth (23% YoY, 24% QoQ) in
realisations. Consequently, the operating margin increased 268 bps YoY
(1276 bps QoQ).
Higher realisations offset lower volumes
India Cement’s blended sales volume declined 26% YoY (25% QoQ)
to 2.04 MT. The sales volume was severely hit by the poor demand
scenario across the southern markets led by Andhra Pradesh (AP)
and Kerala during Q3FY11. However, consecutive price hikes in
September 2010 aided growth of 23% YoY (24% QoQ) in realisation
to | 3828.4/tonne, which negated the impact of lower offtakes.
OPM increases 268 bps YoY on higher EBITDA/tonne
The company reported blended EBITDA per tonne of | 619 per
tonne. It surged 47% YoY (487% QoQ) due to a 23% YoY (24%
QoQ) growth in net realisation negating the impact of increase in
total cost per tonne, which rose by 19% YoY and 7% QoQ.
Valuation
At the CMP of | 90, the stock is trading at 70x and 19.8x its FY11E and
FY12E earnings, respectively. The stock is trading at an EV/EBITDA of
11.7x and 7.7x FY11E and FY12E EBITDA, respectively. On an EV/tonne
basis, the stock is trading at $59 and $65 its FY11E and FY12E capacities,
respectively. We are maintaining our rating on the stock as ADD with a
revised price target of | 93 per share. At the target price, the stock is
valued at $65 per tonne (~48% discount to the replacement cost of $125
per tonne) at its FY12E capacity of 15.7 MTPA.
Price hike mitigates bleak demand in southern region
Given the backdrop of negative volume growth in the company’s selling
markets the capacity utilisation has been severely affected. Net sales
declined 10% YoY to | 781 crore as the poor demand scenario took a toll
on dispatches as it dipped by 26% YoY to 2.04 MT. However, the effect of
lower sales volume was negated by growth in net realisation by 23% YoY
to | 3828.4 per tonne. This was due to a consecutive rise in cement prices
in the oversupplied southern region. On a sequential basis, net sales
declined 7% on account of a 25% QoQ decline in volume. On the other
hand, the company booked IPL revenues of | 25 crore, | 0.9 crore from
wind energy and | 11 crore from shipping.
Higher realisation knocks down impact of input costs aiding recovery in EBITDA margin
The EBITDA margin surged 268 bps YoY (1279 bps QoQ) to 16% as a
23% YoY (24% QoQ) hike in net realisation mitigated the impact of 19%
YoY (7% QoQ) increment in total cost per tonne.
On the cost front, the pressure mounted with the increase in power & fuel
cost, which surged 26% YoY (18% QoQ) to | 1140 per tonne on the back
of higher cost of imported coal and rise in power tariff in Tamil Nadu and
Andhra Pradesh. The freight cost soared 18% YoY (9% QoQ) to | 747 per
tonne on account of an increase in lead distance and increase in road
transportation on issues regarding unavailability of railway wagons. The
raw material cost increased ~15% YoY (~3% QoQ) to | 521 per tonne on
account of an increase in cost of raw materials like limestone and fly ash.
Employee cost increased 46% YoY (39% QoQ) to | 309 per tonne. The
other expenditure surged 29% YoY (7% QoQ) to | 644 per tonne in
Q3FY11.
Thus, on a YoY basis, the total cost rose 19% YoY and 7% QoQ to | 3209
per tonne in Q3FY11 against | 2703 per tonne in Q3FY10 and | 2992 per
tonne in Q2FY11. Hence, the blended EBITDA per tonne surged 47% YoY
and 487% QoQ to | 619 per tonne.
Bottomline rises sharply
India Cement posted net profit of | 20.3 crore during the quarter as
against a net loss of ~| 42 crore in Q2FY11 on the back of higher
operating margins. However, net profit declined by ~25% YoY on the
back of lower sales volume and rise in depreciation and interest charges.
The foreign exchange translation difference resulted in a gain of | 1.80
crore in Q3FY11. The other income declined 46% YoY to | 6.3 crore while
non operating expenses such as depreciation and interest charges surged
8% YoY (1% QoQ) and 36% YoY (45% QoQ) to | 61.7 crore and | 40.7
crore, respectively.
Capex plan
The company has commissioned the 1.5 MTPA cement plant in Rajasthan
under its subsidiary, Indo Zinc and has started production in the current
quarter. The company is also setting up two coal-based power plants in
Tamil Nadu with a capacity 50 MW and one in Rajasthan with a capacity
of 20 MW. The plants are expected to come on stream by June 2011. The
company has also placed the order for a 50 MW thermal CPP at Andhra
Pradesh, which is expected to be commissioned by March 2012. The
company has planned a capex of ~| 1400 crore for these projects.
Valuations
We have cut down our earnings estimates for FY11E and FY12E after
factoring in lower cement sales volume in FY12E as the management has
cut down its guidance to ~11-12 million tonnes (MT), there has been a
delay in commencement of the Indonesian captive coal mine and also an
increase in interest cost. We estimate the FY11E EPS at | 1.3 and FY12E
EPS at | 4.7.
At the CMP of | 90, the stock is trading at 70x and 19.8x its FY11E and
FY12E earnings, respectively. The stock is trading at an EV/EBITDA of
11.7x and 7.7x FY11E and FY12E EBITDA, respectively. On an EV/tonne
basis, the stock is trading at $59 and $65 its FY11E and FY12E capacities,
respectively. We have valued the cement business at $65 per tonne
(~48% discount to the replacement cost of $125 per tonne) at its FY12E
capacity of 15.7 MTPA and the IPL’s franchisee CSK at the BCCI’s base
price of $225 mn. We are maintaining our rating on the stock as ADD with
a revised price target of | 93 per share.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
India Cement -Higher realisation cushions suffering…
India Cement’s Q3FY11 earnings were below our estimates, as it
reported net sales of | 781 crore and net profit of | 20.3 crore against
our expectation of | 804 crore and | 28 crore, respectively. The company
reported EBITDA of | 126.3 crore, which was in line with our
expectation of | 123 crore. Sales volumes declined 26% YoY (25% QoQ)
to 2.04 million tonnes (MT) on account of poor demand in the southern
region. However, selling price recovery in September 2010 helped
mitigate the lower sales volume and cushioned the topline. The
company reported EBITDA per tonne of | 619, which increased 47% YoY
(487% QoQ) due to noteworthy growth (23% YoY, 24% QoQ) in
realisations. Consequently, the operating margin increased 268 bps YoY
(1276 bps QoQ).
Higher realisations offset lower volumes
India Cement’s blended sales volume declined 26% YoY (25% QoQ)
to 2.04 MT. The sales volume was severely hit by the poor demand
scenario across the southern markets led by Andhra Pradesh (AP)
and Kerala during Q3FY11. However, consecutive price hikes in
September 2010 aided growth of 23% YoY (24% QoQ) in realisation
to | 3828.4/tonne, which negated the impact of lower offtakes.
OPM increases 268 bps YoY on higher EBITDA/tonne
The company reported blended EBITDA per tonne of | 619 per
tonne. It surged 47% YoY (487% QoQ) due to a 23% YoY (24%
QoQ) growth in net realisation negating the impact of increase in
total cost per tonne, which rose by 19% YoY and 7% QoQ.
Valuation
At the CMP of | 90, the stock is trading at 70x and 19.8x its FY11E and
FY12E earnings, respectively. The stock is trading at an EV/EBITDA of
11.7x and 7.7x FY11E and FY12E EBITDA, respectively. On an EV/tonne
basis, the stock is trading at $59 and $65 its FY11E and FY12E capacities,
respectively. We are maintaining our rating on the stock as ADD with a
revised price target of | 93 per share. At the target price, the stock is
valued at $65 per tonne (~48% discount to the replacement cost of $125
per tonne) at its FY12E capacity of 15.7 MTPA.
Price hike mitigates bleak demand in southern region
Given the backdrop of negative volume growth in the company’s selling
markets the capacity utilisation has been severely affected. Net sales
declined 10% YoY to | 781 crore as the poor demand scenario took a toll
on dispatches as it dipped by 26% YoY to 2.04 MT. However, the effect of
lower sales volume was negated by growth in net realisation by 23% YoY
to | 3828.4 per tonne. This was due to a consecutive rise in cement prices
in the oversupplied southern region. On a sequential basis, net sales
declined 7% on account of a 25% QoQ decline in volume. On the other
hand, the company booked IPL revenues of | 25 crore, | 0.9 crore from
wind energy and | 11 crore from shipping.
Higher realisation knocks down impact of input costs aiding recovery in EBITDA margin
The EBITDA margin surged 268 bps YoY (1279 bps QoQ) to 16% as a
23% YoY (24% QoQ) hike in net realisation mitigated the impact of 19%
YoY (7% QoQ) increment in total cost per tonne.
On the cost front, the pressure mounted with the increase in power & fuel
cost, which surged 26% YoY (18% QoQ) to | 1140 per tonne on the back
of higher cost of imported coal and rise in power tariff in Tamil Nadu and
Andhra Pradesh. The freight cost soared 18% YoY (9% QoQ) to | 747 per
tonne on account of an increase in lead distance and increase in road
transportation on issues regarding unavailability of railway wagons. The
raw material cost increased ~15% YoY (~3% QoQ) to | 521 per tonne on
account of an increase in cost of raw materials like limestone and fly ash.
Employee cost increased 46% YoY (39% QoQ) to | 309 per tonne. The
other expenditure surged 29% YoY (7% QoQ) to | 644 per tonne in
Q3FY11.
Thus, on a YoY basis, the total cost rose 19% YoY and 7% QoQ to | 3209
per tonne in Q3FY11 against | 2703 per tonne in Q3FY10 and | 2992 per
tonne in Q2FY11. Hence, the blended EBITDA per tonne surged 47% YoY
and 487% QoQ to | 619 per tonne.
Bottomline rises sharply
India Cement posted net profit of | 20.3 crore during the quarter as
against a net loss of ~| 42 crore in Q2FY11 on the back of higher
operating margins. However, net profit declined by ~25% YoY on the
back of lower sales volume and rise in depreciation and interest charges.
The foreign exchange translation difference resulted in a gain of | 1.80
crore in Q3FY11. The other income declined 46% YoY to | 6.3 crore while
non operating expenses such as depreciation and interest charges surged
8% YoY (1% QoQ) and 36% YoY (45% QoQ) to | 61.7 crore and | 40.7
crore, respectively.
Capex plan
The company has commissioned the 1.5 MTPA cement plant in Rajasthan
under its subsidiary, Indo Zinc and has started production in the current
quarter. The company is also setting up two coal-based power plants in
Tamil Nadu with a capacity 50 MW and one in Rajasthan with a capacity
of 20 MW. The plants are expected to come on stream by June 2011. The
company has also placed the order for a 50 MW thermal CPP at Andhra
Pradesh, which is expected to be commissioned by March 2012. The
company has planned a capex of ~| 1400 crore for these projects.
Valuations
We have cut down our earnings estimates for FY11E and FY12E after
factoring in lower cement sales volume in FY12E as the management has
cut down its guidance to ~11-12 million tonnes (MT), there has been a
delay in commencement of the Indonesian captive coal mine and also an
increase in interest cost. We estimate the FY11E EPS at | 1.3 and FY12E
EPS at | 4.7.
At the CMP of | 90, the stock is trading at 70x and 19.8x its FY11E and
FY12E earnings, respectively. The stock is trading at an EV/EBITDA of
11.7x and 7.7x FY11E and FY12E EBITDA, respectively. On an EV/tonne
basis, the stock is trading at $59 and $65 its FY11E and FY12E capacities,
respectively. We have valued the cement business at $65 per tonne
(~48% discount to the replacement cost of $125 per tonne) at its FY12E
capacity of 15.7 MTPA and the IPL’s franchisee CSK at the BCCI’s base
price of $225 mn. We are maintaining our rating on the stock as ADD with
a revised price target of | 93 per share.
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