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INDIA CEMENTS
RECOMMENDATION: REDUCE
TARGET PRICE: RS.85
FY12E P/E: 14.4X
q Revenues for Q3FY11 declined by 10% YoY, which was lower with our
estimates due to steep fall seen in cement dispatches. Revenue from cement
segment stood at Rs 7.48 bn while freight earnings stood at Rs 115
mn, wind mill earnings at Rs 8.6 mn and IPL earnings at Rs 210 mn.
q Operating margins of the company improved sequentially and on yearly
basis and stood at 16.2% for Q3FY11 as against 13.5% for Q3FY10.
q Company's profits registered a decline of 38% for Q3FY11 primarily impacted
by fall in dispatches as well as higher interest outgo as compared
to Q3FY10.
q We revise our estimates downwards for the company to factor in poor
performance shown in Q3FY11 as well as higher interest outgo expected
in FY12 on FCCB refinancing.
q At current market price of Rs 90, stock is trading at 14.4x P/E and 6.6x EV/
EBITDA on FY12 estimates. We value the company based on the average
of EV/Tonne of $80 per tonne and 6x EV/EBITDA and arrive at a revised
price target of Rs 85 (Rs 104 earlier) on FY12 estimates. We continue to
maintain REDUCE on the stock.
Revenue growth impacted by fall in dispatches
n Revenues for Q3FY11 declined by 10% YoY, which was lower than our estimates
due to steep fall seen in cement dispatches. Revenue from cement segment
stood at Rs 7.48 bn while freight earnings stood at Rs 115 mn, wind mill earnings
at Rs 8.6 mn and IPL earnings at Rs 210 mn.
n Cement dispatches (including clinker) in Q3FY11 stood at 2.04 MT (down by
26% YoY) while adjusted cement realizations stood at Rs 3665 per tonne (up
21.1% YoY). Cement volumes are impacted by retreating monsoons as well as
low demand growth. Cement realizations have witnessed an improvement due
to supply discipline being exhibited by cement players in the southern india.
n During Q3FY11, cement plant at Banswara, Rajasthan being put up by Indo Zinc
Ltd was commenced on trial basis in Oct, 2010 and started commercial production
from Jan, 2011. Work is also on schedule on coal based power plants in
Tamil Nadu and Andhra Pradesh. Power plant at TN is expected to commission
by Q1FY12 and AP plant by Q4FY12. Capacity upgradation at Chilamkur has
also started yielding results after initial problems.
n During 9MFY11, demand growth had remained much below our expectations.
Eastern region continued to register healthy growth of 11.7%, central region
grew by 10.6% and western region reported growth of 9.7%. Northern region
recorded a growth of just 2.5% while southern region reported a decline of
2.2%. Within southern region, Tamil Nadu witnessed a growth of 4.8%,
Karnataka reported a growth of 6.9% but Andhra Pradesh continued to disappoint
with a drop of 15% in demand followed by 2% negative demand growth
in Kerala. Going forward also, we believe that demand will not be able to outpace
the incremental supplies coming in that region.
n We revise our estimates downwards and expect cement dispatches of 10 MT for
FY11 and 10.5 MT for FY12. We thus expect revenues of Rs 34.7 bn and Rs 40.5
bn for FY11 and FY12 respectively including freight, shipping and IPL.
Margins improved on sequential and yearly basis
n Operating margins of the company improved sequentially and on yearly basis
and stood at 16.2% for Q3FY11 as against 13.5% for Q3FY10. This was due to
improvement in the cement prices led by pricing discipline being exhibited by
companies despite demand slowdown.
n EBITDA for cement division stood at Rs 1160 mn while for IPL, EBITDA was Rs 80
mn and for freight, EBITDA was Rs 23 mn for Q3FY11. Thus EBITDA per tonne
for cement has improved to Rs 569 per tonne.
n Following cost heads witnessed increases -
l Power and fuel per tonne - Power and fuel cost per tonne has witnessed a
significant jump due to increase in power tariffs by Rs 0.5 per unit by the
electricity boards in TN and AP as well as higher imported coal cost. These
costs will continue to remain high going forward.
l Freight expenses per tonne- Freight cost per tonne has moved up to capture
the newer markets
n We revise our estimates and expect margins to be 12.4% and 17.9% for FY11
and FY12 respectively.
Net profits impacted by fall in revenues and higher interest
outgo
n Company's profits registered a decline of 38% for Q3FY11 primarily impacted by
fall in dispatches as well as higher interest outgo as compared to Q3FY10.
n Borrowings of the company had witnessed an increase during Q3FY11 due to
higher working capital requirement. Going forward, company is also looking for
refinancing of FCCB's which are due for redemption. Company expects the financing
cost to be nearly 11.5% so this is likely to result in increase in interest
outgo during FY12. Thus, going forward the amount pertaining to FCCB refinancing
of nearly Rs 3.45 bn plus the coupon payment will carry an interest rate of
11.5% and would correspondingly increase the interest outgo and overall borrowings
of the company. We thus incorporate higher borrowings in our estimates
going forward.
n We revise our estimates to factor in lower cement volumes, higher costs as well
as higher interest outgo and expect net profits of Rs 560 mn and Rs 1922 mn for
FY11 and FY12 respectively.
Valuation and recommendation
n At current market price of Rs 90, stock is trading at 14.4x P/E and 6.6x EV/
EBITDA on FY12 estimates.
n We value the company based on the average of EV/Tonne of $80 per tonne and
6x EV/EBITDA and arrive at a revised price target of Rs 85 (Rs 104 earlier) on
FY12 estimates.
n We continue to maintain REDUCE on the stock.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
INDIA CEMENTS
RECOMMENDATION: REDUCE
TARGET PRICE: RS.85
FY12E P/E: 14.4X
q Revenues for Q3FY11 declined by 10% YoY, which was lower with our
estimates due to steep fall seen in cement dispatches. Revenue from cement
segment stood at Rs 7.48 bn while freight earnings stood at Rs 115
mn, wind mill earnings at Rs 8.6 mn and IPL earnings at Rs 210 mn.
q Operating margins of the company improved sequentially and on yearly
basis and stood at 16.2% for Q3FY11 as against 13.5% for Q3FY10.
q Company's profits registered a decline of 38% for Q3FY11 primarily impacted
by fall in dispatches as well as higher interest outgo as compared
to Q3FY10.
q We revise our estimates downwards for the company to factor in poor
performance shown in Q3FY11 as well as higher interest outgo expected
in FY12 on FCCB refinancing.
q At current market price of Rs 90, stock is trading at 14.4x P/E and 6.6x EV/
EBITDA on FY12 estimates. We value the company based on the average
of EV/Tonne of $80 per tonne and 6x EV/EBITDA and arrive at a revised
price target of Rs 85 (Rs 104 earlier) on FY12 estimates. We continue to
maintain REDUCE on the stock.
Revenue growth impacted by fall in dispatches
n Revenues for Q3FY11 declined by 10% YoY, which was lower than our estimates
due to steep fall seen in cement dispatches. Revenue from cement segment
stood at Rs 7.48 bn while freight earnings stood at Rs 115 mn, wind mill earnings
at Rs 8.6 mn and IPL earnings at Rs 210 mn.
n Cement dispatches (including clinker) in Q3FY11 stood at 2.04 MT (down by
26% YoY) while adjusted cement realizations stood at Rs 3665 per tonne (up
21.1% YoY). Cement volumes are impacted by retreating monsoons as well as
low demand growth. Cement realizations have witnessed an improvement due
to supply discipline being exhibited by cement players in the southern india.
n During Q3FY11, cement plant at Banswara, Rajasthan being put up by Indo Zinc
Ltd was commenced on trial basis in Oct, 2010 and started commercial production
from Jan, 2011. Work is also on schedule on coal based power plants in
Tamil Nadu and Andhra Pradesh. Power plant at TN is expected to commission
by Q1FY12 and AP plant by Q4FY12. Capacity upgradation at Chilamkur has
also started yielding results after initial problems.
n During 9MFY11, demand growth had remained much below our expectations.
Eastern region continued to register healthy growth of 11.7%, central region
grew by 10.6% and western region reported growth of 9.7%. Northern region
recorded a growth of just 2.5% while southern region reported a decline of
2.2%. Within southern region, Tamil Nadu witnessed a growth of 4.8%,
Karnataka reported a growth of 6.9% but Andhra Pradesh continued to disappoint
with a drop of 15% in demand followed by 2% negative demand growth
in Kerala. Going forward also, we believe that demand will not be able to outpace
the incremental supplies coming in that region.
n We revise our estimates downwards and expect cement dispatches of 10 MT for
FY11 and 10.5 MT for FY12. We thus expect revenues of Rs 34.7 bn and Rs 40.5
bn for FY11 and FY12 respectively including freight, shipping and IPL.
Margins improved on sequential and yearly basis
n Operating margins of the company improved sequentially and on yearly basis
and stood at 16.2% for Q3FY11 as against 13.5% for Q3FY10. This was due to
improvement in the cement prices led by pricing discipline being exhibited by
companies despite demand slowdown.
n EBITDA for cement division stood at Rs 1160 mn while for IPL, EBITDA was Rs 80
mn and for freight, EBITDA was Rs 23 mn for Q3FY11. Thus EBITDA per tonne
for cement has improved to Rs 569 per tonne.
n Following cost heads witnessed increases -
l Power and fuel per tonne - Power and fuel cost per tonne has witnessed a
significant jump due to increase in power tariffs by Rs 0.5 per unit by the
electricity boards in TN and AP as well as higher imported coal cost. These
costs will continue to remain high going forward.
l Freight expenses per tonne- Freight cost per tonne has moved up to capture
the newer markets
n We revise our estimates and expect margins to be 12.4% and 17.9% for FY11
and FY12 respectively.
Net profits impacted by fall in revenues and higher interest
outgo
n Company's profits registered a decline of 38% for Q3FY11 primarily impacted by
fall in dispatches as well as higher interest outgo as compared to Q3FY10.
n Borrowings of the company had witnessed an increase during Q3FY11 due to
higher working capital requirement. Going forward, company is also looking for
refinancing of FCCB's which are due for redemption. Company expects the financing
cost to be nearly 11.5% so this is likely to result in increase in interest
outgo during FY12. Thus, going forward the amount pertaining to FCCB refinancing
of nearly Rs 3.45 bn plus the coupon payment will carry an interest rate of
11.5% and would correspondingly increase the interest outgo and overall borrowings
of the company. We thus incorporate higher borrowings in our estimates
going forward.
n We revise our estimates to factor in lower cement volumes, higher costs as well
as higher interest outgo and expect net profits of Rs 560 mn and Rs 1922 mn for
FY11 and FY12 respectively.
Valuation and recommendation
n At current market price of Rs 90, stock is trading at 14.4x P/E and 6.6x EV/
EBITDA on FY12 estimates.
n We value the company based on the average of EV/Tonne of $80 per tonne and
6x EV/EBITDA and arrive at a revised price target of Rs 85 (Rs 104 earlier) on
FY12 estimates.
n We continue to maintain REDUCE on the stock.
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