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India Cements
Sharp turnaround expected in 4QFY11
South prices have held at historic high levels through the quarter, which augurs
well for ICEM's margins. While cement volumes remained constrained by demand
in Andhra Pradesh, overall we expect 70.7% EBITDA growth for ICEM. The stock
offers value at US$77 EV/mt; maintain Buy.
Cement prices have held strongly in January-March 2011
! The gradual recovery in cement prices post monsoons in 2010, has gained further
momemtum in January to March quarter. Cement prices are currently ruling at all time high in
South India e.g in Chennai and Hyderabad prices are at Rs275/bag, and in Bangalore it is
Rs280/bag and in Kerala it is over Rs300/bag. We expect ICEM’s average realisations to be
higher by 30% y.o.y and around 8% on a q.o.q basis.
Cost escalation would dilute margin gains
! While we estimate the average realisations in South India would have risen by Rs300/mt, the
EBITDA/mt would rise by Rs200/mt on q.o.q basis. The cost escalation was driven by : Coal
India raised coal prices by 30% in end of February 2) international thermal coal prices
continue to remain strong, we estimate that India Cements would have paid around $10 more
for imported coal in 4QFY11 over Q3FY11. 3) The budget had raised the excise incidence on
the sector by Rs2-3/bag. We expect ICEM to report a EBITDA of Rs2.15bn which is a 70.7%
growth over 4QFY10 levels, and also over 3QFY11 levels.
Stock looks cheap at $77/mt, could re-rate given the sharp turnaround
! While, sustainability of cement prices which is largely driven by production discipline by
cement players remains a big risk, we believe at its current valuations of ICEM at a 36%
discount to replacement cost, it does look cheap. ICEM would be reporting a quarterly PBT of
over Rs1bn after 5 quarters, and this could re-rate the stock. ICEM also is a owner of "
Chennai Super Kings" cricker team in the Indian Premier League Cricket ( IPL), and the
recent win by India in the World Cup Cricket Tournament would improve the viewership for
the forthcoming IPL event. We have conservatively given a value of just $117m in our fair
value for ICEM ( Rs17/share), but given the base bidding price of $225m last year for new
team induction in 2010, the value of this franchise for ICEM also offers scope for upside in the
medium term.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
India Cements
Sharp turnaround expected in 4QFY11
South prices have held at historic high levels through the quarter, which augurs
well for ICEM's margins. While cement volumes remained constrained by demand
in Andhra Pradesh, overall we expect 70.7% EBITDA growth for ICEM. The stock
offers value at US$77 EV/mt; maintain Buy.
Cement prices have held strongly in January-March 2011
! The gradual recovery in cement prices post monsoons in 2010, has gained further
momemtum in January to March quarter. Cement prices are currently ruling at all time high in
South India e.g in Chennai and Hyderabad prices are at Rs275/bag, and in Bangalore it is
Rs280/bag and in Kerala it is over Rs300/bag. We expect ICEM’s average realisations to be
higher by 30% y.o.y and around 8% on a q.o.q basis.
Cost escalation would dilute margin gains
! While we estimate the average realisations in South India would have risen by Rs300/mt, the
EBITDA/mt would rise by Rs200/mt on q.o.q basis. The cost escalation was driven by : Coal
India raised coal prices by 30% in end of February 2) international thermal coal prices
continue to remain strong, we estimate that India Cements would have paid around $10 more
for imported coal in 4QFY11 over Q3FY11. 3) The budget had raised the excise incidence on
the sector by Rs2-3/bag. We expect ICEM to report a EBITDA of Rs2.15bn which is a 70.7%
growth over 4QFY10 levels, and also over 3QFY11 levels.
Stock looks cheap at $77/mt, could re-rate given the sharp turnaround
! While, sustainability of cement prices which is largely driven by production discipline by
cement players remains a big risk, we believe at its current valuations of ICEM at a 36%
discount to replacement cost, it does look cheap. ICEM would be reporting a quarterly PBT of
over Rs1bn after 5 quarters, and this could re-rate the stock. ICEM also is a owner of "
Chennai Super Kings" cricker team in the Indian Premier League Cricket ( IPL), and the
recent win by India in the World Cup Cricket Tournament would improve the viewership for
the forthcoming IPL event. We have conservatively given a value of just $117m in our fair
value for ICEM ( Rs17/share), but given the base bidding price of $225m last year for new
team induction in 2010, the value of this franchise for ICEM also offers scope for upside in the
medium term.
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