Goldman Sachs, India Cements (ICEM.BO): Maintain Neutral

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India Cements (ICEM.BO): Maintain Neutral

We expect India Cements to report a 3% decline in volumes in FY11E due to weak demand

and intensifying competition in its key market of South India (about 85% of its sales).

However, with a ramp up in volumes from its Rajasthan facility (Indo-Zinc), we expect a

10% volume growth in FY12E.

Margins bottom out: We believe that the EBITDA margins will bottom out at 13%

(EBITDA/T of Rs455) in FY11E and we expect a gradual pick up in margins to 16.2%

(EBITDA/T of Rs605) in FY12E on higher realizations. However, we expect firm coal prices

and freight costs to act as a headwind in the near future.

Subdued returns, reasonable valuations: We expect the company to generate suboptimal

ROE of 5%-8% over the next 2 years. However, at an EV/T of US$80, the worst

seems to be priced in, in our view.

Maintain Neutral: We revise our FY11E-FY13E EPS by -15% to +10% on revised volume,

pricing and cost assumptions – and revise our 12-m EV/RC-based TP to Rs103 (from Rs93)

on higher replacement cost.

Key risks: upside: sustained strength in pricing; downside: higher coal costs and lowerthan-

expected increase in volumes.