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India Cements (ICEM)
Cement
Prices in South improve—though ICEM does not benefit. India Cement’s (ICEM)
operating results met estimates—as the miss on realizations was offset by higher
dispatches. We are surprised by ICEM’s inability to capitalize on the 4% qoq
improvement in cement prices in South—despite no shift in overall sales mix. We
maintain our cautious stance with a revised target price of Rs92/share (Rs100
previously).
Operating results meet estimates—lower realization compensated by improved offtake
ICEM reported revenues of Rs10 bn (3% yoy, 28% qoq), operating profit of Rs1.8 bn (42% yoy,
42% qoq) and net income of Rs545 mn (108% yoy, 177% qoq) for 4QFY11, against our
estimates of Rs10 bn, Rs1.8 bn and Rs874 mn, respectively. Lower-than-estimated realizations
(Rs3,642/ton against our estimate of Rs3,982/ton) was offset by higher volumes to yield an in-line
EBITDA. Net income miss was primarily on account of lower-than-estimated other income and
higher interest expense. Sequential improvement in profitability was primarily driven by leverage
benefits from higher volumes (26% qoq) though we are surprised by negligible 1% sequential
improvement in realizations despite Rs10-12/bag sequential improvement in cement prices in
4QFY11.
Prices in South improve 5% qoq—realizations for ICEM remain flat
ICEM’s average realizations increased 1% qoq to Rs3,642/ton despite the Rs10-12/bag sequential
improvement in cement prices in 4QFY11 in South India. We note that realizations for regional
peers such as Dalmia Cement registered a 5% sequential improvement as reflected in data on
regional prices (See Exhibit 2). ICEM’s sales mix continues to be dominated by South (~70% of
sales), which remains the most fragmented market with a severe supply overhang (68% utilization
in FY2011), and weak consumption growth (-4% in FY2011).
Maintain REDUCE with a revised target price of Rs92/share
We maintain our REDUCE rating on ICEM with a revised target price of Rs92/share (Rs100/share
previously). Although the stock has under-performed the benchmark BSE Sensex by 11% in last
one month and is now trading at relatively comfortable valuations of 4.6X FY2013E EBITDA and
8X FY2013E EPS, we maintain our cautious stance taking cognizance of (1) a challenging macro
environment in South India, (2) risk to earnings from excessive dependence on imported coal and
(3) interest burden of excessive leverage which would likely have been further aggravated by
redemption of FCCB. We have revised our FY2012E EPS to Rs8.3/share (previously Rs13.2/share)
and FY2013E EPS to Rs10.8/share (previously Rs14.4/share) to align ourselves with reported
realization in 4QFY11.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
India Cements (ICEM)
Cement
Prices in South improve—though ICEM does not benefit. India Cement’s (ICEM)
operating results met estimates—as the miss on realizations was offset by higher
dispatches. We are surprised by ICEM’s inability to capitalize on the 4% qoq
improvement in cement prices in South—despite no shift in overall sales mix. We
maintain our cautious stance with a revised target price of Rs92/share (Rs100
previously).
Operating results meet estimates—lower realization compensated by improved offtake
ICEM reported revenues of Rs10 bn (3% yoy, 28% qoq), operating profit of Rs1.8 bn (42% yoy,
42% qoq) and net income of Rs545 mn (108% yoy, 177% qoq) for 4QFY11, against our
estimates of Rs10 bn, Rs1.8 bn and Rs874 mn, respectively. Lower-than-estimated realizations
(Rs3,642/ton against our estimate of Rs3,982/ton) was offset by higher volumes to yield an in-line
EBITDA. Net income miss was primarily on account of lower-than-estimated other income and
higher interest expense. Sequential improvement in profitability was primarily driven by leverage
benefits from higher volumes (26% qoq) though we are surprised by negligible 1% sequential
improvement in realizations despite Rs10-12/bag sequential improvement in cement prices in
4QFY11.
Prices in South improve 5% qoq—realizations for ICEM remain flat
ICEM’s average realizations increased 1% qoq to Rs3,642/ton despite the Rs10-12/bag sequential
improvement in cement prices in 4QFY11 in South India. We note that realizations for regional
peers such as Dalmia Cement registered a 5% sequential improvement as reflected in data on
regional prices (See Exhibit 2). ICEM’s sales mix continues to be dominated by South (~70% of
sales), which remains the most fragmented market with a severe supply overhang (68% utilization
in FY2011), and weak consumption growth (-4% in FY2011).
Maintain REDUCE with a revised target price of Rs92/share
We maintain our REDUCE rating on ICEM with a revised target price of Rs92/share (Rs100/share
previously). Although the stock has under-performed the benchmark BSE Sensex by 11% in last
one month and is now trading at relatively comfortable valuations of 4.6X FY2013E EBITDA and
8X FY2013E EPS, we maintain our cautious stance taking cognizance of (1) a challenging macro
environment in South India, (2) risk to earnings from excessive dependence on imported coal and
(3) interest burden of excessive leverage which would likely have been further aggravated by
redemption of FCCB. We have revised our FY2012E EPS to Rs8.3/share (previously Rs13.2/share)
and FY2013E EPS to Rs10.8/share (previously Rs14.4/share) to align ourselves with reported
realization in 4QFY11.
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