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About the Company
India Cements was established in 1946 and the first plant was
setup at Sankarnagar in Tamil nadu in 1949. The company is
the largest producer of cement in South India and its plants are
well spread, with three in Tamil nadu and four in Andhra
Pradesh which cater to all major markets in South India and
Maharashtra with an aggregate capacity of 14mtpa. State-wise
despatch breaks down with AP-28%, TN-35%, Kerala- 15%,
Karnataka-4%, Maharashtra-12%. Company has recently
commissioned its cement plant of 1.5mtpa at Bhilwara,
Rajasthan.
Southern Region –Industry Discipline to
continue
Thanks to strong industry discipline, prices in southern region
remained firm throughout the Q1FY12 quarter. Prices across
the South are at peak levels of March month with no signs of
weak demand. Prices in the region are up by an average of
Rs17-20 per bag QoQ despite political instability, lack of
infrastructure spending and large capacity additions in the
region. Given the weak demand outlook, the prices should
remain maintain at these levels.
Capital outlay of Rs11bn for next three years
India Cements has envisaged total consolidated capex of
Rs11bn to be spent over the next three years. It includes
residual outlay of Rs3bn on the Rajasthan plant, Rs5bn on
setting up of CPPs at southern plants with aggregate capacity
of 100MW, Rs1bn on buying coal concessions in Indonesia
and rest on regular maintenance capex. Company would spend
Rs8bn and Rs3bn in FY11 and FY12/FY13, respectively.
Management guided to fund the capex in the debt: equity ratio
of 3:1. With most of the Capex behind them and 1.5 mtpa
coming on stream, we expect the earning has bottomed out in
FY11.
Outlook & Valuation
The stock currently trades at an EV/EBITDA of 7.49x and
6.18x FY12BE and FY13BE, respectively, while on P/BV, it
trades at an attractive range of 0.54x and 0.51x FY12BE and
FY13BE, respectively. Also, on EV/tonne currently trades at
an attractive range of US$62, significant discount to
replacement cost. Given the earning performance have
bottomed out in FY11 and attractive valuations , We put a
‘BUY’ rating on the stock with a target price of Rs. 105
providing an upside of 40% from the current levels.
However, cost pressure and new competition risk would
keep margin under pressure but given the recent stock
underperformance and attractive valuation the stock
provides enough margin of safety.
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