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Strong 1QFY12 results
India Cements’ earnings rose 300% to Rs1bn, sharply ahead of estimates. This
was largely driven by pricing discipline which management expects would continue
in the coming months and also indicated that Competition Commission of India
(CCI) has put aside the cement price hike probe. The company has also announced
its foray into unrelated infra space but has not mentioned the scope. Even while we
are concerned on this as well as the on-going capacity surpluses in the industry,
we see value emerging post 30% correction in the last 12-months as valuations at
US$65/t (45% discount to est. replacement cost) are cheap; raise to Opf.
1Q results sharply above our estimates
ICem’s 1Q earnings rose 300% YoY to Rs1bn, sharply above our estimates; while
cement volumes declined 13% YoY reflecting weak demand trend in south, realisations
rose to highest ever level of Rs208/bag (+8%QoQ). The impact of 30% rise in linkage
coal price was offset by lower imported coal price, better efficiency, which also helped.
Resultant cement Ebitda/t rose 40% QoQ to Rs983/t, highest in last 7-quarters.
Management expects this discipline to sustain despite weak demand-supply
Management expects the pricing discipline to continue in the region which should
continue to help realisations. This is despite its weak outlook for demand for 2HFY12.
Interestingly, while there would be two new entrants in the region in the next few
months (JP Associates, JSW), the management is still hopeful of stable pricing. The
management also indicated the Competition Commission of India has put aside the
ongoing enquiry on price hikes and the possibility of cartelisation in the industry.
Rs6bn of capex over FY12-13 even while current CWIP is at Rs10.4bn
In the standalone entity, ICem has spent Rs5.5bn of capex in FY11 and currently
carries a CWIP of Rs10.4bn. Despite this, the capex guidance on on-going projects
(power plants, land) looks high at Rs6bn for FY12-13.
Watch out for the unrelated diversification into infra sector
ICem has also announced its foray into infrastructure space, though has not shared
any details on the likely quantum of investment, areas of focus etc. The management
believes that the sector has close linkage with its current cement business and it may
look at acquisition opportunity to build capability. We recall that ICem also entered
into shipping, Cricket-IPL in 2008 which have not yielded much returns so far.
Value emerges post 30% correction in last 1-y; Opf now (high risk-reward)
We raise our EPS estimates by 5-40% over FY12-13 as we raise our realisation
estimates. While we remain concerned on the sector and note that south is likely to
have the lowest utilisations in the next 2-3 years, we see value post ~30% correction
in the stock price in the last 12-months and upgrade the stock to O-PF. Revising target
price to Rs85/sh as we continue to value its capacities at US$75/t.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Strong 1QFY12 results
India Cements’ earnings rose 300% to Rs1bn, sharply ahead of estimates. This
was largely driven by pricing discipline which management expects would continue
in the coming months and also indicated that Competition Commission of India
(CCI) has put aside the cement price hike probe. The company has also announced
its foray into unrelated infra space but has not mentioned the scope. Even while we
are concerned on this as well as the on-going capacity surpluses in the industry,
we see value emerging post 30% correction in the last 12-months as valuations at
US$65/t (45% discount to est. replacement cost) are cheap; raise to Opf.
1Q results sharply above our estimates
ICem’s 1Q earnings rose 300% YoY to Rs1bn, sharply above our estimates; while
cement volumes declined 13% YoY reflecting weak demand trend in south, realisations
rose to highest ever level of Rs208/bag (+8%QoQ). The impact of 30% rise in linkage
coal price was offset by lower imported coal price, better efficiency, which also helped.
Resultant cement Ebitda/t rose 40% QoQ to Rs983/t, highest in last 7-quarters.
Management expects this discipline to sustain despite weak demand-supply
Management expects the pricing discipline to continue in the region which should
continue to help realisations. This is despite its weak outlook for demand for 2HFY12.
Interestingly, while there would be two new entrants in the region in the next few
months (JP Associates, JSW), the management is still hopeful of stable pricing. The
management also indicated the Competition Commission of India has put aside the
ongoing enquiry on price hikes and the possibility of cartelisation in the industry.
Rs6bn of capex over FY12-13 even while current CWIP is at Rs10.4bn
In the standalone entity, ICem has spent Rs5.5bn of capex in FY11 and currently
carries a CWIP of Rs10.4bn. Despite this, the capex guidance on on-going projects
(power plants, land) looks high at Rs6bn for FY12-13.
Watch out for the unrelated diversification into infra sector
ICem has also announced its foray into infrastructure space, though has not shared
any details on the likely quantum of investment, areas of focus etc. The management
believes that the sector has close linkage with its current cement business and it may
look at acquisition opportunity to build capability. We recall that ICem also entered
into shipping, Cricket-IPL in 2008 which have not yielded much returns so far.
Value emerges post 30% correction in last 1-y; Opf now (high risk-reward)
We raise our EPS estimates by 5-40% over FY12-13 as we raise our realisation
estimates. While we remain concerned on the sector and note that south is likely to
have the lowest utilisations in the next 2-3 years, we see value post ~30% correction
in the stock price in the last 12-months and upgrade the stock to O-PF. Revising target
price to Rs85/sh as we continue to value its capacities at US$75/t.
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