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We retain BUY on India Cements (ICL), as the stock is
available at a sharp discount to replacement cost. We expect
ICL’s cost of production to reduce in FY13/FY14 on: 1)
improving efficiencies, as captive power capacity will account
for 60% of the total power requirement in FY14, as against
zero now; and 2) volume growth would outpace industry
growth, due to stabilisation of the 1.5mtpa Rajasthan plant
(60% subsidiary). ICL is trading at an attractive 5x FY13ii
EV/Ebitda and EV/tonne of US$57/tonne.
Volumes declined in FY11, but we expect growth from FY12:
Cement volumes declined in FY11 on sluggish demand in the
southern region and increased competition. We expect growth from
FY12 as the company’s new 1.5mtpa Rajasthan plant stabilises;
following this, we expect the market mix to improve marginally
(share of the southern region is likely to decline to 75% in FY12, as
against 83% in FY10).
Margins improve thanks to pricing discipline in the southern
region: ICL’s margins were on an uptrend for the past two quarters,
owing to re-emergence of pricing discipline in the southern region. We
believe that pricing power will be volatile in the southern region,
owing to entry of new players and low utilisation in the region. Ebitda
margin volatility, however, will be low for ICL, with improving
efficiencies (captive power plants likely to commence production from
2HFY12) and reduction in sales volume % from the southern region.
ICL acquired a coal mine in Indonesia, which is likely to commence
production from 4QFY12. It expects per tonne savings of US$8-10
post stabilisation of the mine (we have not incorporated this in our
estimates).
Better placed now compared with the previous down-cycle:
ICL took on large debt for inorganic expansion before the previous
down-cycle; now, reserves have improved (debt-to-equity ratio
increased from 3.2x in FY02 to 5.4x in FY05, and dropped to 0.8x in
FY10). We expect debt-to-equity to remain at lower levels, as ICL is
unlikely to have huge capex going forward, given the over-capacity
situation in the southern markets.
Available at sharp discount to replacement cost; we retain
BUY: We expect ICL’s efficiency improvement measures to reduce
costs to reflect in earnings from 2HFY13. The company plans to
enter the infrastructure space; we await further clarity in this regard.
We retain BUY on ICL on: 1) cheap valuations; and 2) improvement
in efficiencies going forward. We value the stock at one-year forward
rolling EV/Ebitda of 5x. ICL is trading at EV/tonne of US$57, a sharp
discount to current replacement cost of US$120/tonne. We value
Chennai Super Kings, an Indian Premier League cricket franchise, at
Rs12 per share, which implies a value of US$87m, according to IIFL’s
media analyst. Our revised target price offers 58% upside from the
current level. We retain BUY.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
We retain BUY on India Cements (ICL), as the stock is
available at a sharp discount to replacement cost. We expect
ICL’s cost of production to reduce in FY13/FY14 on: 1)
improving efficiencies, as captive power capacity will account
for 60% of the total power requirement in FY14, as against
zero now; and 2) volume growth would outpace industry
growth, due to stabilisation of the 1.5mtpa Rajasthan plant
(60% subsidiary). ICL is trading at an attractive 5x FY13ii
EV/Ebitda and EV/tonne of US$57/tonne.
Volumes declined in FY11, but we expect growth from FY12:
Cement volumes declined in FY11 on sluggish demand in the
southern region and increased competition. We expect growth from
FY12 as the company’s new 1.5mtpa Rajasthan plant stabilises;
following this, we expect the market mix to improve marginally
(share of the southern region is likely to decline to 75% in FY12, as
against 83% in FY10).
Margins improve thanks to pricing discipline in the southern
region: ICL’s margins were on an uptrend for the past two quarters,
owing to re-emergence of pricing discipline in the southern region. We
believe that pricing power will be volatile in the southern region,
owing to entry of new players and low utilisation in the region. Ebitda
margin volatility, however, will be low for ICL, with improving
efficiencies (captive power plants likely to commence production from
2HFY12) and reduction in sales volume % from the southern region.
ICL acquired a coal mine in Indonesia, which is likely to commence
production from 4QFY12. It expects per tonne savings of US$8-10
post stabilisation of the mine (we have not incorporated this in our
estimates).
Better placed now compared with the previous down-cycle:
ICL took on large debt for inorganic expansion before the previous
down-cycle; now, reserves have improved (debt-to-equity ratio
increased from 3.2x in FY02 to 5.4x in FY05, and dropped to 0.8x in
FY10). We expect debt-to-equity to remain at lower levels, as ICL is
unlikely to have huge capex going forward, given the over-capacity
situation in the southern markets.
Available at sharp discount to replacement cost; we retain
BUY: We expect ICL’s efficiency improvement measures to reduce
costs to reflect in earnings from 2HFY13. The company plans to
enter the infrastructure space; we await further clarity in this regard.
We retain BUY on ICL on: 1) cheap valuations; and 2) improvement
in efficiencies going forward. We value the stock at one-year forward
rolling EV/Ebitda of 5x. ICL is trading at EV/tonne of US$57, a sharp
discount to current replacement cost of US$120/tonne. We value
Chennai Super Kings, an Indian Premier League cricket franchise, at
Rs12 per share, which implies a value of US$87m, according to IIFL’s
media analyst. Our revised target price offers 58% upside from the
current level. We retain BUY.
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