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India Equity Research Reports, IPO and Stock News
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Initiation: worst seems to be
priced in
• Largest cement player in south India
• Its India Premier League cricket team, the Chennai Super Kings,
could be a game-changer
• Trading at a significant discount to replacement cost after
adjusting for the value of the Chennai Super Kings
What's new
We believe ICL’s current share price
discounts the company’s weak
financials, and we see good earnings
prospects for ICL over the next 6-12
months.
What's the impact
ICL is the largest manufacturer of
cement in south India, with an
installed capacity of 15.5mt,
including the 1.5mt plant it set up in
north India recently. We expect the
company to benefit from this
expansion in the north and also
from various cost-rationalisation
measures it has planned, including
adding a 110MW capacity CPP and
acquiring a coal mine in Indonesia.
ICL’s franchisee rights to the
Chennai Super Kings (CSK), an
India Premier League cricket team,
provide an option value based on the
floor value the Board of Control for
Cricket India (BCCI) has set for the
two new teams, Pune and Kochi, and
the actual auction value. This
implies a value of Rs24-45/share
(36-68% of the current market
capitalisation of ICL). We have
assigned what we consider a
conservative value of Rs24/share for
the CSK.
What we recommend
We value ICL based on EV/tonne, as
against EV/EBITDA for the peer
group, because we believe the
company’s earnings are depressed
currently and do not reflect a true
picture. We initiate coverage with a
Buy (1) rating and SOTP-based sixmonth
target price of Rs96, and
assign an EV/t of US$70 for the
cement business and Rs24/share for
the CSK India Premier League.
Adjusting for the value of the CSK,
the stock is trading at an EV/tonne
of US$58, a significant discount to
the larger cement players in the
country, which we believe is
unjustified.
How we differ
Our FY12 EBITDA forecast is 3%
lower than the Bloombergconsensus
forecast and implies an
earnings CAGR of 77% over FY11-14.
However, earnings forecasts for ICL
vary significantly amongst the
consensus, due mainly to the
company’s presence in the worstaffected
region of India in terms of
demand and supply and low
capacity utilisation. Nonetheless, the
consensus, including us, appears
positive, due mainly to the stock’s
appeal based on the replacement
cost.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Initiation: worst seems to be
priced in
• Largest cement player in south India
• Its India Premier League cricket team, the Chennai Super Kings,
could be a game-changer
• Trading at a significant discount to replacement cost after
adjusting for the value of the Chennai Super Kings
What's new
We believe ICL’s current share price
discounts the company’s weak
financials, and we see good earnings
prospects for ICL over the next 6-12
months.
What's the impact
ICL is the largest manufacturer of
cement in south India, with an
installed capacity of 15.5mt,
including the 1.5mt plant it set up in
north India recently. We expect the
company to benefit from this
expansion in the north and also
from various cost-rationalisation
measures it has planned, including
adding a 110MW capacity CPP and
acquiring a coal mine in Indonesia.
ICL’s franchisee rights to the
Chennai Super Kings (CSK), an
India Premier League cricket team,
provide an option value based on the
floor value the Board of Control for
Cricket India (BCCI) has set for the
two new teams, Pune and Kochi, and
the actual auction value. This
implies a value of Rs24-45/share
(36-68% of the current market
capitalisation of ICL). We have
assigned what we consider a
conservative value of Rs24/share for
the CSK.
What we recommend
We value ICL based on EV/tonne, as
against EV/EBITDA for the peer
group, because we believe the
company’s earnings are depressed
currently and do not reflect a true
picture. We initiate coverage with a
Buy (1) rating and SOTP-based sixmonth
target price of Rs96, and
assign an EV/t of US$70 for the
cement business and Rs24/share for
the CSK India Premier League.
Adjusting for the value of the CSK,
the stock is trading at an EV/tonne
of US$58, a significant discount to
the larger cement players in the
country, which we believe is
unjustified.
How we differ
Our FY12 EBITDA forecast is 3%
lower than the Bloombergconsensus
forecast and implies an
earnings CAGR of 77% over FY11-14.
However, earnings forecasts for ICL
vary significantly amongst the
consensus, due mainly to the
company’s presence in the worstaffected
region of India in terms of
demand and supply and low
capacity utilisation. Nonetheless, the
consensus, including us, appears
positive, due mainly to the stock’s
appeal based on the replacement
cost.
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