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India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
http://www.kotaksecurities.com/pdf/indiadaily/indiadaily29032012.pdf
India Cements: Reasonable valuation, favorable cost structure
` Prices spike in South India yet again in peak construction season
` ICEM better-positioned to counter the recent cost push due to lower
domestic fuel dependence
` Valuations at steep discount to peers, earnings upgrade cycle still has some
steam left
Prices spike in South India yet again in peak construction season
Prices in South India increased on an average by Rs20-25/bag in the month of March implying a
Rs10-12/bag qoq increase in prices in 4QFY12. We note that the price hike has been uniform
across Southern states, and were primarily taken in mid-March (see Exhibit 1). The price rise comes
in the wake of (1) increase in railway freight by Indian Railways, and (2) healthy demand trend
witnessed in the past few months (including South India) with the industry clocking an average
growth of 14% yoy in the 4-month period from November 2011 to February 2012.
ICEM better-positioned to counter the recent cost push due to lower domestic fuel dependence
ICEM, in our view, is favorably positioned to counter the cost push from domestic coal and railway
freight due to a higher dependence on road dispatches (76%) and imported coal (80%).The
industry faces imminent cost inflation in the form of (1) 30% revision in rail freight rates
(Rs150/ton) and (2) ~5% increase in prices of domestic coal on account of revision in pricing
structure by Coal India Ltd. We also highlight that prices of imported coal have stabilized at
US$100-105/ton over the past few months (see Exhibit 6).
Valuations at steep discount to peers, earnings upgrade cycle still has some steam left
We maintain our ADD rating on ICEM with a revised target price of Rs130/share (previously Rs110)
as we adjust for the recent round of price hikes. We note that ICEM at 5.4X FY2013E EBITDA and
US$110/ton FY2013E production is trading at 41% and 40% discount respectively to average
trading multiples of ACC, Ambuja and UltraTech.
We note that consensus EPS for FY2012E and FY2013E has been revised upwards by 84% and
15% in the past 12 months (see Exhibit 4) and we see further upgrades going into 4QFY12
reporting season. We also highlight that we factor a modest 6% and 5% growth in volumes and
realization in FY2013E and see limited downside risk to our estimates. We have revised our EPS by
4.8%/4.5% for FY2012E/13E to account for the price increases taken in March 2012.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
http://www.kotaksecurities.com/pdf/indiadaily/indiadaily29032012.pdf
India Cements: Reasonable valuation, favorable cost structure
` Prices spike in South India yet again in peak construction season
` ICEM better-positioned to counter the recent cost push due to lower
domestic fuel dependence
` Valuations at steep discount to peers, earnings upgrade cycle still has some
steam left
Prices spike in South India yet again in peak construction season
Prices in South India increased on an average by Rs20-25/bag in the month of March implying a
Rs10-12/bag qoq increase in prices in 4QFY12. We note that the price hike has been uniform
across Southern states, and were primarily taken in mid-March (see Exhibit 1). The price rise comes
in the wake of (1) increase in railway freight by Indian Railways, and (2) healthy demand trend
witnessed in the past few months (including South India) with the industry clocking an average
growth of 14% yoy in the 4-month period from November 2011 to February 2012.
ICEM better-positioned to counter the recent cost push due to lower domestic fuel dependence
ICEM, in our view, is favorably positioned to counter the cost push from domestic coal and railway
freight due to a higher dependence on road dispatches (76%) and imported coal (80%).The
industry faces imminent cost inflation in the form of (1) 30% revision in rail freight rates
(Rs150/ton) and (2) ~5% increase in prices of domestic coal on account of revision in pricing
structure by Coal India Ltd. We also highlight that prices of imported coal have stabilized at
US$100-105/ton over the past few months (see Exhibit 6).
Valuations at steep discount to peers, earnings upgrade cycle still has some steam left
We maintain our ADD rating on ICEM with a revised target price of Rs130/share (previously Rs110)
as we adjust for the recent round of price hikes. We note that ICEM at 5.4X FY2013E EBITDA and
US$110/ton FY2013E production is trading at 41% and 40% discount respectively to average
trading multiples of ACC, Ambuja and UltraTech.
We note that consensus EPS for FY2012E and FY2013E has been revised upwards by 84% and
15% in the past 12 months (see Exhibit 4) and we see further upgrades going into 4QFY12
reporting season. We also highlight that we factor a modest 6% and 5% growth in volumes and
realization in FY2013E and see limited downside risk to our estimates. We have revised our EPS by
4.8%/4.5% for FY2012E/13E to account for the price increases taken in March 2012.
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