India Cements - Volume Growth Remains a Concern; Result Update Q2FY15 :: Edelweiss, PDF link

Please Share::

�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��

��

-->

India Cement’s (ICEM) Q2FY15 EBITDA of INR1.83bn missed our INR2.2bn estimate owing to disappointment on volume, realisation and cost fronts. Volumes at 2.35mt came in 2% below estimate (down ~4% YoY), while the 9% QoQ increase in realisation was lower than our 11% estimate. Cement cost/t too was 3% above estimate due to the ~13% QoQ surge in freight cost/t on account of strict adherence to the truck overloading norms. Ergo, cement EBITDA/t at INR673 (up 53% YoY) stood lower than our INR839 estimate. Taking a cue from the H1FY15 performance and management commentary of weak demand in south, we are lowering our volume estimates by ~2% each for FY15 and FY16. Factoring in the cost declines (due to the recent drop in diesel prices and low international coal prices), our EBITDA estimates for FY15 stands lower by ~3% while remains unchanged for FY16. We continue to value ICEM at 5x FY16E EV/EBITDA given low RoE of ~7% and no visibility on a sharp reduction in debt. Moreover, the proposed INR5bn QIP may prove to be an overhang on the stock in the near term.

Domestic volumes dip 9% YoY; disappointment continues

Domestic cement sales at 2.2mt fell by ~9% YoY for the third consecutive quarter even as clinker exports of 133kt arrested the fall to ~4% YoY. Management’s commentary on demand outlook remains weak for H2FY15, leading ~2% cut each to our FY15 and FY16 volume estimates. Realisations grew 9% QoQ, while costs rose further by ~5% QoQ leading to cement EBITDA/t at INR673 being lower than our INR839 estimate.

High interest cost impacts PAT

Interest cost increased by 6% QoQ (over and above the 32% QoQ rise in Q1FY15) due to high working capital loan. Ergo, PAT at INR75mn was lower than our INR455mn estimate.

LINK
https://www.edelweiss.in/research/India-Cements--Volume-Growth-Remains-a-Concern;-Result-Update-Q2FY15/27550.html