India Cements- Time to look up:: Elara

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Time to look up
Revenue decline on lower realization, volume
India Cements Ltd (ICL) reported a 15% YoY (4.5% QoQ) decline in its
net sales to INR8,412mn due to a sharp decline in cement realizations.
The EBITDA in Q2FY11 declined 90.4% YoY to INR 286mn due to a
higher cost and low cement prices. The company reported a net loss
of INR417mn compared to net profit of INR1,378mn in Q2FY10.


Operating highlights
Volume increased by 10.4% YoY to 2.7 mn tonnes due to the capacity
addition. Realizations for the quarter were down by 25.4 % YoY (7.3%
QoQ) to INR 2,909 / tonne. The EBITDA per tonne for the quarter
stood at INR66 as compared to INR1,164 in Q2FY10.


Capex update: Coal mine, CPPs to generate savings
While the 1.5mn tonne cement plant at Banswara, Rajasthan has
already been commissioned during the quarter, production of coal
from the Indonesian mine is slated to begin by Mar’11. The company is
also in the process of setting up CPPs of 50MW each in Andhra
Pradesh(AP) and Tamil Nadu(TN). The AP plant is expected to come on
stream by the end of Q1FY12 while TN plant will be in Q3FY12. The
coal mine and CPP are expected to generate savings of INR200 and
INR50 per tonne respectively. With this cost saving and an
improvement in cement prices, we expect a major improvement in its
profitability.

Maintain Accumulate Rating
At the CMP of INR117 per share, at an EV/tonne of USD63 and USD56
its FY11 and FY12 capacities respectively. The stock is trading at 44%
discount to the replacement cost despite its reasonable size and
expected improvement in fundamentals. Thus, we maintain our
‘Accumulate’ rating on the stock with an unchanged priced target of
INR131.We have valued the company on SOTP basis. We have valued
the cement business of the company at EV/tonne of USD 62,
equivalent to distress value for cement plant. We have valued Chennai
Super Kings at the recent IPL auction minimum base price that was
fixed at USD 225 mn (INR 34 per share).