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ICEM Q112 results saw EBITDA/mt cross Rs1000/mt after 7 quarters. EBITDA has improved qoq
now for the third quarter from a low of Rs286mn. ICEM stock price at 7 year low, and at
valuations of $66 EV/mt (45% discount to replacement cost) due to negative news flow. Reiterate
Buy.
Net sales grew 20% yoy led by 46% growth in realisation at Rs4,569/t
Net sales grew by 20% yoy to Rs10.6bn in 1Q12. Sequentially, net sales grew by 6% from
Rs9.98bn in 4Q11.
Cements sales in volume terms were at 2.31mt, down 15% yoy. Realisation for 1Q12 stood at
Rs4,569/tonnes, up 46% yoy and 17% qoq..
In 1Q12 revenue from Shipping was at Rs93mn and from Wind power was at Rs33mn.
Revenue from Indian premier league (IPL) stood at Rs848mn for 1Q12, compared to
Rs154mn in 4Q11. Out of Rs848mn, company has earned Rs100 mn as prize money,
Rs210mn as gate collections and Rs400mn from local sponsors. For FY12 management
expects additional income from Champions league and distribution rights.
EBITDA/tonne of Rs1,045/t was the highest in the last 7 quarters
1Q12 EBITDA increased from Rs1bn in 1Q11 to Rs2.4bn. EBITDA per tonne grew from
Rs368/t in 1Q11 and Rs701/t in 4Q11 to Rs1,045/t in 1Q12 primarily on account of better
cement realisations and cost reduction through better blending and reduction of power and
fuel consumption.
EBITDA margin improved 1,151bp yoy and 496bp qoq for 1Q12 to 22.9%. Company has
achieved overall cost reduction except for other expenditures, where cost as a percentage of
sales grew 272bp yoy and 472bp qoq to 18.9% in 1Q12. The increase in other expenditure is
primarily on account of increased IPL expenses.
Power and fuel cost as a percentage of sales stood at 22.6% in 1Q12 compared to 31.2% in
1Q11 and 25.1% in 4Q11. Increased coal prices from Singareni were offset by lower imported
coal costs. ICEM met current coal requirement from linkages (45% and imported coal (55%).
Average coal cost for 1Q12 increased to Rs5,970/tn from Rs5890/tn in 4Q11. Freight cost as
a percentage of sales stood at 17.0% for 1Q12 compared to 20.9% in 1Q12 and 18.8% in
4Q11. Raw material costs as a percentage of sales fell 64bps yoy and 467bps qoq to 12.6%
in 1Q12.
EBITDA for Shipping stood at Rs43m, compared to a loss of Rs33mn in 4Q11. EBITDA from
IPL was Rs66mn compared to Rs12mn in 4Q11.
Earnings boosted by strong realisation and better cost control initiatives
Profit before tax stood at Rs1.26bn in 1Q12. Other income for the quarter stood at Rs49mn
compared to Rs27mn in 1Q11. Interest costs went up from Rs297mn in 1Q11 to Rs583mn in
1Q12, led by increased cost from refinancing of FCCB bonds.
Reported PAT grew from Rs250mn in 1Q11 to Rs1bn in 1Q12. Reported PAT includes an
extra-ordinary loss of Rs36mn in 1Q12, related to expenses on redemption of FCCB’s.
Adjusting for this, normalised PAT stood at Rs1.05bn, compared to Rs108mn in 1Q11.
Effective tax rate for 1Q12 stood at 16.4% compared to 18.2% in 1Q11 and 21.4% in 4Q11.
Management has guided FY12 tax rate to be around 33%.
Management expects muted volume growth in south India in near term
ICEM management expect demand to remain muted during the current financial year. Over
the next three years management expects capacity additions in south India of around 17mt,
with 5mt capacity coming from new players, Jaiprakash Associates and JSW Steel. However,
management believes that these capacity additions will not disturb the maintained production
discipline in the southern market. ICEM has no near-term capacity addition plans. For the
next phase of expansion company is looking into the limestone mining lease in central India.
After this it will look into the land acquisition and the total process will take 4-5 years time.
ICEM feels the cement realisation to remain at current level led by production discipline in the
southern market.
ICEM is in advance stages of commissioning Indonesian mining operation. It expects mining
to start in Dec 2010. Coal shipment for its operation in India will depend on the moisture
content. It expects to save coal costs around US$8-10/tn.
ICEM is setting up Infrastructure division as an extension of its cement division. Management
intention to enter the infrastructure business has to be understood in more detail, given the
capital intensive nature of the business and ICEM's existing high leverage.
We believe the industry surplus could go on for some time
Cement industry demand growth slipped from an already-low of 5.5% in FY11 to just 1% yoy
in 1QFY12 (quarter ending June 2011). However, the industry estimates growth of 4-5% for
FY12, assuming a post-monsoon seasonal recovery in demand. We expect capacity additions
of 20mmt in FY12, which should take industry capacity to 325mmt, vs demand of 225mmt.
We anticipate that oversupply conditions will continue into next year, given our expectation
that demand growth will remain lower than trend (8-10%) in both FY11 and FY12.
ICEM stock price is at a 7-year low due to negative news flow, and appears cheap at
valuations of $66 EV/mt (45% discount to replacement cost). We believe the cement assets
are undervalued at these valuations, and reiterate our Buy recommendation.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
ICEM Q112 results saw EBITDA/mt cross Rs1000/mt after 7 quarters. EBITDA has improved qoq
now for the third quarter from a low of Rs286mn. ICEM stock price at 7 year low, and at
valuations of $66 EV/mt (45% discount to replacement cost) due to negative news flow. Reiterate
Buy.
Net sales grew 20% yoy led by 46% growth in realisation at Rs4,569/t
Net sales grew by 20% yoy to Rs10.6bn in 1Q12. Sequentially, net sales grew by 6% from
Rs9.98bn in 4Q11.
Cements sales in volume terms were at 2.31mt, down 15% yoy. Realisation for 1Q12 stood at
Rs4,569/tonnes, up 46% yoy and 17% qoq..
In 1Q12 revenue from Shipping was at Rs93mn and from Wind power was at Rs33mn.
Revenue from Indian premier league (IPL) stood at Rs848mn for 1Q12, compared to
Rs154mn in 4Q11. Out of Rs848mn, company has earned Rs100 mn as prize money,
Rs210mn as gate collections and Rs400mn from local sponsors. For FY12 management
expects additional income from Champions league and distribution rights.
EBITDA/tonne of Rs1,045/t was the highest in the last 7 quarters
1Q12 EBITDA increased from Rs1bn in 1Q11 to Rs2.4bn. EBITDA per tonne grew from
Rs368/t in 1Q11 and Rs701/t in 4Q11 to Rs1,045/t in 1Q12 primarily on account of better
cement realisations and cost reduction through better blending and reduction of power and
fuel consumption.
EBITDA margin improved 1,151bp yoy and 496bp qoq for 1Q12 to 22.9%. Company has
achieved overall cost reduction except for other expenditures, where cost as a percentage of
sales grew 272bp yoy and 472bp qoq to 18.9% in 1Q12. The increase in other expenditure is
primarily on account of increased IPL expenses.
Power and fuel cost as a percentage of sales stood at 22.6% in 1Q12 compared to 31.2% in
1Q11 and 25.1% in 4Q11. Increased coal prices from Singareni were offset by lower imported
coal costs. ICEM met current coal requirement from linkages (45% and imported coal (55%).
Average coal cost for 1Q12 increased to Rs5,970/tn from Rs5890/tn in 4Q11. Freight cost as
a percentage of sales stood at 17.0% for 1Q12 compared to 20.9% in 1Q12 and 18.8% in
4Q11. Raw material costs as a percentage of sales fell 64bps yoy and 467bps qoq to 12.6%
in 1Q12.
EBITDA for Shipping stood at Rs43m, compared to a loss of Rs33mn in 4Q11. EBITDA from
IPL was Rs66mn compared to Rs12mn in 4Q11.
Earnings boosted by strong realisation and better cost control initiatives
Profit before tax stood at Rs1.26bn in 1Q12. Other income for the quarter stood at Rs49mn
compared to Rs27mn in 1Q11. Interest costs went up from Rs297mn in 1Q11 to Rs583mn in
1Q12, led by increased cost from refinancing of FCCB bonds.
Reported PAT grew from Rs250mn in 1Q11 to Rs1bn in 1Q12. Reported PAT includes an
extra-ordinary loss of Rs36mn in 1Q12, related to expenses on redemption of FCCB’s.
Adjusting for this, normalised PAT stood at Rs1.05bn, compared to Rs108mn in 1Q11.
Effective tax rate for 1Q12 stood at 16.4% compared to 18.2% in 1Q11 and 21.4% in 4Q11.
Management has guided FY12 tax rate to be around 33%.
Management expects muted volume growth in south India in near term
ICEM management expect demand to remain muted during the current financial year. Over
the next three years management expects capacity additions in south India of around 17mt,
with 5mt capacity coming from new players, Jaiprakash Associates and JSW Steel. However,
management believes that these capacity additions will not disturb the maintained production
discipline in the southern market. ICEM has no near-term capacity addition plans. For the
next phase of expansion company is looking into the limestone mining lease in central India.
After this it will look into the land acquisition and the total process will take 4-5 years time.
ICEM feels the cement realisation to remain at current level led by production discipline in the
southern market.
ICEM is in advance stages of commissioning Indonesian mining operation. It expects mining
to start in Dec 2010. Coal shipment for its operation in India will depend on the moisture
content. It expects to save coal costs around US$8-10/tn.
ICEM is setting up Infrastructure division as an extension of its cement division. Management
intention to enter the infrastructure business has to be understood in more detail, given the
capital intensive nature of the business and ICEM's existing high leverage.
We believe the industry surplus could go on for some time
Cement industry demand growth slipped from an already-low of 5.5% in FY11 to just 1% yoy
in 1QFY12 (quarter ending June 2011). However, the industry estimates growth of 4-5% for
FY12, assuming a post-monsoon seasonal recovery in demand. We expect capacity additions
of 20mmt in FY12, which should take industry capacity to 325mmt, vs demand of 225mmt.
We anticipate that oversupply conditions will continue into next year, given our expectation
that demand growth will remain lower than trend (8-10%) in both FY11 and FY12.
ICEM stock price is at a 7-year low due to negative news flow, and appears cheap at
valuations of $66 EV/mt (45% discount to replacement cost). We believe the cement assets
are undervalued at these valuations, and reiterate our Buy recommendation.
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