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UBS Investment Research
India Cements
High risk to earnings from southern
o vercapacity [EXTRACT]
Southern region continues to witness sluggish demand
The southern region of India recorded negative demand growth in Q1 FY12.
Demand growth is likely to be negative to flat in FY12 and the company expects it
to return to 8% in FY13 based on improved political stability in Karnataka and
Tamil Nadu.
Indonesian coal mine and captive power plants to reduce energy costs
India Cements expects Indonesian mining to commence by December 2011. All
the approvals have been secured. It expects coal cost savings to be US$8-10 per
ton, and captive power plants in Tamil Nadu and Andhra Pradesh and the Mahi
plant to be commissioned in October 2011, Q4 FY13 and October 2011,
respectively.
We revise our earnings estimates for FY12/FY13
We revise our FY12/FY13 EPS estimates from Rs5.75/Rs8.90 to Rs7.42/Rs9.37,
led primarily by our revised price and volume estimates post the Q1 FY12 results.
Valuation: Sell rating with price target of Rs70
We now value the cement business at an EV/EBITDA multiple of 6x (previously
6.5x). We do not assume any value accretion from the Indian Premier League
franchise. Due to the above, we lower our price target from Rs86 to Rs70.
Although India Cements is trading at the lowest EV/t (US$70) in our coverage
universe, we maintain our negative view on the company given that the southern
region has the most overcapacity, is most fragmented and will also be impacted by
the entry of new companies such as Jaiprakash Associates and JSW Steel.
India Cements
India Cements was incorporated in 1946 by N. Sankaralinga and T.S.
Narayanaswami, the co-founders of the Sankar group. It has capacity of about
16mt. Over 80% of its capacity is in South India, where it is the largest cement
company.
Statement of Risk
We believe the key risk to our outlook for the sector could come from an
unexpected fall in cement prices, increase in input costs, such as coal/freight,
and any government intervention to lower cement prices.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
India Cements
High risk to earnings from southern
o vercapacity [EXTRACT]
Southern region continues to witness sluggish demand
The southern region of India recorded negative demand growth in Q1 FY12.
Demand growth is likely to be negative to flat in FY12 and the company expects it
to return to 8% in FY13 based on improved political stability in Karnataka and
Tamil Nadu.
Indonesian coal mine and captive power plants to reduce energy costs
India Cements expects Indonesian mining to commence by December 2011. All
the approvals have been secured. It expects coal cost savings to be US$8-10 per
ton, and captive power plants in Tamil Nadu and Andhra Pradesh and the Mahi
plant to be commissioned in October 2011, Q4 FY13 and October 2011,
respectively.
We revise our earnings estimates for FY12/FY13
We revise our FY12/FY13 EPS estimates from Rs5.75/Rs8.90 to Rs7.42/Rs9.37,
led primarily by our revised price and volume estimates post the Q1 FY12 results.
Valuation: Sell rating with price target of Rs70
We now value the cement business at an EV/EBITDA multiple of 6x (previously
6.5x). We do not assume any value accretion from the Indian Premier League
franchise. Due to the above, we lower our price target from Rs86 to Rs70.
Although India Cements is trading at the lowest EV/t (US$70) in our coverage
universe, we maintain our negative view on the company given that the southern
region has the most overcapacity, is most fragmented and will also be impacted by
the entry of new companies such as Jaiprakash Associates and JSW Steel.
India Cements
India Cements was incorporated in 1946 by N. Sankaralinga and T.S.
Narayanaswami, the co-founders of the Sankar group. It has capacity of about
16mt. Over 80% of its capacity is in South India, where it is the largest cement
company.
Statement of Risk
We believe the key risk to our outlook for the sector could come from an
unexpected fall in cement prices, increase in input costs, such as coal/freight,
and any government intervention to lower cement prices.
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