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India Cements (ICEM)
Cement
Realizations remain firm despite weak demand. India Cement maintained its
profitability at Rs1,038/ton (Rs1,046/ton in 1QFY11), aided by higher volumes (+5%
qoq) and stable pricing (-2% qoq), bucking the industry trend of seasonal decline in
realizations (and profitability). In our view, the sustenance of the current pricing
discipline could allow ICEM to overcome rising cost and an overall weak demand
environment. Maintain ADD rating with revised PR of Rs90/share (Rs82 previously).
Operating results meet estimates, reported PAT dented by forex losses
ICEM reported revenues of Rs10.9 bn (29% yoy, 3% qoq), operating profit of Rs2.5 bn (780%
yoy, 4% qoq) and adjusted net income of Rs941 mn (-11% qoq) for 2QFY12, against our
estimates of Rs11 bn, Rs2.4 bn and Rs867 mn, respectively. Marginally lower volumes (2.4 mn
tons against our estimate of 2.5 mn tons) were compensated by better realizations and lower cost
inflation yielding a 4% EBITDA beat. Reported net income of Rs697 mn includes Rs243 mn of
forex translation losses. We discuss key highlights of the result in detail in a subsequent section.
Demand environment looks challenging in the near term, though FY2013E could be a lot better
We do concede that operating environment in South India remains challenging in the near term
given the negative growth and fragmented nature of Southern markets though highlight the
strong pricing discipline was maintained by market participants. We note that the current pricing
discipline has allowed for cement prices to remain upwards of Rs300/bag currently in South India,
despite not being backed by requisite demand growth.
Limited risk to our FY2012E assumptions
We see limited downside risk to our FY2012E assumptions as we factor a relatively conservative
pricing and volume assumptions. We factor a 4% yoy decline in volumes and Rs7/bag sequential
decline in realizations in 2HFY12E. Our full year estimates for FY2012E imply a profitability of
Rs917/ton in 2HFY12E as against Rs1,042/ton in 1HFY12 (see Exhibit 2). We further highlight that
input cost inflation will likely recede as prices of imported coal stabilize though currency
depreciation remains a risk.
Maintain ADD with a revised target price of Rs90/share
We maintain our ADD rating with a revised target price of Rs90/share (previously Rs82/share) as
we adjust for continued price strength in South India. ICEM trades at relatively attractive valuations
of US$91/ton on FY2013E production, US$62/ton on FY2013E capacity (replacement cost of
US$110-120/ton) and 4.7X FY2013E EBITDA. We have revised our FY2012E/13E estimate by
19%/10% adjusting for better realizations.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
India Cements (ICEM)
Cement
Realizations remain firm despite weak demand. India Cement maintained its
profitability at Rs1,038/ton (Rs1,046/ton in 1QFY11), aided by higher volumes (+5%
qoq) and stable pricing (-2% qoq), bucking the industry trend of seasonal decline in
realizations (and profitability). In our view, the sustenance of the current pricing
discipline could allow ICEM to overcome rising cost and an overall weak demand
environment. Maintain ADD rating with revised PR of Rs90/share (Rs82 previously).
Operating results meet estimates, reported PAT dented by forex losses
ICEM reported revenues of Rs10.9 bn (29% yoy, 3% qoq), operating profit of Rs2.5 bn (780%
yoy, 4% qoq) and adjusted net income of Rs941 mn (-11% qoq) for 2QFY12, against our
estimates of Rs11 bn, Rs2.4 bn and Rs867 mn, respectively. Marginally lower volumes (2.4 mn
tons against our estimate of 2.5 mn tons) were compensated by better realizations and lower cost
inflation yielding a 4% EBITDA beat. Reported net income of Rs697 mn includes Rs243 mn of
forex translation losses. We discuss key highlights of the result in detail in a subsequent section.
Demand environment looks challenging in the near term, though FY2013E could be a lot better
We do concede that operating environment in South India remains challenging in the near term
given the negative growth and fragmented nature of Southern markets though highlight the
strong pricing discipline was maintained by market participants. We note that the current pricing
discipline has allowed for cement prices to remain upwards of Rs300/bag currently in South India,
despite not being backed by requisite demand growth.
Limited risk to our FY2012E assumptions
We see limited downside risk to our FY2012E assumptions as we factor a relatively conservative
pricing and volume assumptions. We factor a 4% yoy decline in volumes and Rs7/bag sequential
decline in realizations in 2HFY12E. Our full year estimates for FY2012E imply a profitability of
Rs917/ton in 2HFY12E as against Rs1,042/ton in 1HFY12 (see Exhibit 2). We further highlight that
input cost inflation will likely recede as prices of imported coal stabilize though currency
depreciation remains a risk.
Maintain ADD with a revised target price of Rs90/share
We maintain our ADD rating with a revised target price of Rs90/share (previously Rs82/share) as
we adjust for continued price strength in South India. ICEM trades at relatively attractive valuations
of US$91/ton on FY2013E production, US$62/ton on FY2013E capacity (replacement cost of
US$110-120/ton) and 4.7X FY2013E EBITDA. We have revised our FY2012E/13E estimate by
19%/10% adjusting for better realizations.
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