Sell The India Cements Ltd between CMP & Rs.84 ::HDFC Securities

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

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India Cements :: Angel Broking Diwali Top Picks (Diwali Muharat)

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India Cements: Buy :: Business Line

India Cements Performance Highlights -Angel Broking

India Cements (ICEM) posted a 61.3% yoy decline in bottom-line to `26cr on
account of flat realization on a yoy basis and steep increase in freight costs.
Although net realization was flat yoy, the company’s net plant realization was
down by 6.2% yoy at `3,250/tonne. The company’s net realization declined
2.8% on a sequential basis due to the steep price correction in Andhra Pradesh
during the quarter. Operating profit is down by 15.6% on a yoy basis. Volume
growth was moderate at 6.7% yoy.
OPM down 412bp yoy: ICEM posted a 8.1% yoy growth in top-line to `1,199cr,
which was in-line with our estimates. The top-line growth was aided by a 6.7%
increase in sales volume during the quarter. The company’s OPM fell by 310bp
yoy to 14.7% on account of steep increase in freight costs. The company’s freight
cost/tonne rose by 21.5% yoy to `990. Despite the fall in imported coal prices,
P&F costs remained flat on a yoy basis due to higher prices charged by Singareni
collieries and purchase of high cost power for Andhra Pradesh plants.
Outlook and valuation: We expect ICEM’s return ratios to remain subdued due to
substantial investments in subsidiaries. At the current market price, though the stock
is trading at a low valuation of EV/tonne of US$64 on FY2015E capacity, we
believe the same is justified considering the company's unfavorable locational
presence. Hence, we maintain our Neutral recommendation on the stock.

India Cement: Buy Target : INR 110 :FinQuest

Poor realization and high freight expenses impacts profitability
Margins are expected to remain under pressure in FY13 and FY14 as operating
cost increases and as realization falls… But growth in volumes for the
company is expected to help going ahead
Maintain our 'Buy' rating on the stock with price target of Rs 110 as the company is
the cheapest among the frontlines in terms of asset based valuation
South India's largest cement producer India Cement posted disappointing set of numbers during
Q4FY13. Poor cement realizations during the quarter and significant rise in variable costs
resulted in the net profit missing ours as well as consensus estimates by a huge margin. The
revenue rose 7.2% Y-o-Y (10.6% Q-o-Q) to Rs 11.99 bn, while the net profit fell 59.5% Y-o-Y
(0.6% higher Q-o-Q) to Rs 263 mn.
Volumes posts decent growth while realizations remained under pressure-
The company's cement dispatches rose 7.3% Y-o-Y to 2.78 mn tonnes, while the realization
remained under significant pressure. Cement prices in company's major market of Andhra
Pradesh remained under severe pressure during the quarter, while other regions like Tamil
Nadu and Karnataka also witnessed significant price pressure. The company's gross realization
fell 1% Y-o-Y (3.5% Q-o-Q) to Rs 4213 per tonne, while the net realization (after freight expenses)
fell 6.4% Y-o-Y (5% Q-o-Q) to 3225 per tonnes.
Revenue from Shipping and IPL post impressive growth -
The shipping revenue rose 62% Y-o-Y (24% Q-o-Q) to Rs 184 mn, while the IPL revenue rose
50% Y-o-Y to Rs 3 mn. The revenue from the Windmill division stood at Rs 7 mn in Q4FY13.
Continued power holiday in Andhra Pradesh increases the power & fuel expenses-
The company witnessed severe power shortage in Andhra Pradesh, while it was not allowed to
wheel the power it generated in Tamil Nadu for the Andhra Pradesh plant, as per the Tamil
Nadu Pollution control board clearance. In Andhra Pradesh the company faces 12 days power
holiday in a month and in the remaining days four hours power cut. This caused the power
plant in Tamil Nadu to operate at lower capacity utilization, while it had to resort to costlier
grid power for its Andhra Pradesh plant. So the power cost remained elevated. Although the
company has taken various measures to improve the situation by setting up additional captive
power units, the actual fructification would take some time.
Higher freight costs impacts the margins
Recent increase in diesel prices and rail wagon rates caused the company's freight cost to
increase substantially thus impacting the margins significantly. The freight expenses as % of
sales rose nearly 400 bps Y-o-Y (100 bps Q-o-Q) to 22.9%. The EBIDTA margin thus fell 480
bps Y-o-Y (320 bps Q-o-Q) to 14.7% in Q4FY13. The absolute EBIDTA came in at Rs 1.76 bn
(19% lower Y-o-Y, 9.2% lower Q-o-Q).

Higher energy costs lead to lower op. margins India Cements :: Centrum

Higher energy costs lead to lower op. margins
India Cements’ Q2FY13 result was below estimates with EBITDA at Rs2.1bn (vs. est.
Rs2.2bn) and op. margin at 18.3% (vs. est. 20.1%). Lower EBITDA was primarily
due to higher energy cost as the Andhra Pradesh grid declared a power holiday for
12days/month. High power cost due to power cut led to ~Rs160/tonne YoY (and
Rs65/tonne QoQ) increase in energy cost. Lower EBITDA and higher interest cost
(9.9% QoQ increase) led to adj. profit of Rs420mn (vs. est. Rs621mn). The
management expects the power cut from Andhra Pradesh grid to continue in
2HFY13E which will result in higher energy cost. Considering this, we have revised
our EPS downwards by 10.8% to Rs9.1 for FY13E. Going forward with the
commissioning of the power plant in Andhra Pradesh and stabilization of Tamil
Nadu plant the company will get some respite from higher energy costs in FY14E.
Going forward, we expect EPS to grow at a CAGR of 19.2% between FY12-FY15E.
RoE of the company is expected to improve to 10.1% by FY15E against 6.9% in
FY12 (RoE was 1.9% in FY11). We maintain Buy on the stock with a target price of
Rs122, upside of 25% from CMP.
Higher realization and sales volume lead to higher revenues: Revenue of the
company increased 3.1% YoY to Rs11.2bn (est. Rs10.9bn) driven by a) 4.4% YoY
increase in cement realization to Rs4,408/tonne (est. Rs4,377/tonne) and b) 2.3%
YoY increase in cement sales volume to 2.48mt (est. 2.38mt). Revenue from IPL was
at Rs52mn against Rs515mn in Q2FY12 as last year the company received IPL
revenues in two tranches.
Higher costs lead to decline in op. profit and margin: Operating cost for the
Cement division increased 7.5% YoY to Rs3,588/tonne due to an increase in energy
and freight costs. Energy cost increased Rs205/tonne YoY (and Rs113/tonne QoQ)
led by a) increase in power cost in Tamil Nadu and Andhra Pradesh SEBs, b)12
day/month power cut by Andhra Pradesh grid and c) increase in domestic coal
price. Freight cost increased 14% YoY to Rs901/tonne led by increase in diesel price
and railway freight rates. EBITDA loss from IPL was at Rs55mn against profit of
Rs328mn in Q2FY12. EBITDA declined 18.6% YoY to Rs2.1mn and EBITDA margin
declined 4.9pp YoY to 18.3%.
Lower EBITDA and increase in interest and depreciation costs lead to lower
adjusted profit: Interest cost (adjusted for foreign exchange items) of the
company increased 17.9% YoY (and 9.9% QoQ) to Rs769mn due to a rise in loans as
the company acquired a ship during the quarter. Depreciation was up 11.6% YoY
to Rs699mn. Decline in EBITDA coupled with higher depreciation and interest cost
led to 51.2% YoY decline in adj. profit to Rs420mn. Foreign exchange gain was at
Rs101.7mn against loss of Rs243.5mn in Q2FY12 (and Rs250.2mn in Q1FY13).

India Cements :Higher realization leads to improved performance :Centrum

Higher realization leads to improved performance
India Cements’ Q1FY13 result was above our estimates with revenues at
Rs12bn (est. Rs11.2bn), EBITDA at Rs2.8bn (est. Rs2.3bn) and op. margin at
23.1% (est. 20.7%). The reason for better performance was primarily higher
cement realization (Rs4,439/tonne vs. est. Rs4,386/tonne) and higher income
from IPL (Rs1,220mn vs. est. Rs900mn). Adjusted profit of the company was at
Rs936mn (est. Rs858mn). Higher-than-expected increase in realization led to
EBITDA/tonne of Rs1,029 against our estimate of Rs959/tonne. Though,
utilization rate in the South region continues to remain sluggish,
manufacturers have been able to pass on cost hikes to consumers and
improve their op. margins. Price in the South region has increased by Rs10-
20/bag in last one month and the current price is ~1% higher than the
average price in Q1FY13. We believe that higher realization in the region
would result in improved profitability for manufacturers and expect EPS of
India Cements to increase by 36.5%/13.3% to Rs12.2/Rs13.8 in FY13E/FY14E.
RoE of the company is expected to improve to 10.9% in FY15E against 6.9% in
FY12 (RoE was 1.9% in FY11). We maintain Buy on the stock with a target
price of Rs118 (upside of 39% from CMP).
Higher realization and sales volume lead to improved performance and
help beat estimates: Revenue of the company increased 13.7% YoY to
Rs12bn (est. Rs11.2bn) driven by a) 7.7% YoY increase in cement realization to
Rs4,466/tonne (est. Rs4,386/tonne) and b) 2.9% YoY increase in cement sales
volume to 2.38mt. Improvement in realization and sales volume led to 14.9%
YoY growth in EBITDA to Rs2.8bn (est. Rs2.3bn) and EBITDA margin improved
25bps YoY to 23.1% (est. 20.7%). EBITDA/tonne of cement increased 4.6% YoY
(and 25.3% QoQ) to Rs1,029/tonne.
However, higher interest cost and tax rate led to decline in profits:
Interest cost of the company increased 20% YoY to Rs699mn (adjusted for
Rs250.2mn related to losses on foreign exchange translations). Tax rate during
the quarter was at 24.8% against 16.4% in Q1FY12. Higher interest cost and
tax rate led to 10.4% decline in adjusted profit to Rs936mn.
Increase in operating costs offset by steep increase in realization:
Operating cost for the Cement division increased 8.6% YoY to Rs3,437/tonne
due to an increase in power & fuel cost, freight cost and employee expenses.
Employee expense increased by 20.2% YoY to Rs331/tonne, freight cost by
20.2% YoY to Rs937/tonne due to increase in railway freight charges and
diesel price. Power & fuel cost increased 17.2% YoY to Rs1,210/tonne due to a)
increase in electricity charges by Tamilnadu and Andhra Pradesh SEBs and b)
increase in domestic coal price.

Stock strategy: Consider short straddle on Suzlon, short India Cements :: Business Line

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Suzlon Energy: The long-term outlook remains negative for Suzlon Energy. However, in the short-term, the stock could move in a narrow range. It finds immediate resistance at Rs 22.5 and the next one at Rs 27. It finds crucial support at Rs 18.5 and a close below that could weaken the stock sharply. In that event, it could even go to Rs 12-13 levels breaching its all-time low of Rs 17.2.

F&O pointers: Despite smart gains on Friday, the Suzlon May futures saw heavy unwinding of open interest. Option trading indicates a neutral view as both puts and calls shed open interest positions.

Strategy: Traders can consider short straddle on Suzlon futures. Short straddle strategy is best suited when one expects the underlying stock to move in a narrow range. Maximum profit in this strategy is the premium collected, while the loss could be unlimited. Besides, writing option involves higher margin commitments. This strategy is suggested only for traders who can withstand wild swings.

This can be initiated by selling 20-strike call and put on Suzlon. They closed on Friday at Rs 1.1 and Re 1 respectively. Maximum profit occurs (about Rs 16,000) if Suzlon closes at Rs 20 at the time of settlement. Loss will start to escalate if Suzlon closes above Rs 22 or below Rs 18. Market lot is 8,000 units a contract. Hold the position till expiry.

India Cements: The outlook remains weak for India Cements. The stock finds support at Rs 67 and resistance at Rs 77. A close below the support has the potential to trigger a big sell-off. In that event, the fall could be steep and swift. India Cements finds next support at Rs 40. Only a close above Rs 135 will change the outlook to positive for the stock.

F&O pointers: The stock accumulated fresh short positions on Friday. Options are not active.

Strategy: Traders can consider going short on India Cements with a stop-loss at Rs 77 for an initial target of Rs 64. Market lot is 2,000 units.

Follow-up: Last week, we had advised short strangle on Reliance Industries using 680 put and 720 call. The position is marginally in-the-money. Traders can consider holding it for one more week.

We had also advised shorting Bata India with a stop-loss at Rs 863. Though the stock moved on expected lines initially, it recovered sharply to hit the stop-loss.

Angel Broking - India Cements - RU4QFY2012 - Result Updates - PDF link

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India Cements - RU4QFY2012

India Cements Limited Q4FY12 Result updates BY GEPL CAPITAL Pdf Link

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India Cements Limited view report

India Cements Ltd. - GEPL PDF link

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India Cements Ltd. 

•  Net sales for Q4FY12 grew by 11.8% on Y-o-Y basis to Rs 11,185 mn. This was mainly driven by higher realisation. However, owing to sluggish demend in Andhra Pradesh volumes remained flat at 2.53 mn MT in Q4FY12.
• EBIDTA margins for Q4FY12 stood at 19.5%, showing an increase of 136 bps on Y-o-Y basis, however, margins declined by 141bps Q-o-Q.
• At the same time EBIDTA grew by 20.3% Y-o-Y to Rs 2,176 mn.
•  Net profit for Q4FY12 increased by 17.6% on Y-o-Y basis to Rs 650 mn.

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India Cements -Cheap but for a reason ::Macquarie Research

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India Cements
Cheap but for a reason
Event
 Downgrading to Neutral: Taking stock post the recent excise duty hike and
building in higher cement prices and costs, we believe that ICEM now looks
fairly valued. We have adjusted our earnings and TP marginally (by less than
5%). Our new TP is Rs112 (previous Rs109) as we roll forward. We expect
penalties by the Competition Commission of India (CCI) and cement price
decline during the monsoon season to be key negative triggers ahead.
Downgrade to Neutral.
Impact
 Valuations – building in perpetual margin expansion by 5%+: Our DCF
analysis shows that at a 9% volume growth assumption, ICEM’s current stock
price is factoring in EBITDA/t improvement of around 5%+ pa. We think this is
a very aggressive assumption given the oversupply in the market.
 Our assumptions remain optimistic: We are building in 10% YoY volume
growth for CY12 as well as flat EBITDA per ton of Rs953. This is based on the
assumption that the current pricing discipline in the industry will continue.
 Consensus is not building in cost savings: Consensus forecasts are 2%
and 12% below our estimates for FY13 and FY14, respectively. Consensus
has yet to recognize the 9% reduction in taxes for import of coal. Also,
consensus is probably not building in any benefit of the upcoming ramp-up of
captive power plants and development of its coal mine in Indonesia.
 Penalty by Competition Commission could take away 80% of net profit:
We believe that CCI is in the last stages of completing its enquiry against the
cement companies and will probably announce penalties in the next month or
so. Based on recent trends, we think it is likely to be 6-7% of total revenue, or
around 80% of net profit.
Earnings and target price revision
 We have increased earnings for FY13 by 5% and fine-tuned FY14.
Price catalyst
 12-month price target: Rs112.00 based on a DCF methodology.
 Catalyst: Penalty by CCI possibly in April and cement price declines by June.
Action and recommendation
 Downgrading to Neutral: While India Cement doesn’t look expensive vs
historical EV/EBITDA, this is no bull market either. Given the risk factors
related to the cartel’s continued existence, prolonged periods of oversupply,
and impending penalties, we advise booking some profit after the 50-60%
rally from the Jan1, 2012 bottom. We believe that the stock has reached its
fair value and would be more comfortable when fundamentals recover.

India Cements: Reasonable valuation, favorable cost :: Kotak Securities PDF link

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http://www.kotaksecurities.com/pdf/indiadaily/indiadaily29032012.pdf



India Cements: Reasonable valuation, favorable cost structure
` Prices spike in South India yet again in peak construction season
` ICEM better-positioned to counter the recent cost push due to lower
domestic fuel dependence
` Valuations at steep discount to peers, earnings upgrade cycle still has some
steam left

India Cements Hold Namaste India conference highlights :Deutsche Bank

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We hosted India Cements, the largest player in South Indian cement industry,
at our DB Access India conference. The key takeaways from the
meeting are
* South Indian demand, after seven consecutive quarters of negative
growth, has started to recover from 3QFY12 with a 11.5% growth. It has
continued into the fourth quarter primarily on the back of a pick-up in Government
projects in Tamil Nadu, improved real estate demand in Karnataka
and the rural demand in Andhra Pradesh.
* With only Jaypee's capacity pending commissioning, the demand recovery
in South should help capacity utilizations to improve strongly from the
60% utilization in the region. In this environment, the company expects the
prices to hold on, if not improve.
* Cost pressures in the form of higher power costs and railway freight rate
hike may have to be passed on as return ratios at current operating levels
are not remunerative.
* Next round of capacity additions too could take longer as the time for land
acquisition, forest clearances have extended. The capital cost (excluding
land and captive power) has also moved up to US$100-120.
* With regards to the company, the company is likely to focus on improving
the utilizations at their existing units and look at expansions in Himachal,
Madhya Pradesh only over the medium term. The company envisages becoming
a 20 mn tonne player (from 15.5 mn tones) over the next 3-4 years.
* Its current gross debt at INR 29 bn (the 0.75x debt to equity). Pending
capex of INR 5 bn over the next two years is largely towards the 50 MW
captive power plant in Andhra Pradesh, the coal mine in Indonesia and the
normal maintenance.
Given the improving industry utilizations, we continue to remain positive on
the Sector. At the current valuations, maintain Hold on India Cements. In
our coverage universe, we continue to maintain our overweights on ACC
(Buy) and Grasim (Buy).

Goldman Sachs: India Cements -Above expectations: In line EBITDA, deferred tax credit drives beat

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EARNINGS REVIEW
India Cements (ICMN.BO)
Neutral Equity Research
Above expectations: In line EBITDA, deferred tax credit drives beat
What surprised us
India Cements reported 3QFY12 net income of Rs563 mn (-162% yoy, -19%
qoq), 51% above GS and 39% above consensus estimates including (1) a
Rs128mn gain as the company stopped charging MTM translation loss on
FX borrowings; (2) a deferred tax credit of Rs43mn resulting from the
redemption of the $75mn FCCBs on its books. Operating results were in
line: Sales volume at 2,185 kt was largely in line while realizations were
strong at Rs4,309/ton (+17% yoy, -4% qoq), driven mainly by a pick-up in
cement demand in South India (key market for the company) which grew
3% yoy. The company reported utilization of 66% during 9MFY12 vs.
industry average of 60% in South India (and 72% for all India). 3QFY12
EBITDA came in at Rs1,970 mn, (+53% yoy, -23% qoq) 4% below our
estimates. EBITDA/ton came in at Rs902 (vs GSe Rs1,000) as margins were
impacted by higher energy and power costs. The bottom line beat was
mainly driven by lower interest expense (including the FX MTM
adjustment) and lower-than-expected taxes (effective tax rate of 9.2% vs
GSe of 30%). The company expects the demand environment to pick-up on
an improving macro. The captive power plant in Tamil Nadu has been
commissioned and trial runs are being undertaken. The company expects
to commence mining operations in Indonesia in this quarter.
What to do with the stock
We revise our FY12-14 EPS estimates by 23% to 5% to factor in revised
volumes cost and tax rate assumptions. We retain our Neutral rating and
raise our 12-m EV/RC based TP to Rs91 from Rs84 on higher earnings
momentum. Key risks: Upside: Sustained strength in pricing; Downside:
Higher coal costs and lower-than-expected volumes.

Technicals: Dena Bank, Bank of India, India Cements, Oil India, Nucleus Software, LKP, Zandu Realty ::Business Line,

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Kindly advise on the future prospects of Dena Bank bought at Rs 78 and Bank of India at Rs 475. Please give short- and medium-term targets.

V. Karthik,

J.H. Krishnamurthy

Dena Bank (Rs 94.2): The stock found support at around Rs 48 in early January 2012 and started to move upwards. Since then, Dena Bank stock has been on a medium-term uptrend. The stock has almost doubled from its January low. After retracing 50 per cent of its prior downtrend from November 2010 peak of Rs 151 to January low at around Rs 48, the stock is now facing resistance at Rs 100. This is a long-term significant resistance level for the stock and, therefore, it would be little difficult to breach it in the first attempt. Failure to move above Rs 100 will be cue for short-term investors to take partial profits off the table.

Those with a medium-term perspective can prolong their holdings with stop-loss at Rs 70. Key support at Rs 85, Rs 80 and Rs 72 can cushion the stock on declines. Strong breakthrough of Rs 100 will give a medium-term price target of Rs 110 and Rs 122.

India Cements :Operating results in-line, lower tax rate boosts PAT: Centrum

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Operating results in-line, lower tax rate boosts PAT
India Cements’ Q3FY12 results were in-line with our estimates on operational
parameters with Revenues at Rs9.4bn, 1.1% below our estimates of Rs9.5bn
and EBITDA at Rs1.9bn, 2.8% below our estimates of Rs2bn. The company
reported EBITDA margin of 20.7% against our estimates of 21%. However,
lower tax rate of 9.2% vs. est. 33.3% resulted in higher-than-estimated profits
of Rs563mn (est. Rs495mn). Though the despatches growth improved in Q3
in the South region (In Q3 demand grew 3.3% YoY against decline of 4.3%
reported in 9MFY12), the management believes that demand was primarily
on the back of low base effect of last year and demand by private sector
housing. Demand from infrastructure sector and government related projects
have not yet improved, as per the management, but it believes that demand
will be robust for next 4-5 months as busy construction period sets in. The
management remains confident of passing on any cost push to the
consumers. EBITDA margin of the company is expected to be in the range of
21-23% over the next two years against 12.1% in FY11. We roll forward our
valuation to FY14 and maintain Buy rating on the stock with revised price
target of 118 (earlier: Rs101), an upside of 25% from CMP.
􀂁 Higher realization and sales volume leads to improved performance:
Revenue of the company increased 20.6% YoY to Rs9.4bn driven by a) 15.8%
YoY increase in cement realization to Rs4,245/tonne and b) 7.1% YoY increase
in cement sales volume to 2.19mt. Improvement in realization and sales
volume led to 54.1% YoY growth in EBITDA and 2.6x increase in PAT to
Rs563mn.
􀂁 Increase in operating costs offset by steep increase in realization:
Operating cost for the Cement division increased 9.2% YoY to Rs3,380/tonne
due to increase in energy costs, freight cost and raw material costs. Raw
material cost increased 12% YoY to Rs584/tonne due to increase in fly ash and
gypsum price. Freight cost increased 4.9% YoY to Rs783/tonne due to increase
in railway freight charges and diesel price. Energy cost increased 7.2% YoY to
Rs1,221/tonne due to a) increase in Electricity charges by Tamilnadu and
Andhra Pradesh SEBs, b) increase in domestic coal price and c) higher usage of
imported coal in the quarter. Despite higher operating costs, EBITDA margin
improved 4.5pp YoY to 20.7% primarily driven by steep 15.8% increase in
cement realization/tonne. EBITDA/tonne of cement increased 43.8% YoY to
Rs890.

India Cements :Operating results in-line, lower tax rate boosts Centrum,

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Operating results in-line, lower tax rate boosts PAT
India Cements’ Q3FY12 results were in-line with our estimates on operational
parameters with Revenues at Rs9.4bn, 1.1% below our estimates of Rs9.5bn
and EBITDA at Rs1.9bn, 2.8% below our estimates of Rs2bn. The company
reported EBITDA margin of 20.7% against our estimates of 21%. However,
lower tax rate of 9.2% vs. est. 33.3% resulted in higher-than-estimated profits
of Rs563mn (est. Rs495mn). Though the despatches growth improved in Q3
in the South region (In Q3 demand grew 3.3% YoY against decline of 4.3%
reported in 9MFY12), the management believes that demand was primarily
on the back of low base effect of last year and demand by private sector
housing. Demand from infrastructure sector and government related projects
have not yet improved, as per the management, but it believes that demand
will be robust for next 4-5 months as busy construction period sets in. The
management remains confident of passing on any cost push to the
consumers. EBITDA margin of the company is expected to be in the range of
21-23% over the next two years against 12.1% in FY11. We roll forward our
valuation to FY14 and maintain Buy rating on the stock with revised price
target of 118 (earlier: Rs101), an upside of 25% from CMP.
􀂁 Higher realization and sales volume leads to improved performance:
Revenue of the company increased 20.6% YoY to Rs9.4bn driven by a) 15.8%
YoY increase in cement realization to Rs4,245/tonne and b) 7.1% YoY increase
in cement sales volume to 2.19mt. Improvement in realization and sales
volume led to 54.1% YoY growth in EBITDA and 2.6x increase in PAT to
Rs563mn.
􀂁 Increase in operating costs offset by steep increase in realization:
Operating cost for the Cement division increased 9.2% YoY to Rs3,380/tonne
due to increase in energy costs, freight cost and raw material costs. Raw
material cost increased 12% YoY to Rs584/tonne due to increase in fly ash and
gypsum price. Freight cost increased 4.9% YoY to Rs783/tonne due to increase
in railway freight charges and diesel price. Energy cost increased 7.2% YoY to
Rs1,221/tonne due to a) increase in Electricity charges by Tamilnadu and
Andhra Pradesh SEBs, b) increase in domestic coal price and c) higher usage of
imported coal in the quarter. Despite higher operating costs, EBITDA margin
improved 4.5pp YoY to 20.7% primarily driven by steep 15.8% increase in
cement realization/tonne. EBITDA/tonne of cement increased 43.8% YoY to
Rs890.

India Cements: Higher realization drives profitability in 3Q :Nomura research,

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India Cements 3QFY12 cement net sales were in-line with our estimates
though profitability turned out better than our expectation on higher
realisations.
As far as the cement business is concerned, the stock is currently
trading at 5.5x FY12F EV/EBITDA or at 0.7x EV/IC, which is our
favoured methodology to value India Cements vs. our target EV/IC
multiple of 0.58x. In terms of EV/ton, the stock is at USD75, a discount of
38% to the replacement cost of USD120/ton. This may look cheap but
given the below cost of capital return expected to be generated by the
company of 9.5% between FY12F-FY14F, we do not find this attractive.
Highlights from conference call
 The company expects the volume recovery witnessed in South India in
Nov and Dec’11 to continue and sees double-digit volume growth
continuing for the next 4-6 months
 As per management, the unorganised housing sector is a key driver
for this recovery though to us this recovery appears to be too sudden
and sharp to be driven by the unorganized housing sector. In our view,
government decision making may have improved in South India
following some political stability enabling cement demand from
government-driven activities to pick up, too.
 The company will likely beat our volume estimate of 9.2mnT for FY12F
but may miss our realization estimate.
 The company will not be able to mine coal from its captive mine in
Indonesia in 4QFY12 due to delays in infrastructure build-out. The
Sankarnagar captive power plant of 50MW is undergoing trial runs
and, in our view, will not be able to contribute to cost curtailment in
FY12. This presents a risk to our earnings estimates for FY12 where
we had anticipated a decline in the key power and fuel costs.
Key highlights
 Volumes were up 4% YoY vs. our estimate of 10.5% growth due to
lower-than-expected growth in Dec’11.
 Net realizations at INR4,249/ton were up 18% YoY and down
INR42/ton QoQ, much better than our expectation of INR3,991/ton.
 Income from IPL of INR40mn, ship freight of INR100mn and windmill
power of INR8.7mn for a total of INR149mn was well below our
estimate of INR527mn primarily on account of very low IPL income.
 Profitability in the cement business was well above our estimates at
INR862/ton vs. our estimate of INR675/ton, driven by the higher
realization. Absolute EBITDA though missed our estimate by 3% on
lower contribution of the other businesses where combined EBITDA
was INR65mn vs. our estimate of INR411mn. EBITDA on the cement
business beat our estimate by 17%