EUR 4.36 For Business Accounts Only

Intermarket Pulse: FCCL: Expensive on valuations; Sell maintained

• We revise up our Jun’18 TP of FCCL from PRs23/sh to PRs25/sh on the back of slight improvement in retention prices for 4QFY18F, and model updates post 1H results. Since the stock has rallied 28% from our last report, we maintain our Sell stance on the stock. Our FY18F EPS is up 2% as cement prices have increased PRs30/bag cumulatively in Mar’18 which had been partially incorpororated.
• Valuations are stretched as they ignore the expected earnings decline in FY20F owing to capacity share decline. The stock’s EV/ton also suggests overvaluation – US$108/ton vs US$87/ton for our Cement universe. Valuations on P/E basis are distorted as industry is undergoing major expansions (excess depreciation).D/Y is relatively high but will lose charm in rising interest rates scenario.
• Although the company has announced plans for a Greenfield expansion, we await granular details on these plan, before assessing how value accretive it will be for the company. Recall, FCCL’s board has approved to begin with the pre-expansion formalities for a Greenfield project.