MOSL: INDIA CEMENTS (Neutral)-Lower-than-estimated earnings led by higher employee and interest cost

​India Cements: Lower-than-estimated earnings led by higher employee and interest cost

(ICEM IN, Mkt Cap USD0.9b, CMP INR203, TP INR201, 1% Downside, Neutral)

• India Cements (ICEM) posted flat YoY volumes of 2.66mt, as south volumes declined 8% YoY, offset by 15% YoY increase in non-south volumes and growth in export markets. Blended cement realizations increased 5% QoQ due to price improvement in the focus markets. Revenues declined 4% QoQ to INR12.89b (YoY financials are not comparable as 1QFY17 does not include Trinetra merger impact).
  
• EBITDA declined 2% QoQ to INR1.85b. Margins at 14.4% expanded ~0.3pp QoQ (v/s est. of +1pp). Hence, cement EBITDA/ton declined INR45 QoQ to INR700 due to cost push - employee cost increased to INR1,147m, partly on account of ESOP-related cost and wage revision. Interest cost increased 7% QoQ to INR874m as debt rose by INR2.5b due to an increase in working capital requirement. Tax rate increased to 34%, resulting in PAT of INR264m (-23% QoQ).
  
• Key takeaways from conference call: 1) Petcoke usage of 83% at kilns, and imported coal being used at captive power plant. 2) Net plant realization increased 7% YoY on like-to-like basis. 3) Volume in south market declined 7-8% YoY in 1QFY18 due to sand mining ban in Tamil Nadu. 4) Estimated capex for FY18 is INR1.5-2b.