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MOSL: INDIA CEMENTS (Neutral)-Higher cost leads to miss on margins-But pressure to ease going forward

India Cements: Higher cost leads to miss on margins; But pressure to ease going forward

(ICEM IN, Mkt Cap USD0.3b, CMP INR80, TP INR81, 1% Upside, Neutral)

 

• In-line sales/realizations: ICEM’s volumes grew 9% YoY to 2.96mt (in-line) in 3QFY19. This, however, lagged industry growth, as sales were affected by cyclone in Tamil Nadu. Blended realizations declined 1.3% QoQ (flat YoY) to INR4,450/t (in-line). Net sales, thus, increased 8.5% YoY to INR13.16b.
• Higher cost/t impacts margins: Cost/t increased 4% YoY, led by an increase in power & fuel cost/t. Blended EBITDA/t declined 26% YoY (-9% QoQ) to INR456 (our estimate: INR538). EBITDA was down 19% YoY (-13% QoQ) to INR1.34b (our estimate: INR1.6b). Margins shrank 3.54pp YoY to 10.2% (-0.9pp QoQ). PAT declined 79% YoY to INR31m (our estimate: INR155m).
• Key takeaways from concall: (1) Primary market of Tamil Nadu was affected by the cyclone ‘Gaja,’ which devastated some districts in Nov’18. (2) Prices of fuel have started easing after increasing steeply in 3QFY19, the favourable impact of which will be felt over the coming quarters. (3) ICEM reported a forex gain of INR30m in 3QFY19.
• 9MFY19 performance: Volumes grew 13% YoY, with sales increasing 8% YoY. EBITDA/PAT declined 17%/61% YoY. For 4QFY19, we expect volumes to increase 1% YoY, with sales growth of 2% YoY; EBITDA is expected to increase by 14% YoY and PAT to decline by 5% YoY.