MOSL: INDIA CEMENTS (Neutral)-Lower interest cost drives profits

India Cements: Lower interest cost drives profits

(ICEM IN, Mkt Cap USD0.6b, CMP INR130, TP INR145, 11% Upside, Neutral)

• Volumes increase 6% YoY: ICEM's 4QFY18 volumes rose 6% YoY to 3.08mt, lower than our estimate of 3.16mt due to demand weakness in the core market of TN, partially offset by healthy demand in AP and Telangana. Blended realizations increased 2% QoQ to INR4,524/t (est. of INR4,365), resulting in net sales growth of 4% YoY to INR13.9b (est. of INR 13.7b).
• Sequential decline in profitability led by cost push: Cost/t increased 5% QoQ due to higher employee cost on account of ESOPs. Other expenses also increased 48% QoQ, resulting in blended EBITDA/t of INR515 (est. of INR560; -21% YoY; -16%QoQ). Margins stood at 11.3% (-2.8pp YoY, -2.45pp QoQ). Hence, EBITDA declined 17% YoY (-5% QoQ) to INR1.6b (est. of INR1.8b). Interest cost was lower by 12% YoY (-22% QoQ) at INR718m. Tax inflow was at INR110m in 4QFY18 v/s outflow of INR115m in 4QFY17. PAT increased 3% YoY to INR353m v/s our estimate of INR238m.
• Key takeaways from conference call: 1) Other expenses were higher QoQ due to an increase in packaging cost. 2) Employee expenses were higher to the extent of INR90m, of which ~INR48m was toward ESOPs. 3) ICEM's gross debt had increased from INR29.3b in March 2017 to INR33.6b in Dec 2017. ICEM repaid INR2b of debt in 4QFY18, post which the gross debt as of March 2018 stands at INR31.3b