MOSL: INDIA CEMENTS (Neutral)-Margin miss led by higher costs-capacity expansion dependent on sustainability of margins
India Cements: Margin miss led by higher costs; capacity expansion dependent on sustainability of margins
(ICEM IN, Mkt Cap USD0.5b, CMP INR114, TP INR117, 2% Upside, Neutral)
- Healthy volume and realization growth: 4QFY19 volumes grew 8% YoY to 3.33mt (higher than est. of 3.23mt). Blended realizations increased 4% YoY to INR4,697/t due to healthy prices in South India in Feb-Mar 2019. Thus, net sales increased 12% YoY to INR15.6b.
- Higher-than-estimated cost impacts profitability: Blended EBITDA/t increased 13% YoY to INR577, as cost/t stood at INR4,119/t - higher than our est. of INR3,986/t. EBITDA increased 21% YoY to INR1.9b (our est. INR2.1b). Margins expanded 0.95pp YoY to 12.3% (our est. 14.2%), while PAT increased 24% YoY to INR439m (our est. INR608m).
- Key takeaways from concall: (1) Capacity utilization for 4QFY19 was at 84% v/s 76% in 4QFY18 (FY19 at 79%), (2) Demand in South India is majorly led by infrastructure. A major share of the demand for ICEM comes in from the infrastructure sector, thus, receivables for the company have increased, (3) Capacity expansion plans will depend on sustainability of healthy margins, (4) Gross debt for the company in FY18 was INR31.3b, which increased to INR35.4b in Dec'18. Gross debt as of Mar'19 reduced to INR33.6b.
India Cements is engaged in the manufacturing and selling of cement. Co. also is engaged in providing power generation from wind farms. Co. owns two brands of cement in India namely: Sankar cement and Coromandel cement. Through its subsidiaries, Co. is engaged in the investment of equity shares; the transportation of coal and other raw materials; and the provision of logistics support in the form of contract and market truck management and scheduling. Co.'s manufactured products include cement, calcium carbide and textiles. As of Mar 31 2003, production and sale of cement were 4,946,000 tonnes and 4,999,000 tonnes, respectively.
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