MOSL: INDIA CEMENTS (Neutral)-Margin miss led by lower-than-estimated realizations
India Cements: Margin miss led by lower-than-estimated realizations
(ICEM IN, Mkt Cap USD0.5b, CMP INR108, TP INR120, 11% Upside, Neutral)
- Volumes driven by strong south demand: ICEM’s 1QFY19 volumes grew 16% YoY to 3.08mt (our estimate: 3.05mt), led by healthy demand growth (+20% YoY) in the south market. Blended realizations declined 2.2% QoQ to INR4,425/t (est. of INR4,564). Consequently, net sales of INR13.6b (+5% YoY) came in below our estimate of INR13.9b.
- Profitability hurt by lower realization: Cost/t declined 3% QoQ due to a sharp decline in other expenses (-30% YoY/-27% QoQ), partially offset by a 15% QoQ increase in power & fuel cost/t. Lower other expenses can be attributed to fixed cost reduction and reduced selling & distribution costs. Blended EBITDA declined 16% YoY (-2% QoQ) to INR1.56b (our estimate: INR1.7b); EBITDA/t declined 27% YoY (-1% QoQ) to INR508 (our estimate: INR558) due to lower realizations. Margin shrank 2.9pp YoY to 11.5% (flat QoQ). Interest cost was lower by 16% YoY (+2% QoQ) at INR733m due to debt repayment. Tax rate stood at 21% v/s 35% in 1QFY18. Hence, PAT declined 21% YoY to INR210m versus our estimate of INR248m.
- Key takeaways from conference call: (1) Power & fuel cost/t increased due to partial shutdown of one of the CPPs. (2) PPC is 60% of overall sales. (3) Working capital increased QoQ. (4) Gross debt at INR32.9b in 1QFY19.
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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