MOSL: INDIA CEMENTS (Neutral)-Strong margin delivery with healthy realizations
INDIA CEMENTS: Strong margin delivery with healthy realizations
(ICEM IN, Mkt Cap USD0.4b, CMP INR87, TP INR90, 4% Upside, Neutral)
- Volumes decline, but robust prices drive realizations…: Volumes declined 1% YoY to 3.0mt in 1QFY20. Blended realizations were up 9% YoY to INR4,828/t due to healthy prices in the focus markets. Thus, net sales were up 8% YoY to INR14.7b (our estimate: INR14.3b).
- …and in turn strong profitability: Blended EBITDA/t was up 57% YoY to INR795, as higher cost/t (+3% YoY) was offset by healthy realizations. EBITDA was up 55% YoY to INR2.4b (our estimate: INR1.9b). Margins expanded 5pp YoY to 16.5%, while PAT rose 3x YoY to INR722m (our estimate: INR396m).
- Key concall takeaways: (1) Cement demand in south is estimated to have grown 3% YoY in 1QFY20. (2) Demand trended lower post elections in Andhra Pradesh due to cancellation of various projects. Demand outlook in Telangana appears positive. (3) Demand in east should pick up post monsoon. (4) ICEM incurred capex of INR800m in 1QFY20. (4) Net debt stood at INR34.7b as of Jun'19. Debt increased marginally by INR1.1b in 1QFY20. (5) Trade constitutes 65% of ICEM's sales mix.
- Maintain Neutral: With 15.5mt capacity, ICEM has a good brand recall, market share and offers a healthy play on a price recovery in south India. However, high investments in the non-cement businesses, elevated debt levels and subdued return ratios have kept valuation at a discount. We largely maintain our estimates and value ICEM at 6x FY21E EV/EBITDA to arrive at a target price of INR90. Maintain Neutral.
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.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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