MOSL: INDIA CEMENTS (Neutral)-Weak volumes remain a key concern; Margins impacted by higher costs
INDIA CEMENTS: Weak volumes remain a key concern; Margins impacted by higher costs
(ICEM IN, Mkt Cap USD0.7b, CMP INR179, TP INR190, 6% Upside, Neutral)
- India Cements (ICEM)’s 1QFY22 EBITDA was 18% below estimate, weighed by higher costs and lower volumes. Utilization stood at just 50% in 1QFY22.
- We revise down our FY22E/FY23E EPS by 7%/7%, factoring in weaker volumes and higher costs. ICEM trades at 10.3x FY23E EV/EBITDA, which is fair, in our view, given its strong presence in South. We maintain Neutral.
EBITDA misses estimates by 18% on lower volumes and higher costs
- Revenue / EBITDA / Adj. PAT was up 35%/4%/121% YoY to INR10.2b/INR1.6b/INR0.4b, but missed our estimate by 10%/18%/29%.
- Volumes grew 36% YoY to 1.95mt, but missed our estimate by 10% on weak demand in South. This was attributable to the more pronounced impact of the second COVID wave in South v/s other regions, partially offset by higher selling in East and Maharashtra.
- Blended realization came in flat at INR5,257/t (-1% YoY, in line with est). On the other hand, cost per ton was up 5% YoY to INR4,424/t (v/s our est. of INR4,331/t) due to higher fuel and freight costs as well as higher sales in the faraway markets of East and Maharashtra.
- Thus, EBITDA/t declined 24% YoY to INR833 (v/s our est. of INR923) and the margin 473bps YoY to 15.8% (v/s our est. of 17.6%).
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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