ICICI Direct’s research report on India Cement
India Cement reported a poor set of Q3FY19 numbers with the numbers missing our estimates on all fronts. Growth was mainly driven by sales volumes, which were up 8.5% YoY The company achieved capacity utilisation of ~76%. However, weak pricing in AP & Telangana markets impacted realisations that stayed flat YoY. However, the company expects prices to recover, going forward. Cost pressure also remained higher with total cost rising 2% YoY mainly led by power costs that were up 21% YoY to Rs 1361/tonne. With softening petcoke prices and usage of high cost inventory during the quarter, we expect cost pressure to ease from Q3FY19E onwards Regarding the greenfield plant in Madhya Pradesh (1.5 MT), the management has applied for environment clearance. The company is also adding a grinding unit in UP with total capex outlay of Rs 1,200 crore for both these projects. While debt levels continue to remain high at Rs 3520 crore, we believe this ongoing expansion may increase its debt further by another ~Rs 500 crore.
The company is adding new capacities in MP & UP at a total capex of Rs 1200 crore. With current debt levels of over Rs 3500 crore and low margin profile (12-13%), we expect return ratios to stay subdued till FY20E. Given this backdrop, we downgrade the stock to HOLD rating with a revised target price of Rs 85/share (i.e. at 9.0x FY20E EV/EBITDA, EV/t of $70/tonne).
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First Published on Feb 18, 2019 04:01 pm