27 January 2021
3QFY21 Results Update | Sector: Cement
India Cements
Neutral
Estimate change
TP change
Rating change
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
CMP: INR166
TP: INR160 (-4%)
South India demand remains weak
ICEM IN
308
51.5 / 0.7
186 / 70
14/18/76
454
Weaker geographical mix to dent margins
Financial Snapshot (INR b)
Y/E MARCH
2021E 2022E 2023E
Sales
42.7
50.0
55.6
EBITDA
7.9
7.3
8.2
Adj. PAT
1.9
1.6
2.2
EBITDA Margin (%) 18.6
14.7
14.8
Adj. EPS (INR)
6.1
5.1
7.2
EPS Gr. (%)
785.5
-15.7
39.7
BV/Sh. (INR)
180.1 184.2 189.3
Ratios
Net D:E
0.6
0.5
0.5
RoE (%)
3.4
2.8
3.8
RoCE (%)
4.3
3.9
4.6
Payout (%)
11.9
19.6
28.1
Valuations
P/E (x)
27.3
32.4
23.2
P/BV (x)
0.9
0.9
0.9
EV/EBITDA(x)
10.6
11.3
9.8
EV/ton (USD)
70
69
68
Div. Yield (%)
0.4
0.6
1.2
India Cements (ICEM)’s 3QFY21 EBITDA was 10% below estimate, weighed
by a weaker sales mix. This is attributable to higher selling in non-trade and
faraway markets in the East and Central regions of India to offset weak
demand in its core market in South.
We reduce our FY21/FY22E EPS by 14%/7% as the company has guided for
the continuation of this strategy to support utilization – which would lower
average realization and increase freight cost. Maintain
Neutral.
Revenue/EBITDA at INR11.6b/INR2.2b was -3%/+67% YoY – 2%/10% below
our estimate. PAT was INR620m (est.: INR738m) v/s loss of INR68m in
3QFY20.
The miss in estimates was due to weak demand in its core market of South,
which led to the company selling more in the lower realization market of
East. Also, the share of trade sales fell to 51% (v/s 56% earlier). As a result,
while it could curtail volume decline to 11% YoY (2.38mt), realization
dropped 4% QoQ – leading to a 19% QoQ drop in EBITDA/t to INR905 (+88%
YoY).
Unitary cost was flat QoQ/YoY at INR3,976/t as an increase of 14%/8% QoQ
in power and fuel / freight cost was offset by better fixed cost absorption
and 19% QoQ decline in raw material cost.
9MFY21 rev / EBITDA / adj. PAT stood at INR29.9b/INR6.1b/INR1.5b, with
YoY change of -24%/+17%/+119%. Volumes were down 29% YoY to 5.91mt,
while EBITDA/t was up 66% YoY to INR1,024/t.
Capacity utilization has been low at 50% in 9MFY21, but improved
significantly from 35% in 1QFY21. South saw stable pricing last quarter and is
expected to remain stable in the near term.
Fixed cost is guided to sustain at INR1.5b/qtr, against INR1.95b/qtr in FY20,
due to cost reduction measures taken during the pandemic.
The company’s low-cost petcoke inventory would last up to Feb’21; thus, the
full impact of higher petcoke prices would be visible only in 1QFY22.
Gross debt stands at INR32.0b, down from INR35.0b in Mar’20. Cost of debt
stands at 8.39% p.a. v/s 9.18% p.a. in FY20.
Capex was INR0.7b in 9MFY21 and INR1.50b is guided for FY22. It is still
focused on deleveraging and improving utilization at existing capacities. The
planned expansion at Satna in Central would, thus, take time.
We expect ICEM’s market share loss in South to continue as key competitor
Ramco’s new capacities would get commissioned in three months.
We expect ICEM’s net debt to stay elevated at INR31b in FY22, implying net
debt/EBITDA of 4.3x – which remains a concern on the stock.
ICEM trades at 11.3x FY22E EV/EBITDA and USD69/t of EV/capacity. We
value it at 10x Sep’22 EV/EBITDA to arrive at TP of INR160. Maintain
Neutral.
1
3Q EBITDA up 67% YoY, but below estimate
Shareholding pattern (%)
As On
Promoter
DII
FII
Others
Highlights from management commentary
Dec-20 Sep-20 Dec-19
28.4
28.4
28.2
9.4
9.7
16.6
12.4
12.0
14.7
49.8
49.9
40.6
FII Includes depository receipts
Valuation and view
Amit Murarka - Research analyst
(Amit.Murarka@motilaloswal.com)
Basant Joshi - Research analyst
(Basant.Joshi@motilaloswal.com)
3 September 2019
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
Investors are advised to refer through important disclosures made at the last page of the Research Report.