21 November 2016
2QFY17 Results Update | Sector: Cement
India Cements
Neutral
BSE SENSEX
25,765
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Free float (%)
S&P CNX
7,929
ICEM IN
307.2
32.7 / 0.5
164 / 64
-23/25/30
499
71.7
CMP: INR106
TP: INR118 (+11%)
Strong volumes and cost efficiencies drive profits
Cement volumes increased 14% YoY
to 2.46mt (est. of 2.51mt) in 2QFY17, led
by 7-8% YoY growth in south markets and higher sales to east market.
Realizations rose 2.2% QoQ (-6% YoY) due to partial impact of increase in prices
in AP/Telangana in Aug-16. Revenues grew 6.7% YoY to INR13b (est. of
INR11.7b).
Cost curve favorable:
EBITDA declined 2% YoY to INR2.2b, translating into
margin of 17.2% (+50pp QoQ, -50pp YoY). Unitary cost of production declined
4% YoY (+1% QoQ) as improved fuel mix led to lower power and fuel costs.
Cement EBITDA/ton stood at INR872 (-13% YoY, +1% QoQ).
Management commentary on impact of demonetization:
(a) Cement demand
destruction unlikely; may witness some delay in demand pick-up. (b)
Proportion of cash in cement purchase is only 10-15%. (c) Cement prices in
ICEM’s focus markets remain unchanged post demonetization. (d) Land prices
do not impact cement demand.
Maintain Neutral:
ICEM, which enjoys good brand recall and market share, is a
healthy play on southern recovery. However, despite its strategically located
plants, cost structure is relatively high due to vintage constraints. High
investments in non-cement businesses and lack of management focus on core
business keep valuation at discount. We maintain
Neutral
with TP of INR118
(EV of 7x FY18E EBITDA and USD65/ton). Sustained recovery in southern
demand and better capital allocation are key re-rating triggers, in our view.
(INR Million)
FY17
Var.
2QE
(%)
2.51
-2
16.0
4,685
12
-15.9
-9.4
11,765
11
9.0
2,157
4
18.3
635
920
55
657
0
657
164
25.0
493
493
Financials & Valuations (INR b)
2016
2017E
Y/E Mar
Net Sales
42.3
49.4
EBITDA
7.7
7.7
NP
1.4
1.6
EPS (INR)
4.4
5.4
EPS Gr. (%)
-11,446 23.3
BV/Sh. (INR)
118.8
122.7
RoE (%)
3.9
4.2
RoCE (%)
5.9
5.9
P/E (x)
24.2
19.6
EV/EBITDA (x)
8.0
7.7
EV/Ton (USD)
63
62
2018E
54.7
8.7
2.5
8.9
64.8
129.6
6.4
7.2
11.9
6.7
62
Estimate change
TP change
Rating change
Quarterly Performance (Standalone)
Y/E March
Sales Dispatches (m ton)
YoY Change (%)
Realization (INR/ton)
YoY Change (%)
QoQ Change (%)
Net Sales
YoY Change (%)
EBITDA
Margins (%)
Depreciation
Interest
Other Income
PBT before EO expense
Extra-Ord expense
PBT
Tax
Rate (%)
Reported PAT
Adj PAT
E: MOSL Estimates
1Q
2.10
-18
5,047
18.9
4.7
10,743
-12.4
1,960
18.2
554
965
44
485
107
378
0
0.0
378
485
FY16
2Q
2.17
-8
5,570
19.7
10.4
12,258
8.3
2,296
18.7
557
985
33
788
40
748
363
48.5
385
405
3Q
1.94
-8
4,746
-0.6
-14.8
9,296
-10.3
1,462
15.7
552
906
74
79
0
79
24
30.9
55
55
4Q
2.50
19
3,957
-17.9
-16.6
11,471
11.9
2,115
18.4
522
913
70
750
0
750
238
31.7
512
512
1Q
2.31
10
5,173
2.5
30.7
12,025
11.9
2,014
16.7
511
825
32
710
0
710
271
38.1
440
440
FY17
2Q
3QE
2.46
2.07
14
7
5,259
5,309
-5.6
11.8
1.7
1.0
13,075 11,105
6.7
19.5
2,244
1,519
17.2
13.7
521
545
876
890
69
65
917
0
917
293
31.9
624
624
149
0
149
37
25.0
112
112
FY16
4QE
2.56
2
5,064
28.0
-4.0
13,172
14.8
1,893
14.4
701
855
130
466
0
466
72
15.5
394
394
8.70
-4.5
4,797
4.1
42,269
-4.4
7,813
18.5
2,180
3,704
222
2,150
147
2,003
625
31.2
1,378
1,480
FY17E
9.40
8.0
5,196
8.3
49,378
16.8
7,670
15.5
2,279
3,445
296
2,242
2,242
673
30.0
1,570
1,570
27
Abhishek Ghosh
(Abhishek.Ghosh@motilaloswal.com); +91 22 3982 5436
Varun Gadia
(Varun.Gadia@motilaloswal.com); +91 22 3982 5446
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

India Cements
Exhibit 1: Strong volume growth with lower realizations
Realizations (INR/ton)
2.8
2.6
2.7 2.6
2.6
2.5 2.4
2.4
2.4
2.4
2.3
Volume (m ton)
2.5
2.1 2.1 2.1 2.2
1.9
2.3
2.5
2.4
2.2
Source: Company, MOSL
Exhibit 2: Margins down QoQ
EBITDA (INR m)
EBITDA (%)
Exhibit 3: Trend in EBITDA/Ton (INR)
EBITDA (INR/Ton)
Source: Company, MOSL
Source: Company, MOSL
Exhibit 4: Key operating indicators (incl. other businesses)
INR/Ton
Net realization
RM Cost
Staff Cost
Energy Cost
Selling Exp.
Other Exp.
Total Exp.
EBITDA
2QFY17
5,315
750
363
1,000
1,100
1,322
4,535
912
2QFY16
5,662
641
380
1,144
1,017
1,420
4,601
1,061
YoY (%)
-6.1
17.0
-4.5
-12.5
8.2
-6.9
-1.4
-14.0
1QFY17
4,545
770
344
875
1,008
675
3,672
873
QoQ (%)
16.9
-2.6
5.5
14.2
9.2
95.9
23.5
4.5
Source: Company, MOSL
Conference Call Highlights
Demand:
All India demand increased 4.5% in 1HFY17 with south market
increasing at 7-8% volume growth .
Trade to Non trade:
Trade to non trade sales mix for the industry is at 70:30.
Prices:
Prices had been stable in Kerala, Karnataka and Tamil Nadu in 2QFY17.
Andhra Pradesh and Telangana observed price correction in July , however the
price decline was restored after hikes in August-16.
Sales mix:
India cement sells around 75% of its volume in south and rest in
Maharashtra and eastern markets.
Gross debt:
ICEM’s gross debt at end of 30
th
September 2016 is at
INR28.6b/INR30.4b on standalone/consolidated basis. It intends to repay debt
by INR2.5b (INR700mn in 1HFY17).
21 November 2016
2

India Cements
Capex:
ICEM intends to incur INR 2B towards maintenance capex in FY17 and
another INR4B towards replacement of mills and maintenance capex.
Costs:
Fuel mix consists of 80% petcoke and 20% domestic coal. Petcoke prices
on average at USD 50 per ton in 1QFY17. Current petcoke prices at USD 83 per
ton.
Maintain Neutral
With 14.05mt of south capacity ICEM has good brand recall, market share and
offers a healthy play on southern recovery. With pricing discipline in south and
improving profitability, ICEM has shown de-leveraging over FY16 as well and will
continue to show through FY17 with INR 2.5b debt repayment.
However, despite strategically located plants, ICEM’s cost structure is relatively
higher due to dependence on grid power, higher lead distance, vintage plants
and low utilizations. While rising pet coke mix should improve cost structure in
FY17, reversing pet coke price are liming the benefits to decline in EBITDA
margins. High investment in non-cement businesses and lack of management
focus on core business keep the valuation at discount.
We maintain Neutral with a target price of INR118 (EV of 7x FY18E EBITDA and
USD65/ton). Sustained recovery in southern demand and improvement in
capital allocation would be key trigger to re-rate.
21 November 2016
3

India Cements
Story in charts
Exhibit 5: Capacity utilization to improve going forward
20.0
15.0
10.0
5.0
0.0
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17EFY18E
Source: Company, MOSL
-10
70
Capacity (mt)
Despatch (mt)
Utilization (%)
Exhibit 6: Uptick in FCF generation (INR b)…
CFO
9
-1
-3
2
-5
-4
-5
1
2
3
0
Capex
13
7
5
FCF
78
71
67
71
71
65
67
62
72
3
-2
-1
-2
-4
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E
Source: Company, MOSL
Exhibit 7: Constant deleveraging to reduce net debt
Net debt (INR b)
40
30
20
10
0
Net DER (x)
Net Debt/EBITDA
10.0
8.0
6.0
4.0
2.0
0.0
Exhibit 8: Capital efficiencies to improve (%)
RoE
3.5
3.5
4.5
3.5
0.4
5.0
4.0
2.1
1.3
-2.6
2.2
3.9
0.3
RoIC
5.7
5.5
5.5
4.2
6.8
6.4
-3.9
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E
Source: Company, MOSL
Source: Company, MOSL
21 November 2016
4

India Cements
Financials and Valuations
Income Statement
Y/E March
Net Sales
Change (%)
Total Expenditure
% of Sales
EBITDA
Margin (%)
Depreciation
EBIT
Int. and Finance Charges
Other Income - Rec.
PBT bef. EO Exp.
EO Expense/(Income)
PBT after EO Exp.
Current Tax
Deferred Tax
Tax Rate (%)
Reported PAT
PAT Adj for EO items
Change (%)
Margin (%)
Less: Mionrity Interest
Net Profit
No of fully diluted sh. (Mn - FV: Rs10)
Adj EPS
2011
35,007
-7.2
32,386
92.5
2,621
7.5
2,440
181
1,417
396
-840
-23
-817
168
50
-26.7
-1,034
-1,064
-177.5
-3.0
0
-1,064
287.2
-3.7
2012
42,034
20.1
34,322
81.7
7,712
18.3
2,513
5,199
2,867
193
2,524
36
2,488
378
502
35.4
1,608
1,631
-253.4
3.9
0
1,631
287.2
8.5
2013
45,970
9.4
38,715
84.2
7,256
15.8
2,818
4,437
3,078
186
1,546
200
1,346
836
52
66.0
458
526
-67.7
1.1
0
526
287.2
5.8
2014
44,409
-3.4
40,057
90.2
4,352
9.8
2,764
1,588
3,537
396
-1,553
1,091
-2,644
0
0
0.0
-2,644
-1,553
-395.1
-3.5
0
-1,553
287.2
-7.9
2015
44,236
-0.4
37,588
85.0
6,648
15.0
2,579
4,069
4,260
308
117
0
117
0
0
0.0
117
117
-107.6
0.3
0
117
287.2
0.0
2016
42,269
-4.4
34,571
81.8
7,697
18.2
2,180
5,517
3,704
222
2,035
32
2,003
333
292
31.2
1,378
1,400
1,092.6
3.3
0
1,400
287.2
4.4
(INR Million)
2017E
49,378
16.8
41,708
84.5
7,670
15.5
2,279
5,391
3,445
296
2,242
0
2,242
785
-112
30.0
1,570
1,570
12.1
3.2
0
1,570
287.2
5.4
2018E
54,739
10.9
46,053
84.1
8,686
15.9
2,378
6,309
3,313
296
3,292
0
3,292
823
0
25.0
2,469
2,469
57.3
4.5
0
2,469
287.2
8.9
Balance Sheet
Y/E March
2011
Equity Share Capital
3,072
Fully Diluted excl Treasury stock
2,872
Share Premium
16,546
Other Reserves
21,280
Total Reserves
37,826
Net Worth
40,898
Deferred Liabilities
2,743
Secured Loan
12,548
Unsecured Laon
12,012
Total Loans
24,561
Capital Employed
68,201
Gross Block
59,277
Less: Accum. Deprn.
20,932
Net Fixed Assets
38,345
Capital WIP
3,088
Total Investments
1,603
Curr. Assets, Loans&Adv.
36,349
Inventory
4,973
Account Receivables
2,544
Cash and Bank Balance
331
Loans and Advances
28,296
Real Estate Projects WIP
204
Curr. Liability & Prov.
11,184
Account Payables
5,425
Other Current Liabilities
4,493
Provisions
1,265
Net Current Assets
25,165
Appl. of Funds
68,201
E: MOSL Estimates; * Adjusted for treasury stocks
2012
3,072
2,872
14,767
22,749
37,516
40,587
3,245
14,965
12,044
27,010
70,842
65,019
23,690
41,329
1,451
8,520
31,114
5,258
2,098
29
23,524
204
11,571
6,275
3,972
1,325
19,542
70,842
2013
3,072
2,872
14,767
23,058
37,825
40,896
3,297
19,377
10,853
30,230
74,423
70,571
26,509
44,063
750
9,578
33,638
4,961
4,656
47
23,770
204
13,606
7,756
4,453
1,396
20,032
74,423
2014
3,072
2,872
14,767
20,674
35,441
38,513
3,297
20,578
11,447
32,025
73,835
70,897
29,272
41,625
1,000
9,455
35,288
5,509
4,225
31
25,319
204
13,534
8,643
4,297
594
21,754
73,835
2015
3,072
2,872
14,767
18,092
32,859
35,931
3,297
21,968
10,039
32,007
71,235
67,600
31,852
35,749
1,000
15,852
30,513
6,069
4,661
39
19,540
204
11,879
8,253
3,038
588
18,634
71,235
2016
3,072
2,872
14,767
18,644
33,411
36,483
3,589
19,355
9,998
29,352
69,425
68,055
34,032
34,023
1,000
15,852
31,468
5,953
5,134
31
20,146
204
12,918
8,916
3,005
998
18,549
69,425
(INR Million)
2017E
3,072
2,872
14,767
19,857
34,624
37,696
3,477
20,965
9,533
30,499
71,671
70,055
36,311
33,744
1,000
15,852
35,444
6,629
5,411
2,047
21,153
204
14,370
10,146
3,653
571
21,075
71,671
2018E
3,072
2,872
14,767
21,969
36,736
39,808
3,477
19,965
9,383
29,349
72,633
74,055
38,688
35,367
1,000
15,852
35,252
6,749
5,549
539
22,211
204
14,837
10,498
3,749
590
20,415
72,633
21 November 2016
5

India Cements
Financials and Valuations
Ratios
Y/E March
Basic (INR) *
Consol EPS
Cash EPS
BV/Share
DPS
Payout (%)
Valuation (x) *
P/E
Cash P/E
P/BV
EV/Sales
EV/EBITDA
EV/Ton (US$)
Dividend Yield (%)
Return Ratios (%)
RoIC
RoE
RoCE
Working Capital Ratios
Asset Turnover (x)
Inventory (Days)
Debtor (Days)
Leverage Ratio (x)
Current Ratio
Debt/Equity
* Adjusted for treasury stocks
2011
-3.7
4.5
133.1
1.5
-52.1
2012
8.5
13.5
132.1
2.0
44.7
12.6
7.9
0.8
1.3
6.3
58
1.9
0.4
-2.6
1.1
0.5
51.9
23
3.3
0.6
5.0
4.0
5.2
0.6
45.7
16
2.7
0.7
2013
5.8
10.9
133.1
2.0
155.8
18.3
9.8
0.8
1.3
6.8
63
1.9
2.1
1.3
2.3
0.6
39.4
33
2.5
0.7
2014
-7.9
3.9
125.4
0.0
0.0
-13.5
27.0
0.8
1.3
11.3
65
0.0
2.2
-3.9
2.8
0.6
45.3
31
2.6
0.8
2015
0.0
8.8
117.0
0.0
0.0
-2,746.6
12.1
0.9
1.3
8.8
65
0.0
5.7
0.3
6.3
0.6
50.1
34
2.6
0.9
2016
4.4
11.7
118.8
1.0
25.9
24.2
9.1
0.9
1.4
8.0
63
0.9
5.5
3.9
5.9
0.6
51.4
39
2.4
0.8
2017E
5.4
12.5
122.7
1.0
22.7
19.6
8.5
0.9
1.2
7.7
62
0.9
5.5
4.2
5.9
0.7
49.0
35
2.5
0.8
2018E
8.9
15.8
129.6
1.0
14.5
11.9
6.7
0.8
1.1
6.7
62
0.9
6.8
6.4
7.2
0.8
45.0
33
2.4
0.7
Cash Flow Statement
Y/E March
Oper. Profit/(Loss) before Tax
Interest/Dividends Recd.
Direct Taxes Paid
(Inc)/Dec in WC
CF from Operations
EO expense
CF from Operating incl EO
(inc)/dec in FA
Free Cash Flow
(Pur)/Sale of Investments
CF from investments
Issue of Shares
(Inc)/Dec in Debt
Interest Paid
Dividend Paid
CF from Fin. Activity
Inc/Dec of Cash
Add: Beginning Balance
Closing Balance
2011
2,621
396
-168
-9,349
-6,499
23
-6,476
1,766
-4,710
1,537
3,302
1,113
3,233
-1,417
-539
2,390
-783
538
331
2012
7,712
193
-378
5,321
12,848
-36
12,811
-4,105
8,706
-6,917
-11,022
-1,199
2,449
-2,867
-719
-2,337
-547
331
29
2013
7,256
186
-836
-472
6,134
-200
5,934
-4,851
1,083
-1,059
-5,910
565
3,220
-3,078
-714
-6
18
29
47
2014
4,352
396
0
-1,739
3,009
-1,091
1,918
-576
1,342
123
-453
260
1,795
-3,537
0
-1,481
-17
47
31
2015
6,648
308
0
3,129
10,085
0
10,085
3,297
13,382
-6,397
-3,099
-2,699
-18
-4,260
0
-6,977
9
31
39
2016
7,697
222
-333
77
7,663
-32
7,631
-455
7,176
0
-455
-469
-2,655
-3,704
-357
-7,184
-8
39
31
(INR Million)
2017E
7,670
296
-785
-510
6,671
0
6,671
-2,000
4,671
0
-2,000
0
1,146
-3,445
-357
-2,656
2,016
31
2,047
2018E
8,686
296
-823
-848
7,312
0
7,312
-4,000
3,312
0
-4,000
0
-1,150
-3,313
-357
-4,820
-1,508
2,047
539
21 November 2016
6

India Cements
Corporate profile
Company description
ICL is among top-five player in India and a leader in
Southern India, having around seven plants spread
over Tamil Nadu and Andhra Pradesh with total
capacity of 15.5m ton. It also owns Chennai Super
Kings, a cricket team in Indian Premier League.
Exhibit 1: Sensex rebased
Source: MOSL/Bloomberg
Exhibit 2: Shareholding pattern (%)
Sep-16
Promoter
DII
FII
Others
28.3
17.5
27.3
26.9
Jun-16
28.3
17.4
25.1
29.2
Sep-15
28.2
14.8
23.1
33.8
Source: Capitaline
Exhibit 3: Top holders
Holder Name
Trishul Investments Private Limited
Life Insurance Corporation Of India
Elm Park Fund Limited
Reli.Cap.Trus.Co. Ltd.-Reli.Mid&Scap F;
Reli.Reg.Sf-Equ.Option;
Reli.Scap
F;
Reli.Capit
Sund.Mf A/C Sund.Sf; Sund.Select Mcap
Series Vi; Sund.Ri Fund; Sund.Inf.Adv. Fund;
S
% Holding
5.7
5.5
5.0
3.8
1.8
Source: Capitaline
Note: FII Includes depository receipts
Exhibit 4: Top management
Name
N Srinivasan
S Sridharan
Designation
Vice Chairman & M.D.
Company Secretary
Exhibit 5: Directors
Name
Arun Datta
N R Krishnan
P L Subramanian
V Manickam
Rabinarayan Panda
Name
Chitra Srinivasan
Natesan Srinivasan
R K Das
S Balasubramanian Adityan
Rupa Gurunath
Source: Capitaline
*Independent
Exhibit 6: Auditors
Name
Bala & Co
Brahmayya & Co
Gopalaiyer & Subramanian
Kalyanasundaram & Associates
P R Sudha
Internal
Statutory
Internal
Internal
Secretarial Audit
Source: Capitaline
Type
Exhibit 7: MOSL forecast v/s consensus
EPS
(INR)
FY17
FY18
MOSL
forecast
5.4
8.9
Consensus
forecast
7.7
10.5
Variation (%)
-30.3
-15.2
Source: Bloomberg
21 November 2016
7

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8