Buy India Cements; target of Rs 110: FinQuest Securities

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Buy India Cements; target of Rs 110: FinQuest Securities

FinQuest Securities is bullish on India Cements and has recommended buy rating on the stock with a target of Rs 110 in its February 7, 2012 research report.

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FinQuest Securities is bullish on India Cements and has recommended buy rating on the stock with a target of Rs 110 in its February 7, 2012 research report.

"South India's major cement producer India Cement's Q3FY12 numbers came in better than consensus (in line with our estimate) primarily driven by improved volume growth and excellent growth in realization. Cement sales for the company witnessed healthy growth in November and December 2011, while the realization improved sharply Y-o-Y. Volumes increased 7.1% to 2.19 mn tonnes, while the gross realization improved sharply by 15.7% to Rs 4241 per tonne, as a result the cement sales rose 24% to Rs 9.27 bn. The total revenue of the company (including revenue from Indian Premier League, Shipping and Wind Mill revenue) during the quarter under review rose 20.5% Y-o-Y to Rs 9.44 bn. IPL income during the quarter was Rs 40 mn, shipping income was Rs 100 mn and the wind farm business revenue was Rs 8 mn."

"While the gross realization improved 16%, the net realization rose 19% to Rs 3458 per tonne despite rise in freight expenses during the quarter. Power & fuel costs per tonne also rose in Q3FY12 as compared to Q3FY11 due to higher imported coal cost. However improved realization helped the company to improve its EBIDTA margin by 443 bps Y-o-Y to 20.9% during the quarter under review. The net profit of the company during the quarter under review rose 162% Y-o-Y to Rs 563 mn, in line with our estimate of Rs 543 mn."
"The company witnessed double digit growth in dispatches during the month of November and December 2011 and the management believes that the company will continue to post healthy growth in dispatches for the next 6-8 months given that it's a peak season for cement producers in the southern market. We believe that the company will post excellent growth in volumes in the months ahead, while the pricing will remain firm, thus helping the company to post excellent growth in profitability."

"In view of healthy growth in dispatches in the recent months and the volumes growth and price visibility, and given the volume guidance of more than 9.5 mn for FY12, we are revising our revenue and EPS estimate upward for FY13 from Rs 50.77 bn and Rs 14 to Rs 50.83 bn and Rs 14.3 respectively. We had initiated coverage on the stock on 23rd November 2011, with a one year price target of Rs 79, which was achieved on 23rd January 2012. We were a bit sceptical about the demand growth in the southern market and were concerned whether the industry would be able to hold the price. Now there is clarity on that front, rather demand has started improving while the price too is expected to further firm up. We are bullish on the stock and maintain our buy with revised target price of Rs 110 (earlier target price Rs 79). At our new target price the stock will trade at PE of 7.8x and EV/EBIDTA of 4.6x FY13 earnings," says FinQuest Securities research report. 

Institutional holding more than 40% in Indian cos

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