Hold India Cements; target of Rs 101: Emkay

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Hold India Cements; target of Rs 101: Emkay

Emkay Global Financial Services has recommended hold rating on India Cements with a target of Rs 101, in its February 7, 2012 research report.

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Emkay Global Financial Services has recommended hold rating on India Cements with a target of Rs 101, in its February 7, 2012 research report.

"With average southern cement prices remaining strong, (+3% qoq), India Cement's (ICEM) Q3FY12 EBIDTA at Rs1.95 bn came in line with estimates. Revenues growth of 21% yoy was driven by 24% growth in cement revenues at Rs9.3 bn. Cement volumes at 2.18 mnt improved 7% yoy while realizations jumped 16% yoy to Rs4243/t (above estimates of Rs4031/t). Realization surprise was driven by ICEM improving market mix with continuing increase in high realization markets of Tamil Nadu & Kerala. On the cost front P&F cost increased 7% yoy and 9% qoq to Rs1221/t led by 1. Rupee depreciation against the USD, 2. Increased usage of imported coal (67% of the total coal requirement vs average of 60%) as the strike at Singareni Coal (SCL) & the ongoing Telangana agitation disrupted the supply of cheaper domestic coal to ICEM's AP plants. Though freight costs per tonne at Rs783 declined 1% qoq , total costs stood at Rs3380/t , up 9% yoy . Consequently EBITDA /t at Rs862 grew 53% yoy but declined 3% qoq."

"Interest charges for the quarter at Rs749mn (+84% yoy) came in higher than estimates led by higher drawal of loans for redemption of FCCB ,fuller utilization of CC limits and higher foreign exchange translation charges on account of short term monetary liabilities. Despite higher interest charges Net profit at Rs563mn is higher than estimates of Rs451mn led by lower tax rate of 9.2%. This includes forex loss of Rs137.6mn on account of buyer's credit amounting to USD 32 mn for procurement of imported coal. However we have not classified it as extraordinary expenses due to its regular nature and continue to be included in the interest expenses for the quarter."

"ICEM earnings surprise led by firm cement prices has fuelled stock performance (stock up 46% in last 6 months). However we believe next surprise has to be volume led (as south price at Rs290/bag seems to have peaked out) for which sustainable uptick in southern cement demand remains key.. Though Nov -Dec 2011 volume numbers in southern region look encouraging (AP: +12%, Tamil Nadu: +18%, Karnataka: +8% and Kerela: +15%), we remain uncertain on the sustainability of the uptrend given the sporadic upsurge of Telangana issue disrupting construction activity in AP. Given this backdrop we believe that ICEM's current valuations at PER 12.7x, EV/EBIDTA of 5.7X and EV/ton of USD90 for its FY13E numbers already captures the recently earnings surprise and leaves little upside considering that ICL'S RoCE(9.1% for FY13) is still below the cost of capital - Maintain HOLD," says Emkay Global Financial Services research report. 

Public holding more than 90% in Indian cos

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