Buy India Cement; target of Rs 160: ICICI Direct

ICICI Direct's research report on India Cement

India Cements (ICL) reported mixed Q4FY18 results. Revenues in Q4FY17 are including excise duty while current revenues are net of GST. Adjusting for excise duty, revenues increased 4% YoY to Rs 1,397.8 crore (vs. I-direct estimate of Rs 1,360.3 crore) in Q4FY18 mainly led by 6.2% YoY growth in volumes to 3.1 MT (vs. I-direct estimate of 3.0 MT) The blended EBITDA/tonne declined 21.4% YoY to Rs 513/tonne (vs. I-direct estimate of Rs 713/t) mainly led by 4.6% YoY increase in raw material cost/t and 1.9% YoY increase in power cost/t The board has recommended dividend of Rs 0.8/share.

Outlook

Tamil Nadu is expected to witness a demand revival led by better availability of sand. This, coupled with higher government spending on low cost housing, irrigation and other infra projects, is expected to drive cement demand in coming years. Also, we expect cost rationalisation led by reduced power cost and improving efficiency of plants to drive margins. In addition, with improving cash flow we expect debt to reduce over the next two years. This, coupled with the recent correction in the stock, prompts us to maintain our BUY rating with a revised target price of Rs 160 (i.e. EV/EBITDA of 9.0x, EV/tonne of US$85/t).