Hold India Cement; target of Rs 145: ICICI Direct

India Cement’s results are not directly comparable with our estimates due to adoption of new accounting standard Ind-AS. During the quarter, the company reported sales including excise duty of Rs 1202.5 crore. Adjusting for excise duty, revenues declined 1.5% YoY to Rs 1,052.5 crore (below I-direct estimate of Rs 1,083.5) mainly due to 11.0% YoY decline in realisation while volumes increased 10.1% YoY led by volume push outside the southern region (mainly to Maharashtra) Cement EBITDA/t dropped 3.7% YoY to Rs 857/tonne (vs. I-direct estimate: Rs 725/t) led by pricing pressure in Andhra Pradesh-Telangana. Adjusted net profit declined 9.4% YoY to Rs 44.0 crore. However, it remained above our estimates due to better-than-expected margins.

Going forward, we expect robust volume growth to be mainly led by higher sales outside southern region. However, oversupply in southern region and subdued realisation (mainly due to pricing pressure in Maharashtra, AP, Telangana) is expected to limit revenue growth. Nevertheless, we expect cost rationalisation led by better fuel mix, installation power plant in AP and improving efficiency of plants to drive margins. Also, with improving cash flow we expect debt to reduce in the next two years. Hence, we remain positive on the stock from a long term perspective. However, recent run up in stock offers limited upside. Hence, we downgrade the stock from BUY to HOLD with a revised target price of Rs 145 (i.e. EV/EBITDA of 7x).For all recommendations, click hereDisclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.