India Cements- Lack of positive triggers; retain sell:Emkay

Emkay's research report on India Cements

EBITDA at Rs1.79 bn (+40% yoy) came below estimate led by higher energy & freight cost. Cement EBIDTA was at Rs 1.62 bn (+52% yoy) against our estimate of Rs 1.72 bn

Amidst weak demand, volumes decline ~4% yoy. But rise in realisation (+13% yoy) led to EBITDA/t of Rs688 (+58% yoy). Sequentially, realisation was up 9%

Energy cost at Rs 1260/t (+6% qoq) was higher than estimate despite decline in fuel prices. We revise FY15e/16e EBIDTA downwards by 9.6%/8.3% considering high freight and energy costs

Maintain Sell due to lack of positive triggers and delay in monetization plans of existing assets, critical for balance sheet de-leverage. Further dilution could not be negated as the Board has approved raising of Rs5bn

There has been sharp increase in Inventory and Debtors’ days compared to FY14-end leading to pressure on working capital requirements. The management indicated that there has been an increase of Rs1 bn in working capital between Jun ’14 and Sept ’14. We believe that the Working capital has increased by over Rs3.1 bn between Mar ‘14 and Sept ’14 which has led to sharp increase in interest costs. Higher working capital would continue to impact the interest costs. Though we are factoring in a recovery in margins going ahead (EBIDTA/t expected at Rs 900 in FY17 from Rs450 in FY14) with EBITDA CAGR of 24% over FY14-17e, ICEM valuation at 6.8/5.8x FY16e/FY17e EV/EBIDTA remain expensive considering deterioration in balance sheet and possibilities of further dilution (the Board has approved the proposal for raising a maximum amount of Rs5bn by way of issue of QIP/FCCB/GDR/other Securities). We maintain SELL with target price of Rs 90", says Emkay Global Financial Services research.

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