For 4QFY2011, India Cements (INC) posted 44.3% yoy growth in net profit to `55cr, primarily on account of higher realisations due to the pricing discipline adopted by cement manufacturers in the southern region. However, dispatches fell steeply by ~12.1% yoy because of a decline in demand from the company’s key markets in the south. Andhra Pradesh, the major cement consumer in the south, reported a 17% decline in demand in FY2011 due to continuing political uncertainty in the state. We recommend Neutral on the stock.
OPM up 437bp yoy: For 4QFY2011, INC posted 27.7% yoy top-line growth to `1,000cr primarily due to the 22.6% yoy improvement in net plant realisations (NPR) to `3,050/tonne. On a sequential basis, the company’s dispatches and NPRs rose by 24.9% and 5%, respectively. On the operating front, the margin increased by 437bp yoy to 18.3% on account of superior realisations. However, input costs were higher on a yoy basis, offsetting the improvement in realisation to a considerable extent. Per tonne power and fuel and freight costs were higher by 9.3% yoy and 12.0% yoy, respectively.
Outlook and valuation: Over FY2011–13E, we expect INC to post a 7.7% and 5.5% CAGR in dispatches and realisations, aided by pick-up in demand. Despite reasonably good earnings visibility over the period, return ratios would remain subdued for the company. At the CMP, the stock is trading at EV/EBITDA of 5.6x and EV/tonne of US$ 64 based on FY2013E estimates, which we believe is fair. We recommend Neutral on the stock.
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