Stock Market Result Update on India Cements for 1QFY2012

Stock Market Result Update on India Cements for 1QFY2012 with a Neutral recommendation.

For 1QFY2012, India Cements (INC) posted 308.4% yoy growth in its net profit to `102cr, primarily on account of higher realisation due to the supply and pricing discipline adopted by cement manufacturers in the southern region. However, INC’s dispatches fell by ~13% yoy to 2.3mn tonnes. During the quarter, the company refinanced US$75mn of FCCBs with domestic debt, resulting in a substantial increase in interest cost. INC plans to venture into the infrastructure business, but it is yet to disclose its course of action in detail. We maintain our Neutral view on the stock.

OPM up 1,258bp yoy: For 1QFY2012, INC registered 20.2% yoy top-line growth to `1,061cr, primarily due to a substantial 27.6% yoy (8.8% qoq) increase in cement realisation to `4,176/tonne. OPM rose by 1,258bp yoy despite higher costs due to superior cement realisation and better sales/regional mix. INC’s freight cost per tonne increased by 12.7% yoy to `779 due to higher diesel costs and lead distance.

Outlook and valuation: Over FY2011–13E, we expect INC to post a CAGR of 4.4% and 6.7% in dispatches and realisation, resulting in a substantial improvement in its bottom line over the period. Despite reasonably good earnings visibility over the period, return ratios would remain subdued for the company due to large amount of capital work in progress (`1,040cr as of FY2011-end) and substantial investments in subsidiaries (advances of `1,044cr as of

FY2011-end). At the CMP, the stock is trading at EV/EBITDA of 4.8x and EV/tonne of US$55 based on FY2013E estimates. We remain Neutral on the stock.