Reduce India Cements - Kotak

Result overview: Revenue growth of the company was led by sequential stable cement prices in southern region during Q4FY12 and was in line with our estimates. Costs remained high due to higher power and fuel and freight expenses. Net profit growth was boosted by lower tax rate but was in line with our estimates. We maintain negative bias for the company on account of low demand growth in southern region and hence retain REDUCE rating on the stock. Stock would get re-rated once demand improvement sustains in southern region and also once fears of CCI fine recede.

Company's revenues for Q4FY12 and full year FY12 were in line with our estimates led by improvement in realizations in comparison with last year. Revenues reported a growth of 12% and 20% YoY for Q4FY12 and FY12 respectively.

Operating margin for Q4FY12 improved on YoY basis led by higher average cement realizations. Margins also witnessed an improvement on yearly basis.

Net profit performance was also in line with our estimates but was also boosted by lower tax rate.

Though demand has improved during Q4FY12, demand scenario going ahead is still uncertain in southern region and company expects cement demand to grow by 6-7% for the southern region.

We revise our estimates upwards to take into account higher cement prices. At current market price of Rs 87, stock is trading at 8.1x P/E and 4.6x EV/EBITDA on FY13 estimates. We continue to value company at an average of EV/Tonne of $80 per tonne and 5x EV/EBITDA on FY13 estimates and arrive at revised price target of Rs 91 (Rs 82 earlier). We continue to maintain REDUCE on the stock. Stock would get re-rated once demand improvement sustains in southern region and also once fears of CCI fine recede.

Source : Equity Bulls

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