India Cements - 2QFY2013 Result Update - Angel Broking

India Cements (ICEM) posted a muted 2.8% yoy growth in its standalone net revenue to Rs.1,123cr, which was in-line with our estimates. While cement sales volume rose by 2.3% yoy, net plant realization (NPR) rose by 2.9% yoy to Rs.3,529/tonne. However, the NPR was down by 0.6% on a qoq basis due to fall in cement prices in Andhra Pradesh in August and September.

OPM up by a marginal 27bp yoy: During the quarter the company had to face 12 days of complete power holiday in Andhra Pradesh and was forced to use high cost power. Usage of high cost power pushed up cost/tonne of cement manufactured by Rs.160/tonne, and was the primary cause for the 485bp qoq decline in the OPM to 18.3%. The company was also impacted by higher freight and forwarding costs. In all variable costs rose by Rs.174/tonne. Further, during the quarter the company posted an operating loss of Rs.4cr on the IPL franchisee as against a profit of Rs.33cr in 2QFY2012 as a major portion of the IPL revenue for the year was booked in 1QFY2013. Thus the bottom-line fell by 29.6% yoy to Rs.49cr.

Outlook and valuation: We expect ICEM to post a bottom-line CAGR of 5.5% over FY2012-14E. The company's return ratios would remain subdued due to substantial investments in subsidiaries. At the current market price, though the stock is trading at a low valuation of EV/tonne of US$63 on FY2014E capacity, we believe the same is justified considering the company's unfavorable locational presence. Hence, we maintain our Neutral recommendation on the stock.

Source : Equity Bulls

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