India Cements - Demand improves amid moderating costs; BUY - Karvy

India Cement's 3QFY13 standalone Sales, EBITDA & adj PAT rose +15%, -1% & -48% YoY to Rs10.84bn, Rs1.94bn & Rs373mn. EBITDA came in 22% ahead of our estimates and 10% ahead of street estimates. The outperformance was driven strong demand in the southern region leading to +10% sales volumes and +1% better cement realization than estimated.

ICEM's sales volume posted strong double digit growth of 11% YoY during after nine quarters helped by better demand in the southern region & its enhanced production capability with the stabilization of its 50MW CPP in Tamil Nadu. Weak monsoons in the southern region led to better demand and a modest 1% QoQ realization decline during the quarter.

Ramp up in captive power sourcing & stable coal prices helped the power & fuel costs to be 2% lower than estimated operating costs per MT. Subsequently, EBITDA per MT came in Rs796 (flat QoQ, down 9% YoY.

Outlook positive: In-line with our earlier view, India Cements' performance has started to benefit from (1) ramp up in the captive power production which also imparts better cement production controls, (2) stable international coal prices and (3) its sourcing of captive coal from its Indonesian mines. The management guided of QoQ improvement in demand in the Andhra Pradesh region (which in our view would sustain only if Telangana issue is sorted out). The commissioning of its 50MW CPP in Andhra Pradesh during 1QFY14 will further increase its cost & production efficiency. With no incremental capex in near term, cash flow generation should reduce its debt & interest cost. These positives should drive ICEM's EBITDA & PAT CACR of 6% & 10% respectively during FY12-15E. We have cut our EBITDA estimates for FY13E/FY14E by 6% & 8% to account for sharp rise in transport costs. We also introduce FY15E estimates. We re-iterate our BUY recommendation on the stock valuing the standalone cement business at 5x Sep14E EBITDA (replacement cost of USD75 per MT), Trinetra Cement at Rs4 per share and IPL franchise at Rs12 per share thereby arriving at a TP of Rs125 (earlier Rs130).

Source : Equity Bulls

Keywords