India Cements - Q1FY14 Results - Kotak

Result overview: Revenue growth of the company during quarter is better than our estimates but is also impacted by decline in cement realizations on yearly basis. Costs continued to remain high due to higher freight and power and fuel expenditure but may come down marginally going forward with stabilization of captive power plants. Cement prices after witnessing declines during Q4FY13 end and early part of Q1FY14 had started firming up. During monsoons, prices have corrected in some parts of the country but we expect revival post monsoons. Due to adequate upside from current levels, we recommend BUY on the stock.

At current market price of Rs 44, stock is trading at 11x P/E and 4.1x EV/EBITDA on FY14 estimates. We revise our estimates downwards to factor in continued high freight cost and power and fuel cost along with higher interest expenses. We value company at an average of EV/Tonne of $70 per tonne and 4.8x EV/EBITDA on FY14 estimates and arrive at a revised price target of Rs59. (Rs 91 earlier). Based on adequate upside from the current levels, we recommend BUY on the stock. However, in near to medium term, performance of the company is likely to be impacted by forex fluctuations as well as lower demand scenario in southern India.

Key risk to our recommendation would come from any negative news pertaining to IPL spot fixing with respect to India Cements.

Source : Equity Bulls

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