India Cements - High leverage remains key concern - ICICI Securities

India Cements' (ICEM) Q1FY21 EBITDA at Rs1.6bn (down 35% YoY) was better than our estimate of Rs1.34bn owing to higher realisation which increased sharply 21% QoQ/ 9.3% YoY (I-Sec: +14% QoQ). Total cost/te increase 4.4% YoY, in-line with our estimates, owing to lower volumes (down 53% YoY) due to Covid-19 lockdown. Accordingly, EBITDA/te rose sharply 37% YoY to a decade high of Rs1,057/te (I-Sec: Rs762/te). FY20 net debt stood at Rs36.3bn with 'net debt to EBITDA' at 5.7x, which remains key concern. We maintain our FY21-22E EBITDA with target price unchanged at Rs65/share (7xFY22E EV/E). Maintain SELL.

- Revenue declined 49% YoY to Rs7.6bn (I-Sec: Rs8.4bn) owing to lower volumes. Cement realisation sharply increased 9.3% YoY/ 21% QoQ to Rs5,230/te owing to significant price hikes across South and increase in trade sales mix (67% vs ~62% in FY20). Pricing differential between trade and non-trade segment stood at around Rs40/bag. Our channel checks suggest that cement prices broadly stood flat MoM in South region in Jul'20.

- Volumes declined 53% YoY to 1.43mnte with volumes in South declining 48% YoY (vs 45% YoY decline for South region). Maharashtra and Tamil Nadu are among worst affected states with higher number of Covid-19 cases and continuous lockdowns impairing industrial activity. Management mentioned that volumes run rate improved MoM in Jun'20 and expects AP/TEL government off-take to improve in next 3-6 months. Clinker production declined 60% YoY to 0.85mnte in Q1FY21.

- Cement EBITDA/te increased 37% YoY to a decade high at Rs1,057/te (I-Sec: Rs762/te). Cement cost/te increased 4.3% YoY, in-line with our estimates. Raw material plus power & fuel cost increased 4% YoY. Owing to low utilisation, company was left with high cost petcoke inventory which is expected to provide cost savings of Rs40-50/te in coming quarters, as per management. Freight cost/te sharply declined 10% YoY/ 12% QoQ on lower lead distance, higher direct sales and logistics efficiencies. Other expenses/te (including employees cost) increased 22% YoY owing to poor operating leverage partly offset by reduction of contract labour, administrative and marketing spends etc. PAT stood at Rs170mn vs our estimate of net loss of Rs103mn.

- FY20 net debt stood high at Rs36.3bn with 'net debt to EBITDA' at 5.7x Consolidated net debt had increased by Rs2.4bn YoY to Rs36.3bn owing to low profitability and further investment of Rs1.8bn in various subsidiaries/associates in FY20. Despite improving profitability, 'net debt to EBITDA' is unlikely to go below 4.5x by FY22E, which remains our key concern.

Shares of INDIA CEMENTS LTD. was last trading in BSE at Rs.114.65 as compared to the previous close of Rs. 116.15. The total number of shares traded during the day was 220159 in over 1604 trades.

The stock hit an intraday high of Rs. 116.95 and intraday low of 114.1. The net turnover during the day was Rs. 25454059.

Source : Equity Bulls

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