India Cements - High leverage continues to remain key concern - ICICI Securities

India Cements' (ICEM) Q2FY21 EBITDA at Rs2.4bn (up 60% YoY) was better than our/consensus estimates owing to lower-than-expected cost. Total cost/te declined 4% YoY vs our estimate of flat cost YoY due to lower than expected power & fuel cost and fixed overheads. Volumes declined 21% YoY and realisation declined 4% QoQ (up 9% YoY) - both broadly in-line with estimates. Accordingly, EBITDA/te doubled YoY to a decade high of Rs1,096/te (I-Sec: Rs925/te). FCF generation stood Rs1.2bn in H1FY21, which is largely utilised for debt repayment. Factoring Q2FY21 beat, we increase our FY21E-FY22E EBITDA by 8-18% and target price to Rs100/share (earlier: Rs65) based on 7x Sep'22EV/E on half-yearly rollover. High net debt to EBITDA at >4x with higher exposure to volatile price South market remains our key concern. Maintain SELL.

- Revenue declined 14% YoY to Rs10.7bn, in-line with estimates. Volumes declined 21% YoY to 2.11mnte owing to Covid-19 lockdown and heavy rains. Management mentioned that North, Central and East regions have witnessed substantial growth in demand, while demand in West and South regions is expected to improve in coming quarters with return of migrant workers post festive holidays and pick-up in non-trade demand. Government infra spending (roads, irrigation) in Andhra Pradesh and Telangana is likely to improve during H2FY21.

- Cement realisation declined 4% QoQ/ up 9% YoY to Rs5,016/te, in-line with estimates. Trade sales mix declined 1,300bps QoQ to 54% in Q2FY21. Management is targeting to increase trade sales mix to 58% in Q3FY21. Our channel checks suggest cement prices broadly stood flat MoM in South region in Oct'20. Given low utilisation (sub-60%) in South in FY21 and increasing cost pressures, management remains confident of current high price sustenance in H2FY21 as well.

- Cement EBITDA/te doubled YoY to a decade high of Rs1,096/te (I-Sec: Rs925/te) led by higher realisation and lower costs (down 4% YoY). On a QoQ basis, total cost/te declined 6% QoQ leading to 3% QoQ higher EBITDA/te, despite fall in realisation. Variable costs/te declined 3% both QoQ and YoY owing to lower fuel prices, while fixed costs/te declined 7% YoY and 15% QoQ owing to strict control over expenses despite poor operating leverage. PAT grew 8x YoY to Rs714mn. Management is targeting EBITDA/te of Rs1,100/te in FY21.

- FCF generation stood Rs1.2bn post working capital blockage of Rs1.1bn and capex spend of Rs358mn in H1FY21. The same has been largely utilised for debt repayment. Accordingly, consolidated net debt declined to Rs35.2bn as of Sep'20-end. Management expects additional debt repayment of Rs3-4bn in H2FY21. Despite improving profitability, 'net debt to EBITDA' is unlikely to go below ~3.5x by FY23E, which remains our key concern.

Shares of INDIA CEMENTS LTD. was last trading in BSE at Rs.126.35 as compared to the previous close of Rs. 125.65. The total number of shares traded during the day was 70088 in over 995 trades.

The stock hit an intraday high of Rs. 128.7 and intraday low of 126. The net turnover during the day was Rs. 8903329.

Source : Equity Bulls

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