India Cements - PINC Result Review

South Pinch

Hampered by poor realisations in key Southern markets, India Cements (ICEM) posted a disappointing result in Q1FY11. Inspite of a 12.9% growth in volumes, net sales dropped 8.1% to Rs8.8bn. The poor realisations coupled with higher power and fuel costs led to a 1,895bps decline in margins to 11.6%. Post a capital charge of Rs896mn and a gain of Rs264mn on stake sale in Bharati Cement, profit nose dived 82.7% YoY to Rs250mn and was inline with estimates.

Outlook: We expect ICEM's cement volumes to grow at a healthy rate of 19.2%. However, the prevailing situation in Southern region is not expected to improve in the near term and expect realisations to be lower by 3.9% YoY in FY11. We have reduced FY11 and FY12 earnings estimates by 25% and 5% to Rs7.9 and Rs11.6 respectively.

VALUATIONS AND RECOMMENDATION

We maintain our 'HOLD' recommendation on the stock with a price target of Rs106 valuing the FY12 capacity at 35% discount to the replacement cost of USD115/mt.

Source : Equity Bulls

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