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India Cements - High leverage remains key concern - Q3FY21 - ICICI Securities

Posted On: 2021-01-27 22:44:52 (Time Zone: Arizona, USA)

India Cements' (ICEM) Q3FY21 EBITDA at Rs2.2bn (up 65% YoY) was better than our and consensus estimates owing to higher than expected realisation. Cement realisation (including RMC) declined 3.5% QoQ (+9% YoY) vs our estimate of 4.5% QoQ decline. Volumes declined 11% YoY and total cost/te was flat YoY - both broadly in line with our estimates. Accordingly, cement EBITDA/te increased 78% YoY to Rs889/te (I-Sec: Rs812/te). We broadly maintain our FY21-23E EBITDA; though raise our target price to Rs120/share (earlier: Rs100) based on 7x FY23EV/E on half-yearly rollover. High 'net debt to EBITDA' ratio at >3x with higher exposure to volatile prices in South market remains our key concern. Maintain SELL. Key risks: higher than expected growth in demand and/or pricing.

- Revenues declined 3% YoY to Rs11.6bn, in line with our estimates. Volumes declined 11% YoY to 2.38mnte. With substantially higher monsoon in the southern states, ICEM increased its presence in the long lead markets of Central and East India although at a lower contribution. Volumes declined 29% YoY in 9MFY21 vs ~24% YoY in South, as per management. Management mentioned demand run rate in Jan'21 is better than Q3FY21 and expects demand to improve led by pick-up in government spend, improvement in urban housing demand and infra spend (roads, irrigation) in Andhra Pradesh and Telangana.

- Cement realisation (including RMC) declined 3.5% QoQ (still up 9% YoY) to Rs4,840/te (I-Sec: Rs4,791/te) owing to change in sales mix and higher non-trade sales. ICEM sold 0.12mnte clinker and 0.18mnte cement in East in Q3FY21. Trade sales mix declined 500bps QoQ to 51% in Q3FY21. Realisation in the core markets of South remained broadly firm QoQ as company chose not to sell below pre-determined prices. Management expects prices to firm up further with improving demand.

- Cement EBITDA/te increased 78% YoY to Rs889/te (I-Sec: Rs812/te). Total cost/te stood flat YoY, in line with our estimates. Raw material plus power & fuel cost/te declined 1%, both YoY and QoQ; increase in petcoke prices is likely to impact from Mar'21. ICEM is targeting to commission 10MW WHRS at a capex of Rs1bn, which should improve the company's cost structure in coming years. Freight cost/te increased 6% YoY / 8% QoQ owing to increase in diesel prices and higher lead distance (increasing East volumes). Other expenses/te (including employee costs) fell 13%, both YoY and QoQ. PAT stood at Rs620mn (I-Sec: Rs436mn).

- Capex for Q3FY21/9MFY21 stood at Rs350mn/Rs700mn respectively. Management guided for capex of Rs1.5bn in FY22. Consolidated net debt declined to Rs32bn as of Dec'20-end. Management expects additional debt repayment of Rs1.5bn in Q4FY21 and Rs4bn in FY22. Despite improving profitability, 'net debt to EBITDA' ratio is unlikely to go below ~3x by FY23E, which remains our key concern.

Maintain SELL with target price of Rs120/share

We broadly maintain our FY21-23E EBITDA; though raise our target price to Rs120/share (earlier: Rs100) based on 7x FY23EV/E on half-yearly rollover. High 'net debt to EBITDA' ratio at >3x with higher exposure to volatile prices in South market remains our key concern. Maintain SELL. Key risks: higher than expected growth in demand and/or pricing.

Shares of INDIA CEMENTS LTD. was last trading in BSE at Rs.166.25 as compared to the previous close of Rs. 168.85. The total number of shares traded during the day was 223469 in over 3341 trades.

The stock hit an intraday high of Rs. 173.8 and intraday low of 164.35. The net turnover during the day was Rs. 37877419.

Source: Equity Bulls

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