India Cements results were ahead of our estimates led by better than expected dispatches and lower costs. Demand has improved sharply by nearly 20% YoY in the southern region which has aided the volume growth. Growth going ahead is likely to be led by improved dispatches and prices from the levels of Q1FY19.
Revenue growth for the quarter was led by volume gain of 15.8% YoY. Margins witnessed a decline due to pressure on realizations and higher power and fuel while freight and other expenses per tonne have declined sequentially during the quarter. Net profit performance was impacted by fall in margins but boosted by lower tax expense.
Valuation and outlook
At current market price of Rs 108, stock is trading at 7.2x and 6.0x EV/EBITDA on FY19 and FY20 estimates respectively. We believe that India Cements is adequately positioned to cater to upcoming demand with incremental volumes. However, after the NCLAT decision on penalty on cement companies, we had revised our rating to REDUCE on India Cements owing to poorer cash flows as compared to peers. Company's debt repayment is also not as per initial plans. We marginally tweak our estimates and arrive at a revised price target of Rs 112 (Rs 115 earlier) based on based on average of 6x EV/EBITDA on FY20 estimates. We maintain REDUCE recommendation on the stock.
Shares of INDIA CEMENTS LTD. was last trading in BSE at Rs.117.65 as compared to the previous close of Rs. 111.95. The total number of shares traded during the day was 753604 in over 3482 trades.
The stock hit an intraday high of Rs. 118.65 and intraday low of 112. The net turnover during the day was Rs. 87049471.