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Margin miss led by higher costs; capacity expansion dependent on sustainability of margins
* Healthy volume and realization growth: 4QFY19 volumes grew 8% YoY to 3.33mt (higher than est. of 3.23mt). Blended realizations increased 4% YoY to INR4,697/t due to healthy prices in South India in Feb-Mar 2019. Thus, net sales increased 12% YoY to INR15.6b.
* Higher-than-estimated cost impacts profitability: Blended EBITDA/t increased 13% YoY to INR577, as cost/t stood at INR4,119/t — higher than our est. of INR3,986/t. EBITDA increased 21% YoY to INR1.9b (our est. INR2.1b). Margins expanded 0.95pp YoY to 12.3% (our est. 14.2%), while PAT increased 24% YoY to INR439m (our est. INR608m).
* Key takeaways from concall: (1) Capacity utilization for 4QFY19 was at 84% v/s 76% in 4QFY18 (FY19 at 79%), (2) Demand in South India is majorly led by infrastructure. A major share of the demand for ICEM comes in from the infrastructure sector, thus, receivables for the company have increased, (3) Capacity expansion plans will depend on sustainability of healthy margins, (4) Gross debt for the company in FY18 was INR31.3b, which increased to INR35.4b in Dec’18. Gross debt as of Mar’19 reduced to INR33.6b.
* FY19 performance: Volumes grew 11% YoY while sales grew 9% YoY to INR56b. EBITDA/PAT declined 8%/31% YoY to INR6.3b/INR694m.
* Maintain Neutral: With 15.5mt capacity, ICEM has good brand recall, market share and offers a healthy play on price recovery in South India. However, high investments in the non-cement businesses, elevated debt levels and subdued return ratios have kept valuation at a discount. We largely maintain our estimates and value ICEM at 7x FY21 EV/EBITDA to arrive at a target price of INR117. Maintain Neutral.
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