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Strong position in Southern India where there is traction in demand: ICL is one of the leading cement producers in Southern India, with total regional capacity of 12.95 MTPA which also happens to be the key market for the company as they sell nearly two-thirds of their production in the Southern states of India. Andhra Pradesh and Telangana governments have been highly focused on infrastructure projects and housing for all schemes; this along with increased public spending on rural infrastructure, irrigation, road building and other projects is expected to improve cement demand over the next couple of years.

Abundant availability of raw materials remains the key for future growth as well as competitiveness: ICL is well placed for any future expansion in the medium to long term as the company sources limestone from various captive mines located adjacent to its plants. These mines have abundant reserves with leasing rights at least till 2030 which are adequate for its existing operations as well as any expansion planned over the medium term. Other than limestone, the other ingredients like Gypsum, Coal & Power are also not a concern. For gypsum & fly ash, ICL has adequate contracts with nearby plants to source them.

Stable financial profile to benefit in the medium to long term with the positive economic outlook: The company’s financial profile continues to remain steady; the cash flows have been steady and profitability is expected to grow going forward with anticipated increase in capacity utilizations. The company is undertaking cost reduction measures which will help in reducing its power and fuel consumption. The Management has put its expansion plans on hold and will be cautiously watching the utilization levels. Further, the Management is also planning to cut down debt-levels

OUTLOOK & VALUATION

ICL is one of the leading cement companies in South India – the company sells its products under the names of Coromandel, Sankar & Raasi which have strong brand recognition. The company has access to abundant raw materials for the long term. ICL is focusing on bringing in operational efficiencies and cutting down debt while the expansion plans have been kept on hold for the time being and the Management will be watching the utilization levels. Government’s push for infrastructure and housing, particularly, State Governments in Andhra Pradesh and Telangana along with the private capex will lead to better utilization, going forward. We expect ICL to deliver an EBITDA of Rs.940.2 cr in FY24; assigning an EV/EBITDA multiple of 10x we arrive at a target price of Rs.225 showcasing an upside potential of 22.3% from current levels. Thus, we initiate coverage on ICL with a BUY rating for the target price of Rs.225 with an investment horizon of 18-24 months.

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