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Our view and valuation: Subdued volumes and poor operating metrics

* India cements has delivered subdued volume/EBITDA growth of 32.2%/5.4%YoY growth compared to peers in industry aided by higher net realization and lower clinker cost. ICEM reported volumes of 1.89MT for the quarter due to stricter restriction in southern India. Blended NSR/te came in at Rs5536/te.

* Currently, at CMP of Rs178/share, company trades at Rs5113 ($68) of FY23E EV/tonne due to subdued volumes and cost metrics resulting in  poor EBITDA/te compared to peers in industry, hence we have kept our estimates unchanged and assigned $65 multiple to    FY23E EV/tonne which translates to 9.5x FY23 EV/EBITDA resulting in price target of Rs167/share with downside of 7%. We downgrade our rating to ‘REDUCE’ on stock.

Result Highlights:

* For the quarter company delivered cement volumes of 1.88MT (‐36.9%QoQ/ 32.2%YoY). Blended cement NSR/te came in at Rs5536/te translating in 384/bag on the back of higher proportion of non‐trade sales i.e.45%. Reported net sales of Rs10.45bn (‐29%QoQ/36.9%YoY).

* Company delivered subdued EBITDA of Rs1.65bn (‐0.6%QoQ/5.4%YoY) on the back higher fuel, freight and other costs. Operating margins came in at 15.8% (450bps QoQ/‐471bps YoY) and reported blended EBITDA/te at Rs872/te.  

* Adjusted PAT for the quarter came in at Rs445mn (9.3%QoQ/122.4%YoY) aided by lower interest cost of Rs467mn (‐37.5%YoY).   

* Company did 1.85MT cement volume for the quarter wherein blending percentage has increased sequentially from 52% to 55% in Q1FY22. Clinker sales was 94000te for the quarter and trade to non‐trade mix was at 55:45 respectively.

* Company’s contribution to sales from east has moved up from 4% in Q1FY21 to 12% in Q4FY21 and to 11% in Q1FY22 and for Maharashtra it moved up from 11% in Q1FY21 to 18% in Q4FY21 and further inched up to 21% in Q1FY22 on the backdrop of lower dispatches to southern market due to strict and longer lockdown aid higher capacity utilization.

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