Reduce India Cements Ltd For Target Rs.205 - Yes Securities
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PFF cost erodes profitability
Our view
Seasonal demand weakness in its core market (South), along with the inflating input cost and higher lead distance, weighs Q2FY22 performance. However, demand is likely to rebound with the passing out monsoon, while ICEM market share in the South might fall (new capacities of TRCL – key competitor) led by the peer capacity expansion. With no considerable amount of CAPEX under the pipeline, the ICEM debt reduction focus would continue. The Satna expansion continues to defer, that further impacts the projected volume growth expectations. The coming WHRS will try to improve the operational savings, but the efficiency could remain subdued as many ICEM plants are dated.
Result Highlights
* Revenue stood at Rs12.3bn up by 18% q/q (decline by 16% y/y) v/s YSEC est. of Rs13bn, backed by the healthy realization up by 5% y/y (decline by 2% q/q due to monsoon impact) in Q2FY22. Over a weak base, volume grew strongly by 8% y/y and 20% q/q to 2.3MT v/s YSEC est. of 2.4MT in Q2FY22.
* The EBITDA declined by 14% q/q and y/y both, due to the inflating input cost (P&F/Freight/Other cost per ton up by 45/20/10% y/y) in Q2FY22. While on sequential basis, the increase in RM cost by 41% q/q dented the EBITDA to Rs1.42bn v/s YSEC est. of Rs1.97bn for this quarter.
* PAT decline by 57% y/y and 31% q/q to Rs2.9bn in Q2FY22, led by the decline in EBITDA level v/s YSEC est. of Rs6.7bn in Q2FY22.
* EBITDA/te decline by Rs248/te q/q to Rs623/te (v/s Rs1,152/te in Q2FY21) led realization moderation by Rs108/te q/q (Inflating cost by Rs254/te y/y) in Q2FY22.
Valuation
ICEM is likely to generate an operating cash flow of Rs15bn over FY22/23E would help to deleverage it B/S over FY22/23E, while the Net Debt/EBITDA is expected to decline to 3x by the end of FY23E v/s 3.8x in FY21E. At CMP, the stock is trading at $78/76 per ton in FY22/23E on EV/ton. Thus, we retain our REDUCE recommendation with a TP of Rs205 (previously Rs167), valuing the stock at 75x (earlier 65x) EV/ton on the FY23E estimate.
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