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Low blending & steep cost rise, hits margin hard

Result Synopsis

India Cement (ICEM) reported weak performance with net loss of Rs106mn (v/s YSEC est. of net profit Rs345mn), While reported revenue (Rs14.2bn v/s YSEC est. Rs14.8bn) & EBITDA (Rs629mn v/s YSEC est. Rs1.55bn) decline of 4/62% y/y in Q4FY22. Weak performance was majorly due to the decline in 12% y/y volume (weak NSR of 2% q/q) due to extended monsoon coupled with steep surge in total cost/te by +18% y/y (+4% q/q) eroded EBITDA/te by 57% q/q & 56% y/y to Rs239 (v/s YSEC est. of Rs581) in Q4FY22. For FY22, ICEM posted flat volume growth of 8.9MT with NSR growth of +8% y/y resulting in +8% revenue growth (in-line with YSEC est.). However, EBITDA/te decline by 39%y/y as operating cost/te surged by +18% y/y (power & freight/te up by +46/10% y/y) in FY22. We modelled +14/10% volume growth in FY23/24E along with healthy NSR growth of +3% FY23E (flat FY24E) would be translating in a revenue jump of +18/9% in FY23/24E. However, the inflated fuel/diesel cost will erode the EBITDA/te to Rs446 in FY23E, while envisaging cost normalcy should improve it to Rs650/te in FY24E. Therefore, we have trimmed our EBITDA/PAT est. by 41/89% for FY23E and 21/31% for FY24E.We believe the improvement of capacity utilization going forward would generate better free cash flow of ~Rs5bn that will help to deleverage B/S. Hence, we retain our REDUCE recommendation with a TP of Rs146 (earlier Rs208), valuing the stock at 10.5x EV/EBITDA on the FY24 estimates.

Result Highlights

* Reported volume growth of +25% q/q but decline by +12% y/y to 2.6MT due to extended rains in the south (v/s YSEC est. of 2.7MT), while NSR decline by 2% q/q (+10% y/y; -3% lower than YSEC est.) translated in the revenue miss of 4% to YSEC est. to Rs14.2bn (+22% q/q & -4% y/y) in Q4FY22.

* The surge in power/te by +18% q/q (+57% y/y) had increase the total cost/te by +4% q/q (+18% y/y) declined EBITDA/te by 56% q/q (-57% y/y) to Rs239 v/s YSEC est. to Rs581/te in Q4FY22.

* ICEM reported all time low EBITDA margin of 4.4% in Q4 v/s 9.9% in Q3FY22.

* In FY22, ICEM reported flat volume of 8.9MT with the NSR increase of +8% y/y translated in reported revenue of Rs48.5bn (in-line with YSEC est.) up by +8 % y/y.

* EBITDA/PAT decline by 39/62% y/y to Rs4.8/0.78bn led by surge in total cost by +18% y/y, translated in EBITDA/te decline of 39% y/y to Rs544 v/s YSEC est. of Rs645 in FY22..

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