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Leverage remains high

India Cements’ (ICEM) Q4FY21 EBITDA at Rs2.1bn (up 1.5x YoY) was broadly inline with consensus estimates. Cement realisation (including RMC) remained flat QoQ, while total cost/te was up 5% QoQ resulting in EBITDA/te declining 21% QoQ to Rs701/te. Net debt declined Rs5.6bn in FY21 to Rs30bn. We broadly maintain our FY22-23E EBITDA, but raise FY22-23E PAT by ~25% owing to lower debt and raise target price to Rs150/sh (earlier: Rs120) based on unchanged 7x FY23EV/E. High ‘net debt to EBITDA’ ratio at >3x with higher exposure to volatile prices in South market remains our key concern. Maintain SELL. Key risks: Higher-than-expected growth in demand and/or pricing.

Revenues were up 26% YoY to Rs14.5bn, in-line with our estimates.

Volumes grew 13% YoY and 23% QoQ to 2.99mnte (I-Sec:2.85mnte) in Q4FY21 with 77% utilisation. The company expanded its marketing zones to East, North East and Central India during the quarter and sales increased from 0.37mnte in Q3FY21 to 0.45mnte (15% of overall volumes) in these regions. Overall demand momentum was impacted by the second wave of covid from mid-Mar’21. The management remains cautiously optimistic and expects demand recovery from mid-Jun’21.

Cement realisation (including RMC) remained flat QoQ (still up 11.5% YoY)

to Rs4,823/te on account of sustained higher prices in South market. Trade sales mix stood at 55% during Q4FY21 whereas blended mix stood at 59% for both Q4FY21 as well as FY21. Q4FY21 exit prices were sustained in Apr’21 with Rs10/bag increase in May’21. The management expects further price hike of Rs15/bag from June’21 owing to cost escalations. ICEM will continue to focus on increasing the share of trade sales.

Cement EBITDA/te nearly doubled YoY; declined 21% QoQ to Rs701/te.

Total cost/te was up 5% QoQ and 2% YoY in Q4FY21. Raw material plus power & fuel cost/te increased 6% YoY and 4% QoQ owing to higher fuel prices. Freight costs/te increased 8% QoQ and 10% YoY owing to higher diesel prices and increase in lead distance owing to higher sales in East region. Other expenses were up ~30% QoQ owing to higher repair and maintenance costs and increase in packing bag costs. Similarly, employee cost was up 31% QoQ, which includes one-time expense of Rs110mn.

OCF generation in FY21 was better at Rs7.8bn

aided by working capital release of Rs2.7bn. The company incurred capex of Rs1.5bn, gave advances to subsidiary, associates etc at Rs740mn and repaid debt to the tune of Rs5.6bn in FY21 resulting in decline in net debt to Rs30bn in FY21. Repayment worth Rs5bn is due in FY22 and the management expects reduction in net debt by a similar amount in FY22. The cost of funds stood at ~9% and the company believes the same could go down on account of improved ratings which is due in Q1FY22.

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