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India Cements (ICEM) has posted an EBITDA loss for the third consecutive quarter. EBITDA loss in Q4FY23 stood at Rs445mn vs a loss of Rs695 in Q3FY23 and a profit of Rs615mn in Q4FY22. While volumes rose ~5% YoY, weak cement prices and elevated fuel cost got the better of ICEM. The company has posted an EBITDA loss of Rs1.75bn for the full year FY23 - a first in past several years. While fuel cost is visibly easing (pet coke spot rates are down >50% vs the peak of last year) and ICEM is optimistic on cement price improvement, our estimates broadly capture potential gains from the same.

ICEM has embarked on a journey to enhance efficiency and plans to replace old equipment at a few plants over next two years. The capex is likely to be ~Rs6bn and ICEM plans to monetise its surplus land to fund the same. We await concrete steps in that direction. As of now, our concerns of high debt and low ROEs stay put. Hence, we continue to value ICEM at 9x FY25E EV/EBITDA and maintain SELL with an unchanged target price of Rs122.

Key upside risks: Sharp cement price hike, significant drop in fuel cost.

* Third straight quarter of EBITDA loss: Volumes increased ~5% YoY to 2.79mnte (I-Sec: 2.81mnte) in Q4FY23 with 72% utilisation. In FY23, ICEM reported volume of 9.9mnte, implying ~9% YoY volume growth. While variable cost/t slipped >6% QoQ, the >6% drop in blended realisation and no respite from fixed cost, drove EBITDA into a loss of Rs445mn for Q4FY23. With continued EBITDA loss being reported since Q2FY23, EBITDA loss for FY23 stood at Rs1.74bn.

* Fuel cost easing, limited risk to our estimates: As per ICEM, fuel consumption cost is expected to dip to ~Rs2.35/kcal in Q1FY24 vs ~Rs2.7/kcal in Q4FY23. Also, it expects cement prices to improve in its markets going ahead. Our unit EBITDA estimates stand at Rs473 and Rs610 for FY24E and FY25E, respectively, largely capturing the potential gains.

* Outlook and valuations - sticky debt concerns: We maintain SELL on ICEM owing to limited visibility of significant debt reduction and poor RoEs. We await concrete steps in ICEM’s resolve to monetise surplus land and pursue efficiency improvement. Given the sticky concerns, we continue to value ICEM at 9x FY25E EV/EBITDA and assign it a target price of Rs122.

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