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Weak quarter

India Cements’ (ICEM) Q1FY22 EBITDA at Rs1.6bn (up 4% YoY) was below our / consensus estimates owing to lower volumes and profitability. Volume decline was higher at 35% QoQ; while blended EBITDA/te declined 24% YoY to Rs849/te (I-Sec: Rs996/te). While cement realisation (including RMC) increased 8% QoQ (flat YoY), total cost/te increase was higher at 6% QoQ (5% YoY).

Factoring lower volumes / profitability, we cut our FY22E-FY23E EBITDA by 6-10%, and reduce our target price to Rs145/sh (earlier: Rs150) based on 7x Jun’23E EV/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 upside risks include higher demand and/or pricing.

* Revenues grew 35% YoY to Rs10.2bn, lower than our estimate. Volumes grew 36% YoY on a low base and declined 35% QoQ to 1.94mnte (I-Sec:2.21mnte) in Q1FY22 with 50% utilisation (against ~38% in Q1FY21 and 77% in Q4FY21). Company expanded its marketing zones to East, North-East and Central India, which helped improve despatches during severe lockdowns in its main market of South India. In Q1FY22, East contributed 11% of sales volumes (up from 4% in Q1FY21 and 12% in Q4FY21) and Maharashtra contributed 21% (up from 11% in Q1FY21 and 18% in Q4FY21). Management believes the new government in Tamil Nadu is likely to push housing and infrastructure development. ICEM remains cautiously optimistic about demand recovery as the covid-induced restrictions ease.

* Cement realisation (including RMC) increased 8% QoQ (flat YoY) at Rs5,193/te on sustained higher prices in South. Trade sales mix for the quarter stood at 55% and blended mix at 57% during Q1FY22. Net plant realisation shrunk from Rs4,235/te in Q1FY21 to Rs3,942/te. This was primarily attributable to higher freight cost due to increase in lead distance while prices continue to be stable.

* Cement EBITDA/te increased 15% QoQ, declined 24% YoY to Rs807/te. Total cost/te was up 6% QoQ and 5% YoY in Q1FY22. Raw material plus power & fuel cost/te increased 1% YoY and 5% QoQ owing to higher fuel prices. Freight cost/te rose 25% YoY (flat QoQ) due to higher diesel prices and increase in lead distance to 450km from 350km. Other expenses/te were up ~10% YoY as a result of increase in packing costs. Imported coal contributed 85% (55% in Q1FY21) and petcoke 15% (45% in Q1FY21) to the fuel mix in Q1FY22. Blended fuel cost increased from Rs9,100/te in Q4FY21 to Rs9,700/te during the quarter.

* Consolidated revenues grew 36% YoY, EBITDA was up 2% YoY to Rs1.7bn. Interest cost fell 38% YoY to Rs467mn. Recurring PAT stood at Rs431mn, up 1.2x YoY. Net debt declined by Rs250mn in Q1FY22 to Rs29.7bn.

Maintain SELL with target price of Rs145/share

Factoring lower volumes / profitability, we cut our FY22E-FY23E EBITDA by 6-10%, and reduce our target price for the stock to Rs145/sh (earlier: Rs150) based on 7x Jun’23E EV/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 upside risks include higher demand and/or pricing.

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