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Focusing on capacity upgradation to improve operating efficiencies

Result Synopsis

India Cement (ICEM) reported poor performance in this quarter. EBITDA came at a loss of Rs471mn due to +13% y/y surge in total cost, while revenue growth of +5% y/y was inadequate to mitigate the impact in Q4FY23. Similarly, the unprecedented surge in fuel prices and higher OPC sales coupled with inefficient capacities resulted in EBITDA loss of Rs1.4bn in FY23. The reported revenue growth was primarily driven by +6% y/y (+28% q/q) volume increase, although NSR corrected by 1% y/y (9% q/q) in Q4FY23. ICEM posted net loss of Rs2.3bn (v/s YSECe net loss of Rs1.2mn) which incl. Rs1.13bn of exceptional items in Q4FY23.

In a short run, we believe ICEM to witness a margin improvement primarily because of low-cost fuel inventory. Considering the operating inefficiencies, ICEM finally plans to refurbish & upgrade its all plants & critical equipment. This initiative will aid ICEM to reduce the operating/variable cost by improving the plant efficiencies. Further, management indicated that the refurbishment CAPEX of ~Rs6bn to be funded by monetizing the non-core land parcels for a consideration of Rs12-13bn. Balance Rs6-7bn from land monetization could be used to deleverage the B/S in FY24. Under-utilization (57% in FY21 v/s 80% in FY19) of the capacities mainly caused by high exposure to the south market with volatile demand. However, we believe improving southern demand scenarios and election year aid to improve ICEM utilization to 78% by FY25E. At CMP stock trades 16/11x EV/EBITDA on FY24/25E. We valued the stock at 10.5x EV/EBITDA on FY25 estimates and arrived at a price target of Rs167 with a SELL rating

Result Highlights

* Revenue came in at Rs14.8bn (v/s YSECe Rs14.4bn) up by 5% y/y aided by volume growth of 6% y/y to 2.8MT, despite NSR declined by 1% y/y in Q4FY23.

* In Q4FY23, total cost/te increased by +7% y/y largely due to increase in RM/ power & other cost/te by +12/11 & 6% y/y in Q4FY23, respectively.

* Whereas total cost increased by +13% y/y and 14% q/q to Rs15.3bn in Q4FY23

* In Q4FY23, EBITDA reported loss of Rs471mn (v/s YSECe Rs199mn loss) against profit of Rs629mn in Q4FY22 and loss of Rs596mn in Q3FY23.

* Reported net loss of Rs2.3bn (YSECe loss of Rs1.2bn) against loss of Rs106mn in Q4FY22 and profit of Rs1.3bn in Q3FY23

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