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Volume improves QoQ, but weak realization dents earnings

* India Cements (ICEM) reported an operating loss of INR1.6b (vs. estimated loss of INR490m) in 2QFY25. Sales volume dipped ~3% YoY to 2.3mt (~30% above our estimate), while blended realization declined 14% YoY to INR4,416 (10% below our estimate). ICEM’s net loss widened to INR2.5b (estimated loss of INR1.3b) vs. a net loss of INR814m in 2QFY24.

* The company’s capacity utilization improved to 59% in 2QFY25 vs. 50% in 1QFY25. However, a sharp decline in cement prices led to higher operating loss. Industry demand growth stood at ~2% in 1HFY25 vs. ~10% in 1HFY24. Weak demand growth resulted in higher competition, leading to pricing pressure in the industry. A steep decline in NPR hurt margins. The company has maintained a blended cement mix of 60%. Management expects cement demand to pick up in 2HFY25, evident from the ~7% growth in Sep’24.

* It is already known that the promoter and the promoter group of ICEM have agreed to sell their stake to UTCEM in Jul’24. UTCEM’s management, in its earnings concall, highlighted that the deal is pending regulatory approvals. We value ICEM at a replacement cost (EV/t of USD100) and arrive at our TP of INR310. Reiterate Sell.

Volume declines ~3% YoY and realization dips ~14% YoY

* ICEM’s revenue declined 17% YoY to INR10.2b in 2QFY25 (~17% beat), led by higher sales volume at 2.3mt (~30% above our est.), which declined 3% YoY. Blended realization/t declined ~14%/11% YoY/QoQ to INR4,416 (10% miss).

* Opex/t remained flat YoY, led by a 1% drop in variable cost/t. Other expenses and freight costs per tonne were up 5% and 1% YoY, respectively. ICEM reported an operating loss of INR1.6b vs. EBITDA of INR81m in 2QFY24. Finance costs rose 23% YoY and ‘Other Income’ was up 64% YoY. It reported a net loss of INR2.5b vs. a net loss of INR814m in 2QFY24.

* In 1HFY25, revenue declined 24% YoY to INR19.9b. Operating loss stood at INR1.9b (vs. EBITDA of INR131m in 1HFY24). Net loss stood at INR3.6b (vs. a net loss of INR1.6b in 1HFY24). Volume/realization declined 15%/10% YoY. We estimate its revenue to decline ~4% YoY in 2HFY25 and operating loss to be INR646m (vs. an EBITDA of INR959m in 2HFY24). We estimate a net loss of INR2.3b in 2HFY25 vs. a net loss of INR780m in 2HFY24.

Valuation and view

* ICEM’s operating performance was hit in the past few quarters amid volume loss, weak cement prices in its core markets, and higher production costs. Due to the recurring losses, working capital constraints, and higher net debt, the promoter (including the promoter group) agreed to sell the entire stake to UTCEM. We continue to monitor the progress on regulatory approvals and merger with UTCEM.

* ICEM’s net loss estimate has widened for FY25 due to underperformance in 2QFY25 and continuing pricing pressure. We retain our earnings estimates for FY26/27. We value ICEM at a replacement cost (EV/t of USD100) and arrive at our TP of INR310. Reiterate Sell.

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