Sell India Cements Ltd For Target Rs.310 by Motilal Oswal Financial Services Ltd
Miss estimates; awaiting clarity on group synergy benefits
* India Cements (ICEM) reported an operating loss of INR1.9b (vs. estimated loss of INR854m) in 3QFY25. Sales volume increased ~5% YoY to 2.1mt (~2% below our estimate), while blended realization declined ~20% YoY to INR4,333 (~5% below our estimate). ICEM’s adj. net loss stood at INR2.6b (estimated loss of INR1.4b) vs. a net loss of INR345m in 3QFY24.
* The company’s capacity utilization stood at 57% in 3QFY25 vs. 50%/59% in 3QFY24/2QFY25. However, a sharp decline in realization led to a higher operating loss. UTCEM has acquired a 32.7% stake in ICEM, taking its aggregate shareholding in the company to 55.5%. ICEM has now become a subsidiary of UTCEM. The company is estimated to benefit from synergy with UTCEM, led by the introduction of new system and processes, economies of scale, cost optimization initiatives and a wider distribution network. ICEM aims to strengthen its presence in its core markets (South).
* We await clarity from the management regarding the transition/integration process of ICEM under the new management, profitability and growth plans. We value ICEM at a replacement cost (EV/t of USD100) and arrive at our TP of INR310. Maintain Sell.
Volume up ~5% YoY, realization down ~20% YoY
* ICEM’s revenue declined ~17% YoY to INR9.0b in 3QFY25 (~7% miss). Sales volume grew ~5% YoY (down 9% QoQ) to 2.1mt. Blended realization/t declined ~20% YoY/2% QoQ to INR4,333.
* Opex/t inched up 1% YoY, led by a 4% increase in variable cost/t. However, other expenses/freight costs per ton declined 3%/4% YoY. ICEM reported an operating loss of INR1.9b vs. EBITDA of INR490m in 3QFY24. Finance costs rose 24% YoY and ‘Other Income’ declined 37% YoY. It reported a net loss (adjusted for exception items – impairment/provisioning for doubtful receivables) of INR2.6b vs. a net loss of INR345m in 3QFY24.
* In 9MFY25, revenue declined 22% YoY to INR28.9b. Operating loss stood at INR3.8b (vs. EBITDA of INR622m in 9MFY24). Net loss stood at INR6.3b (vs. a net loss of INR1.9b in 9MFY24). Volume/realization declined 10%/13% YoY. In 4QFY25, we estimate revenue to decline ~8% YoY and operating loss of INR687m (vs. an EBITDA of INR469m in 4QFY24). We estimate a net loss of INR1.1b in 4QFY25 vs. a net loss of INR435m in 4QFY24.
Valuation and view
* After the CCI approval in Dec’24, UTCEM acquired a 32.7% stake in ICEM, taking its aggregate shareholding to 55.5%. ICEM is now a subsidiary of UTCEM. ICEM is expected to benefit from synergy with UTCEM, led by the implementation of new processes, system, cost optimization, and a wider distribution network.
* We value ICEM at a replacement cost (EV/t of USD100) and arrive at our TP of INR310. Reiterate Sell.
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