Sell India Cements Ltd For Traget Rs.185 - Motilal Oswal Financial Service Ltd
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Weak volume and higher cost led earnings miss Capacity utilization was ~51% vs. 56% in 3QFY23
* India Cements (ICEM) reported EBITDA of INR490m (vs. estimated INR895m) in 3QFY24. Sales volume declined ~9% YoY (15% miss) to 2mt. Its blended EBITDA/t stood at INR247 (vs. estimated INR383). Adjusted net loss stood at INR345m (vs. estimated INR130m net loss).
* Management highlighted that cement prices have improved in 3Q, which led to better NPR for the company. However, sales volume was adversely impacted due to working capital crunch. The company continues to focus on lowering variable cost and improving NPR. During the quarter, the company successfully sold a ship for a profit of INR262m (shown as exceptional) and in Jan’24, it acquired a new ship.
* We cut our FY24E earnings (EBITDA cut ~20%), considering lower-thanexpected volume and profitability; however, we reiterate our FY25/FY26 estimates. We reiterate our Sell rating on the stock with a TP of INR185 (premised on 11x FY26E EV/EBITDA).
Volumes declined 9% YoY; realization was up 6% QoQ
* ICEM’s revenue declined 11% YoY to INR11b in 3QFY24 (14% below our estimate). Sales volume declined 9% YoY to 2mt (15% below our estimate). Blended realization/t was up ~6% QoQ to INR5,450 (cement realization/t was also up ~6% QoQ).
* Opex/t declined 12% YoY, led by a 20%/6% YoY drop in variable cost/freight costs. However, other expenses/t increased 10% YoY. OPM stood at 4.5% (est. ~7%). Interest costs declined 2% YoY, whereas ‘other income’ grew 328% YoY. Depreciation increased 5% YoY. ICEM reported an adjusted net loss of INR345m (adjusted for profit on the sale of a ship) vs. a net loss of INR1.4b in 3QFY23.
* In 9MFY24, revenue declined 6% YoY to INR37b due to a 1%/5% decline in volume/realization/t. EBITDA stood at INR622m vs. an operating loss of INR1.3m in 9MFY23. Net loss stood at INR1.9b vs. INR3.5b in 9MFY23.
Highlights from the management commentary
* Cement prices in the Tamil Nadu market was weak, owing to reduced demand over the past few months, due to factors such as excessive rains, a transporters’ strike, and the Pongal festivals. Cement demand is expected to increase in Feb-Mar’24 in the south region, which may also drive improvement in cement prices.
* Fuel costs stood at INR2/kcal vs. INR2.04/kcal in 2QFY24. Fuel cost is estimated to decline to INR1.9/Kcal in 4QFY24, considering the existing carrying inventory.
* For Shipping/Windmill/RMC, revenue stood at INR23m/INR10m/INR293m. It reported EBITDA of INR23m in RMC and operating loss of INR7m/1m in Shipping/Windmill
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