India Cements (ICEM)’ operating performance for 2QFY2016 has come in better
than our and street estimates. ICEM reported an EBITDA growth of 27.6% yoy to
Rs228.6cr, which is above our estimate of Rs193.9cr. The EBITDA margin
improved by 536bp and came in at 21.2%, which is above our estimate of
17.7%. Consequently the net profit jumped to Rs41cr as against Rs7.5cr during the
same quarter last year. The net profit was higher on account of better than
expected EBITDA numbers and lower depreciation and interest expenses. The
top-line is marginally below our estimate, mainly due to weak cement demand
and subdued realization. The realization/tonne fell 2.4% qoq (improved by
5.8% yoy) to `4,925 and was below our estimate of Rs4,995.
EBITDA margin jumps 536bp yoy: ICEM’s top-line fell by 4.6% yoy, impacted by
low demand in its key markets of South India. The company’s cement sale
volume was down by 8.1% yoy to 2.16mn tonne (mt) and was in line with our
estimate of 2.15mt. Cement realization fell 2.4% qoq to Rs4,925/tonne and was
below our estimate of Rs4,995/tonne. However, the OPM improved by 536bp on
a yoy basis to 21.2%, aided by a decline in operational costs. The company
reported an operating profit to `228.6cr, an increase of 27.6% yoy. The
EBITDA/tonne came in at Rs1058. Higher EBIDTA and lower depreciation &
interest expenses led to an increase in the net profit to Rs41cr as against our
estimate of Rs29.5cr.
Outlook and valuation: ICEM’s return ratios have remained subdued over the
years due to weak profitability. However, we expect the company’s earnings profile
to improve going ahead due to better demand and stable realizations, which
would result in higher return ratios. We expect revenue to grow at a CAGR of
6.5% and EBIDTA to grow at CAGR of 34.5% over FY2015-17. At the current
market price, the stock trades at 4.1x FY2017 EV/EBIDTA and EV/tonne of $55
on FY2017 blended capacity. We maintain our Buy rating on the stock with a
target price of Rs112(7x EV/EBIDTA and EV/tonne of $65).

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