2QFY2016 Result Update | Cement

November 3, 2015

India Cements

BUY

CMP

`84

Performance Highlights

Target Price

`112

Quarterly results (standalone)

Investment Period

12 Months

Y/E Mar (` cr)

2QFY16

1QFY16

% chg qoq 2QFY15

% chg yoy

Net revenue

1,079

1,071

0.7

1,132

(4.6)

Stock Info

Operating profit

229

195

17.3

179

27.6

Sector

Cement

OPM (%)

21.2

18.2

298bp

15.8

536bp

Market Cap (` cr)

2,568

Reported Net profit

2.3

447.9

Source: Company, Angel Research

Net debt (` cr)

3,148

Beta

2.0

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

52 Week High / Low

117/64

`228.6cr, which is above our estimate of

`193.9cr. The EBITDA margin

Avg. Daily Volume

2,964,834

improved by 536bp and came in at 21.2%, which is above our estimate of

Face Value (`)

17.7%. Consequently the net profit jumped to `41cr as against `7.5cr during the

BSE Sensex

26,559

same quarter last year. The net profit was higher on account of better than

Nifty

8,051

expected EBITDA numbers and lower depreciation and interest expenses. The

Reuters Code

ICMN.BO

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

Bloomberg Code

ICEM IN

5.8% yoy) to `4,925 and was below our estimate of `4,995.

EBITDA margin jumps 536bp yoy: ICEM’s top-line fell by 4.6% yoy, impacted by

Shareholding Pattern (%)

low demand in its key markets of South India. The company’s cement sale

Promoters

28.2

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 `4,925/tonne and was

MF / Banks / Indian Fls

14.8

below our estimate of `4,995/tonne. However, the OPM improved by 536bp on

FII / NRIs / OCBs

21.9

a yoy basis to 21.2%, aided by a decline in operational costs. The company

Indian Public / Others

35.0

reported an operating profit to `228.6cr, an increase of 27.6% yoy. The

EBITDA/tonne came in at `1058. Higher EBIDTA and lower depreciation &

interest expenses led to an increase in the net profit to `41cr as against our

Abs. (%)

3m 1yr 3yr

estimate of `29.5cr.

Sensex

(5.5)

(4.7)

41.6

Outlook and valuation: ICEM’s return ratios have remained subdued over the

India Cement

(9.7)

(25.1)

(14.5)

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

3-year price chart

6.5% and EBIDTA to grow at CAGR of 34.5% over FY2015-17. At the current

140

market price, the stock trades at 4.1x FY2017 EV/EBIDTA and EV/tonne of $55

120

on FY2017 blended capacity. We maintain our Buy rating on the stock with a

100

target price of `112(7x EV/EBIDTA and EV/tonne of $65).

Key Financials (Standalone)

Y/E March (` cr)

FY2013

FY2014

FY2015

FY2016E

FY2017E

Net sales

4,461

4,275

4,264

4,216

4,840

% chg

9.7

(4.2)

(0.3)

(1.1)

14.8

Net profit

164

(36)

122

303

% chg

(44.9)

(121.9)

(182.2)

315.5

147.9

Source: Company, Angel research

FDEPS (`)

5.3

(1.2)

1.0

4.0

9.9

OPM (%)

15.4

7.9

12.3

18.0

19.5

P/E (x)

17.1

(72.0)

87.6

21.1

8.5

P/BV (x)

0.8

0.9

0.8

RoE (%)

4.7

(1.1)

0.9

4.0

9.5

RoCE (%)

5.1

0.8

3.3

6.4

8.7

Shrenik Gujrathi

EV/Sales (x)

1.1

1.2

1.0

0.8

022-39357800 Extn: 6872

EV/EBITDA (x)

7.1

14.9

8.2

5.4

4.1

[email protected]

Source: Company, Angel research; Note: CMP as of November 2, 2015

Please refer to important disclosures at the end of this report

India Cements | 2QFY2016 Result Update

Exhibit 1: Quarterly Performance (Standalone)

Y/E March (` cr)

2QFY16

2QFY15

% chg yoy

1QFY16

% chg qoq

1HFY2016

1HFY2015

% chg

Net Revenue

1,079

1,132

(4.6)

1,071

0.7

2,150

2,363

(9.0)

Net Raw-Material Costs

139

158

(12.1)

184

(24.7)

323

354

(8.8)

(% of Sales)

12.9

13.9

17.2

15.0

Power & Fuel

248

296

(16.4)

235

5.2

483

601

(19.6)

(% of Sales)

22.9

26.2

22.0

22.5

25.4

Staff Costs

7.1

(9.6)

173

155

11.8

(% of Sales)

7.6

6.8

8.5

8.1

6.6

Freight & Forwarding

220

265

(16.9)

221

(0.4)

441

521

(15.3)

(% of Sales)

20.4

23.4

20.6

20.5

22.0

Other Expenses

162

157

3.3

145

11.9

306

390

(21.6)

(% of Sales)

15.0

13.8

13.5

14.2

16.5

Total Expenditure

850

953

(10.7)

876

(2.9)

1,727

2,021

(14.6)

Operating Profit

229

179

27.6

195

17.3

424

342

24.0

OPM (%)

21.2

15.8

536bp

18.2

298bp

19.7

14.5

524bp

Interest

109

(12.9)

2.4

189

213

(11.3)

Depreciation

(16.7)

(0.3)

111

133

(16.5)

Other Income

(20.9)

(25.2)

(4.0)

Recurring PBT

985.4

60.0

132

Exceptional expense

PBT

117

Provision for Taxation

(% of PBT)

46.9

30.9

Reported PAT

447.9

2.3

1,691.2

PATM (%)

3.8

0.7

3.7

3.8

0.2

Source: Company, Angel Research

Exhibit 2: Financial performance

(` cr)

(%)

1,400

25.0

1,231

1,132

1,079

1,200

1,071

1,036

1,025

20.0

21.2

1,000

17.8

18.2

800

15.3

15.0

15.8

13.2

600

10.0

400

229

179

182

195

163

159

5.0

200

0.0

1QFY15

2QFY15

3QFY15

4QFY15

1QFY16

2QFY16

Net Revenue

EBIDTA

EBIDTA margin

Source: Company, Angel Research

November 3, 2015

India Cements | 2QFY2016 Result Update

Exhibit 3: 2QFY2016 - Actual vs Angel estimates

(` cr)

Actual

Estimates

Variation (%)

Net sales

1,079

1,096

(1.5)

Operating profit

229

194

17.9

OPM (%)

21.2

17.7

348bp

Adjusted PAT

39.3

Source: Company, Angel Research

Performance highlights

Revenue falls short of expectation due to weak demand

ICEM’s top-line declined by 4.6% yoy to `1,079cr, impacted by weak demand in

its key markets of South India. ICEM’s volume declined by 8.1% yoy to 2.16mt but

was in line with our estimate of 2.15mt. However realizations/tonne during the

quarter increased by 5.8% yoy (declined by 2.4% qoq) to `4,925 and was below

our estimate of `4,995. The fall in realization is due to higher clinker export of 73K

during 2QFY2016 as against 18K during 1QFY2016. During 1HFY2016 ICEM

registered at volume decline of 13.3% yoy; however, we expect the demand

scenario to improve, mainly led by government infrastructure spending towards the

development of states of Telangana and Andhra. We forecast a 6.5% CAGR in

net sales over FY2015-17.

Exhibit 4: Cement Volume Trend

Exhibit 5: Realization Trend

(mn tn)

(`/tonne)

3.00

5,200

2.56

5,045

2.50

2.35

5,000

4,925

2.16

4,866

2.11

2.09

2.10

4,805

4,800

2.00

4,657

4,600

1.50

4,400

4,260

1.00

4,200

0.50

4,000

3,800

1QFY15

2QFY15

3QFY15

4QFY15

1QFY16

2QFY16

1QFY15

2QFY15

3QFY15

4QFY15

1QFY16

2QFY16

Source: Company, Angel Research

EBITDA margin jumped by 536bp yoy

ICEM’s EBITDA margin rose by 536bp on a yoy basis to 21.2%, benefiting from

reduction in operational costs. The EBITDA grew by 27.6% yoy and came in at

`228.6cr, which is above our estimate of `193.9cr. The operating cost/tonne

declined 2.9% yoy to `3,937. Fall in power & fuel and freight cost reduced the

operating cost/tonne, thus improving the EBITDA/tonne. EBITDA/tonne came in at

`1,058 (our estimate was of `903) as against `762 during the same quarter last

year, an increase of 38.8% yoy.

November 3, 2015

India Cements | 2QFY2016 Result Update

Exhibit 6: EBITDA/tonne trend

(`/tonne)

(%)

1,200

250.0

1,058

210.8

1,000

929

200.0

870

762

753

800

150.0

635

600

100.0

400

46.3

50.0

45.8

19.5

38.

200

(11.9)

(50.0)

1QFY15

2QFY15

3QFY15

4QFY15

1QFY16

2QFY16

EBITDA/tonne

% change (yoy)

Source: Company, Angel Research

Per tonne analysis

During the quarter, net realization rose by 5.8% yoy to `4,925/tonne. However,

operating costs declined 2.9%/5.7% yoy/qoq basis to `3,937/tone, led by a fall in

raw material and freight cost per tonne. The raw-material cost/tonne declined

4.3% on a yoy basis to `642. The power & fuel cost/tonne also declined by 9.1%

yoy to `1,146, on account of fall in imported coal and pet coke prices. Freight

cost/tonne declined by 9.6%/3.2% yoy/qoq to `1,019 due to fall in diesel prices.

Other expenses/tonne increased by 12.4%/8.7% yoy/qoq to `749. The Operating

profit/tonne of cement stood at `1,058, up 38.8% on a yoy basis.

Exhibit 7: Per tonne analysis

Particulars (`/tonne)

2QFY16

2QFY15

1QFY16

yoy chg (%)

qoq chg (%)

Net Realization/tonne

4,925

4,657

5,045

5.8

(2.4)

Raw-Material Cost/tonne

642

671

878

(4.3)

(26.8)

Power and Fuel cost/tonne

1,146

1,261

1,121

(9.1)

2.3

Freight Cost/tonne

1,019

1,128

1053

(9.6)

(3.2)

Employee Cost/tonne

381

327

434

16.5

(12.2)

Other Cost/tonne

749

666

689

12.4

8.7

Operating costs/tonne

3,937

4,053

4,174

(2.9)

(5.7)

Operating Profit/tonne

1,058

762

929

38.8

13.9

Source: Company, Angel Research

November 3, 2015

India Cements | 2QFY2016 Result Update

Change in estimates

Due to the weak demand situation in the South region and an expected slow

recovery of the same going forward, we have revised our volume estimate

downwards by 14.3%/7.8% for FY2016E/FY2017E. Hence our revenue estimates

get revised downward by

10.6%/5.7% for FY2016E/FY2017E. However, on

expectation of lower power and freight expenses, our EBITDA estimates get revised

upward by 1.2%/9.1% for FY2016E/FY2017E. Our net profit estimates also get

revised upward by 6.1%/31.2% for FY2016E/FY2017E, in anticipation of lower

depreciation and interest expenses.

Exhibit 8: Change in estimate

FY2016E

FY2017E

( ` cr )

Revised

Earlier

% chg

Revised

Earlier

% chg

Volume (mn tn)

8.4

9.8

(14.3)

9.4

10.2

(7.8)

Net Sales

4,216

4,716

(10.6)

4,840

5,133

(5.7)

EBITDA

760

751

1.2

946

867

9.1

EBITDA (%)

15.9

210bp

19.5

16.9

260bp

Net Profit

122

115

6.1

303

231

31.2

Source: Company, Angel Research

Outlook and valuation

India Cements’ 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 `112(7x EV/EBIDTA and

EV/tonne of $65).

November 3, 2015

India Cements | 2QFY2016 Result Update

Profit & Loss Statement (Standalone)

Y/E March (` cr)

FY2013

FY2014

FY2015

FY2016E FY2017E

Net Sales

4,461

4,275

4,264

4,216

4,840

% chg

9.7

(4.2)

(0.3)

(1.1)

14.8

Total Expenditure

3,774

3,936

3,741

3,456

3,894

Net Raw Materials

559

574

659

561

641

Power & fuel

1,255

1,276

1,136

1,042

1,186

Personnel

334

351

318

334

344

Freight & forwarding

958

1,009

953

864

994

Other

668

725

675

655

729

EBITDA

687

339

523

760

946

% chg

(10.4)

(50.6)

54.1

45.5

24.4

(% of Net Sales)

15.4

7.9

12.3

18.0

19.5

Depreciation& Amortisation

282

276

258

264

273

EBIT

405

265

497

673

% chg

(21.4)

(84.5)

321.6

87.6

35.5

(% of Net Sales)

9.1

1.5

6.2

11.8

13.9

Interest & other Charges

308

354

426

375

325

Other Income

155

255

191

(% of PBT)

61.5

(157.1)

647.9

20.7

8.4

Recurring PBT

252

(36)

153

379

% chg

(34.4)

(114.2)

(182.2)

419.4

147.9

Extraordinary Expense/(Inc.)

127

PBT (reported)

252

(162)

153

379

Tax

(% of PBT)

35.2

20.0

PAT (reported)

164

(162)

122

303

ADJ. PAT

164

(36)

122

303

% chg

(44.9)

(121.9)

182.2

315.5

147.9

(% of Net Sales)

3.7

(0.8)

0.7

2.9

6.3

Basic EPS (`)

5.3

(1.2)

1.0

4.0

9.9

Fully Diluted EPS (`)

5.3

(1.2)

1.0

4.0

9.9

November 3, 2015

India Cements | 2QFY2016 Result Update

Balance sheet - standalone

Y/E March (` cr)

FY2013

FY2014

FY2015

FY2016E FY2017E

SOURCES OF FUNDS

Equity Share Capital

307

Reserves& Surplus

3,782

3,544

3,286

3,384

3,627

Shareholders Funds

4,090

3,851

3,593

3,691

3,934

Total Loans

3,023

3,192

3,104

3,004

2,704

Deferred Tax Liability

330

Other long term liabilities

124

Long term provisions

609

Total Liabilities

8,175

8,105

7,759

7,757

7,700

APPLICATION OF FUNDS

Gross Block

6,842

7,078

6,698

6,848

7,098

Less: Acc. Depreciation

2,700

2,916

3,174

3,438

3,711

Net Block

4,142

4,161

3,524

3,410

3,387

Capital Work-in-Progress

339

101

151

201

101

Investments

958

946

1,585

Long term loans and advances

1,916

1,899

Current Assets

1,447

1,630

1,152

1,111

1,261

Cash

Loans & Advances

481

653

Other

962

973

1,073

985

1,106

Current liabilities

628

632

552

450

534

Net Current Assets

819

998

600

661

727

Mis. Exp. not written off

Total Assets

8,175

8,105

7,759

7,757

7,700

November 3, 2015

India Cements | 2QFY2016 Result Update

Cash Flow statement - Standalone

Y/E March (` cr)

FY2013

FY2014

FY2015E FY2016E FY2017E

Profit before tax

252

(162)

153

379

Depreciation

282

276

258

264

273

Change in Working Capital

(1)

(281)

399

(15)

(36)

Less: Other income

155

255

191

Direct taxes paid

Cash Flow from Operations

289

(422)

496

339

509

(Inc)/ Decin Fixed Assets

(534)

330

(200)

(150)

(Inc)/ Dec in Investments

(106)

(640)

Other income

155

255

191

Cash Flow from Investing

(485)

270

(119)

(168)

(118)

Issue of Equity

(1)

Inc./(Dec.) in loans

322

169

(88)

(100)

(300)

Dividend Paid (Incl. Tax)

Others

288

Cash Flow from Financing

198

150

(376)

(124)

(361)

Inc./(Dec.) in Cash

(2)

Opening Cash balances

Closing Cash balances

November 3, 2015

India Cements | 2QFY2016 Result Update

Key ratios

Y/E March

FY2013

FY2014

FY2015

FY2016E

FY2017E

Valuation Ratio (x)

P/E (on FDEPS)

17.1

(72.0)

87.6

21.1

8.5

P/CEPS

6.3

22.6

9.0

6.7

4.5

P/BV

0.8

0.9

0.8

Dividend yield (%)

2.6

0.9

2.4

EV/Sales

1.1

1.2

1.0

0.8

EV/EBITDA

7.1

14.9

8.2

5.4

4.1

EV / Total Assets

0.6

0.5

Per Share Data (`)

EPS (Basic)

5.3

(1.2)

1.0

4.0

9.9

EPS (fully diluted)

5.3

(1.2)

1.0

4.0

9.9

Cash EPS

14.5

3.7

9.4

12.6

18.8

DPS

2.3

0.8

2.0

Book Value

113.4

105.6

97.2

100.4

108.3

Dupont Analysis

EBIT margin

9.1

1.5

6.2

11.8

13.9

Tax retention ratio

64.8

100.0

80.0

Asset turnover (x)

0.6

0.5

0.6

ROIC (Post-tax)

3.3

0.8

3.3

5.1

7.0

Cost of Debt (Post Tax)

7.0

11.4

13.5

9.8

9.1

Leverage (x)

0.7

0.8

0.7

Operating ROE

0.7

(7.5)

(5.3)

1.2

5.5

Returns (%)

ROCE (Pre-tax)

5.1

0.8

3.3

6.4

8.7

Angel ROIC (Pre-tax)

5.2

0.8

3.4

6.6

9.0

ROE

4.7

(1.1)

0.9

4.0

9.5

Turnover ratios (x)

Asset Turnover (Gross Block)

0.7

0.6

0.7

Inventory / Sales (days)

Receivables (days)

Payables (days)

WCcycle (ex-cash) (days)

Solvency ratios (x)

Net debt to equity

0.7

0.8

0.9

0.8

0.7

Net debt to EBITDA

4.4

9.4

5.9

3.9

2.8

Interest Coverage (EBIT / Int.)

1.3

0.2

0.6

1.3

2.1

November 3, 2015

India Cements | 2QFY2016 Result Update

Research Team Tel: 022 - 39357800

E-mail: [email protected]

Website: www.angelbroking.com

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latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Pvt. Limited and its affiliates may

have investment positions in the stocks recommended in this report.

Disclosure of Interest Statement

India Cements

1. Analyst ownership of the stock

2. Angel and its Group companies ownership of the stock

3. Angel and its Group companies' Directors ownership of the stock

4. Broking relationship with company covered

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors

Ratings (Based on expected returns

Buy (> 15%)

Accumulate (5% to 15%)

Neutral (-5 to 5%)

over 12 months investment period):

Reduce (-5% to -15%)

Sell (< -15)

November 3, 2015