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Stock recommendation: The India Cements Ltd – REDUCE – TP Rs.112
Publish date: August 14, 2018
Result Update
India Cements results were ahead of our estimates led by better than expected dispatches and lower costs. Demand has improved sharply by nearly 20% YoY in the southern region which has aided the volume growth. Growth going ahead is likely to be led by improved dispatches and prices from the levels of Q1FY19.
Key Highlights
- Revenue growth for the quarter was led by volume gain of 15.8% YoY. Margins witnessed a decline due to pressure on realizations and higher power and fuel while freight and other expenses per tonne have declined sequentially during the quarter. Net profit performance was impacted by fall in margins but boosted by lower tax expense.
Valuation & Outlook
- At current market price of Rs 108, stock is trading at 7.2x and 6.0x EV/EBITDA on FY19 and FY20 estimates respectively. We believe that India Cements is adequately positioned to cater to upcoming demand with incremental volumes.
- However, after the NCLAT decision on penalty on cement companies, we had revised our rating to REDUCE on India Cements owing to poorer cash flows as compared to peers. Company’s debt repayment is also not as per initial plans.
- We marginally tweak our estimates and arrive at a revised price target of Rs 112 (Rs 115 earlier) based on based on average of 6x EV/EBITDA on FY20 estimates. We maintain REDUCE recommendation on the stock.
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