CMP: INR78 TP: INR88 (+13%) Neutral

Transcription

1 BSE SENSEX S&P CNX 23,759 7,216 Bloomberg ICEM IN Equity Shares (m) M.Cap.(INRb)/(USDb) 23.9 / Week Range (INR) 112/64 1, 6, 12 Rel. Per (%) -17/9/1 Avg Val, (INR m) 314 Free float (%) 71.8 Financials & Valuations (INR b) Y/E Mar 2016E 2017E 2018E Sales EBITDA NP Adj.EPS (INR) EPS Gr. (%) BV/Sh (INR) RoE (%) RoCE (%) P/E (x) P/BV (x) EV/EBITDA(x) EV/Ton(USD) Estimate change TP change Rating change 10 February 2016 Q3FY16 Results Update Sector: Cement CMP: INR78 TP: INR88 (+13%) Neutral Weak volumes and pricing dip hurt profitability Volume in line with muted expectation: ICEM posted 10 consecutive quarters of volume de-growth in 3QFY16. While south region has seen marginal uptick in demand, monsoon-hit TN market led 8% YoY de-growth for ICEM to 1.94mt (in line). Lower TN-mix (better realization market) and dismal pricing in Maharashtra led realization decline of 3% QoQ. Revenue stood in line at INR9.3b (-10% YoY). Price-led profitability dip: EBITDA de-grew 8% YoY to INR1.5b (est. INR1.3b), translating into EBITDA margin of 15.7% (est of 14.4%). Cost of production was down 3%YoY (+1%QoQ) due to uptick in power efficiencies (consumption down from 91unit/ton to 87units/ton) and rise in pet coke usage (25% now). But dip in pricing led EBITDA/ton at INR755 (-29% YoY, flat QoQ). PAT stood at INR55m (v/s 410m QoQ, INR-117m YoY). Commentary on south dynamics optimistic, yet cautious: (a) Demand degrowth in south has contracted to ~4%. Improvement is imminent but will percolate gradually. (b) Pricing in Maharashtra has improved in 4Q after being dismal in 3QFY16. (c) use of pet coke to rise till 50% by early FY17, however, scope of further reduction would be limited due to vintage issue, (d) net debt was up by INR0.8b QoQ to INR30.9b in 3Q (S/A 0.83x). Maintain Neutral: With 15.5mt of south capacity ICEM has strong market share, good brand recall and offers a healthy play on southern recovery. However, ICEM s cost structure is relatively higher due to dependence on grid power, higher lead distance, vintage plants and low utilizations. High investment in non-cement businesses and various regulatory concerns keep the valuation at discount. The stock trades at an EV of 6.4/5.1x FY17/18E EBITDA and USD57/ton. We maintain Neutral with a target price of INR88 (EV of ~5x FY17E EBITDA and USD60/ton). We believe demerger of other non-core businesses and tangible recovery in south would be key triggers to re-rate. Sandipan Pal (Sandipan.Pal@MotilalOswal.com); Aashumi Mehta (aashumi.mehta@motilaloswal.com); Investors are advised to refer through important disclosures made at the last page of the Research Report. Motilal Oswal research is available on Bloomberg, Thomson Reuters, Factset and S&P Capital.

2 Exhibit 1: Realizations dip on lower TN mix and dismal Maharashtra (%) Realizations (INR/ton) Volume (m ton) QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4,148 4,223 4,242 4,245 4,464 4,355 4,364 4,221 4,188 4,116 4,429 4,009 4,244 4,655 4,777 4,821 5,032 4,892 4,746 Exhibit 2: Margins decrease on lower realizations ,520 1,946 2,152 2,777 2,051 1,927 1,679 1,910 1,276 1, ,578 1,791 1,587 1,822 1,950 2,286 1, Exhibit 3: Trend in EBITDA/Ton (INR) EBITDA (INR/Ton) 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 1, , , QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 Exhibit 4: Key operating indicators (incl. other businesses) INR/Ton 3QFY16 3QFY15 YoY (%) 2QFY16 QoQ (%) Net realization 4,799 4, , RM Cost Staff Cost Energy Cost 1,047 1, , Selling Exp. 1,005 1, , Other Exp Total Exp 4,044 4, , EBITDA , Maintain Neutral With 15.5mt of south capacity ICEM has good brand recall, market share and offers a healthy play on southern recovery. With pricing discipline in south and improving profitability, ICEM has shown de-leveraging over FY16 as well. However, despite strategically located plants, ICEM s cost structure is relatively higher due to dependence on grid power, higher lead distance, vintage plants and low utilizations. High investment in non-cement businesses and various regulatory concerns keep the valuation at discount. The stock trades at an EV of 6.4/5.1x FY17/18E EBITDA and USD57/ton. We maintain Neutral with a target price of INR88 (EV of ~5x FY17E EBITDA and USD60/ton). We believe restructuring in the company (merger of Trinetra Cement and demerger of IPL) is step in the right direction and needs to be followed up by demerger of other non-core businesses. Tangible recovery in southern demand would be key trigger to re-rate. 10 February

3 Story in charts Exhibit 5: Demand recovery to drive up utilization Capacity (mt) Despatch (mt) Utilization (%) Exhibit 6: Realizations to remain stable EBITDA (INR/ton) Margin (%) Exhibit 7: Very high operating & financial leverage Interest as % of EBITDA Depreciation as % of EBITDA 1, ,082 Exhibit 8: Uptick in FCF generation (INR b) CFO Capex FCF Exhibit 9: to drive reduction in net debt Net debt (INR b) Net DER (x) Exhibit 10: Capital efficiencies to improve 16.8 RoE RoCE February

4 Financials and Valuations Income Statement (INR Million) Y/E Mar E 2017E 2018E Net Sales 35,007 42,034 45,970 44,409 44,236 40,918 44,567 50,628 Change (%) EBITDA 4,337 9,034 8,433 5,371 6,826 7,473 8,505 10,139 EBITDA Margin (%) Depreciation 2,440 2,513 2,818 2,764 2,579 2,209 2,336 2,442 EBIT 1,897 6,521 5,615 2,608 4,246 5,264 6,169 7,697 Interest 1,417 2,867 3,078 3,537 4,260 3,736 3,687 3,580 Other Income Extraordinary items , PBT 899 3,810 2,524-1, ,628 2,757 4,392 Tax ,098 Tax Rate (%) Min. Int. & Assoc. Share Reported PAT 681 2,930 1,636-1, ,065 2,205 3,294 Adjusted PAT 664 2,958 1, ,163 2,205 3,294 Change (%) Balance Sheet (INR Million) Y/E Mar E 2017E 2018E Share Capital 3,072 3,072 3,072 3,072 3,072 3,072 3,072 3,072 Reserves 37,826 37,516 37,825 35,441 32,859 33,924 36,130 39,424 Net Worth 40,898 40,587 40,896 38,513 35,931 36,996 39,201 42,496 Debt 24,561 27,010 30,230 32,000 34,000 34,849 33,699 32,549 Deferred Tax 2,743 3,245 3,297 3,297 3,297 3,697 3,697 3,697 Total Capital Employed 68,201 70,842 74,423 73,810 73,228 75,542 76,597 78,741 Gross Fixed Assets 59,277 65,019 70,571 70,897 67,600 69,600 72,000 76,000 Less: Acc Depreciation 20,932 23,690 26,509 29,272 31,852 34,060 36,397 38,839 Net Fixed Assets 38,345 41,329 44,063 41,625 35,749 35,540 35,603 37,161 Capital WIP 3,088 1, ,000 1,000 1,000 2,000 1,000 Investments 1,603 8,520 9,578 9,455 15,852 15,852 15,852 15,852 Current Assets 36,349 31,114 33,638 35,288 30,513 32,842 33,185 35,680 Inventory 4,973 5,258 4,961 5,509 6,069 5,942 6,105 6,381 Debtors 2,544 2,098 4,656 4,225 4,661 4,260 4,518 4,993 Cash & Bank ,505 1,431 2,128 Loans & Adv, Others 28,501 23,728 23,974 25,523 19,744 20,135 21,131 22,178 Curr Liabs & Provns 11,184 11,571 13,606 13,559 9,886 9,692 10,044 10,952 Curr. Liabilities 9,919 10,247 12,210 12,965 9,298 9,529 9,768 10,403 Provisions 1,265 1,325 1, Net Current Assets 25,165 19,542 20,032 21,729 20,627 23,150 23,141 24,728 Total Assets 68,201 70,842 74,423 73,810 73,228 75,542 76,597 78, February

5 Financials and Valuations Ratios Y/E Mar E 2017E 2018E Basic (INR) Consol EPS Cash EPS Book Value DPS Payout (incl. Div. Tax.) Valuation(x) P/E Cash P/E Price / Book Value EV/Sales EV/EBITDA Dividend Yield (%) EV/Ton (US$) Profitability Ratios (%) RoE RoCE Turnover Ratios (%) Asset Turnover (x) Debtors (No. of Days) Inventory (No. of Days) Leverage Ratios (%) Net Debt/Equity (x) Cash Flow Statement (INR Million) Y/E Mar E 2017E 2018E Adjusted EBITDA 4,337 9,034 8,433 5,371 6,826 7,473 8,505 10,139 Non cash opr. exp (inc) (Inc)/Dec in Wkg. Cap. -9,349 5, ,714 1, , Tax Paid ,098 Other operating activities , CF from Op. Activity -4,760 14,133 7,112 2,963 8,244 7,353 7,163 8,428 (Inc)/Dec in FA & CWIP 1,766-4,105-4, ,297-2,000-3,400-3,000 Free cash flows -2,994 10,028 2,261 2,387 11,542 5,353 3,763 5,428 (Pur)/Sale of Invt 1,537-6,917-1, , Others CF from Inv. Activity 3,878-10,777-5, ,099-2,000-3,400-3,000 Inc/(Dec) in Net Worth , , Inc / (Dec) in Debt 3,233 2,449 3,220 1,770 2, ,150-1,150 Interest Paid -1,417-2,867-3,078-3,537-4,260-3,736-3,687-3,580 Divd Paid (incl Tax) & Others CF from Fin. Activity 675-3,658-1,184-2,526-5,136-2,887-4,837-4,730 Inc/(Dec) in Cash ,466-1, Add: Opening Balance ,505 1,431 Closing Balance ,505 1,431 2, February

6 Corporate profile Company description ICL is among top-five player in India and a leader in Southern India, having around seven plants spread over Tamil Nadu and Andhra Pradesh with total capacity of 15.5m ton. It also owns Chennai Super Kings, a cricket team in Indian Premier League. Exhibit 1: Sensex rebased Source: MOSL/Bloomberg Exhibit 2: Shareholding pattern (%) Dec-15 Sep-15 Dec-14 Promoter DII FII Others Note: FII Includes depository receipts Source: Capitaline Exhibit 4: Top management Name Designation N Srinivasan Vice Chairman & M.D. G Balakrishnan President & Company Secretary Exhibit 3: Top holders Holder Name % Holding The Bank of New York Mellon Corporation on Behalf of Mellon Capital Mgt. Corporation and The Boston 8.6 LIC of India 6.1 Trishul Investments Private Limited 5.7 ELM Park Fund Limited 5.0 Radhakishan S Damani 2.0 Source: Capitaline Exhibit 5: Directors Name Name Arun Datta Chitra Srinivasan N R Krishnan Natesan Srinivasan P L Subramanian R K Das V Manickam S Balasubramanian Adityan Rabinarayan Panda Basavaraju Rupa Gurunath Exhibit 6: Auditors Name Bala & Co Brahmayya & Co Gopalaiyer & Subramanian Kalyanasundaram & Associates P R Sudha Source: Capitaline Type Internal Statutory Internal Internal Secretarial Audit Source: Capitaline Exhibit 7: MOSL forecast v/s consensus EPS (INR) MOSL forecast Consensus forecast Variation (%) FY FY FY Source: Bloomberg 10 February

7 N O T E S 10 February

8 Disclosures This document has been prepared by Motilal Oswal Securities Limited (hereinafter referred to as Most) to provide information about the company(ies) and/sector(s), if any, covered in the report and may be distributed by it and/or its affiliated company(ies). This report is for personal information of the selected recipient/s and does not construe to be any investment, legal or taxation advice to you. This research report does not constitute India an Cements offer, invitation or inducement to invest in securities or other investments and Motilal Oswal Securities Limited (hereinafter referred as MOSt) is not soliciting any action based upon it. This report is not for public distribution and has been furnished to you solely for your general information and should not be reproduced or redistributed to any other person in any form. This report does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Before acting on any advice or recommendation in this material, investors should consider whether it is suitable for their particular circumstances and, if necessary, seek professional advice. The price and value of the investments referred to in this material and the income from them may go down as well as up, and investors may realize losses on any investments. Past performance is not a guide for future performance, future returns are not guaranteed and a loss of original capital may occur. MOSt and its affiliates are a full-service, integrated investment banking, investment management, brokerage and financing group. We and our affiliates have investment banking and other business relationships with a some companies covered by our Research Department. Our research professionals may provide input into our investment banking and other business selection processes. Investors should assume that MOSt and/or its affiliates are seeking or will seek investment banking or other business from the company or companies that are the subject of this material and that the research professionals who were involved in preparing this material may educate investors on investments in such business. The research professionals responsible for the preparation of this document may interact with trading desk personnel, sales personnel and other parties for the purpose of gathering, applying and interpreting information. Our research professionals are paid on twin parameters of performance & profitability of MOSt. MOSt generally prohibits its analysts, persons reporting to analysts, and members of their households from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. Additionally, MOSt generally prohibits its analysts and persons reporting to analysts from serving as an officer, director, or advisory board member of any companies that the analysts cover. Our salespeople, traders, and other professionals or affiliates may provide oral or written market commentary or trading strategies to our clients that reflect opinions that are contrary to the opinions expressed herein, and our proprietary trading and investing businesses may make investment decisions that are inconsistent with the recommendations expressed herein. In reviewing these materials, you should be aware that any or all of the foregoing among other things, may give rise to real or potential conflicts of interest. MOSt and its affiliated company(ies), their directors and employees and their relatives may; (a) from time to time, have a long or short position in, act as principal in, and buy or sell the securities or derivatives thereof of companies mentioned herein. (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies) or may have any other potential conflict of interests with respect to any recommendation and other related information and opinions.; however the same shall have no bearing whatsoever on the specific recommendations made by the analyst(s), as the recommendations made by the analyst(s) are completely independent of the views of the affiliates of MOSt even though there might exist an inherent conflict of interest in some of the stocks mentioned in the research report.reports based on technical and derivative analysis center on studying charts company's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamental analysis. In addition MOST has different business segments / Divisions with independent research separated by Chinese walls catering to different set of customers having various objectives, risk profiles, investment horizon, etc, and therefore may at times have different contrary views on stocks sectors and markets. Unauthorized disclosure, use, dissemination or copying (either whole or partial) of this information, is prohibited. The person accessing this information specifically agrees to exempt MOSt or any of its affiliates or employees from, any and all responsibility/liability arising from such misuse and agrees not to hold MOSt or any of its affiliates or employees responsible for any such misuse and further agrees to hold MOSt or any of its affiliates or employees free and harmless from all losses, costs, damages, expenses that may be suffered by the person accessing this information due to any errors and delays. The information contained herein is based on publicly available data or other sources believed to be reliable. Any statements contained in this report attributed to a third party represent MOSt s interpretation of the data, information and/or opinions provided by that third party either publicly or through a subscription service, and such use and interpretation have not been reviewed by the third party. This Report is not intended to be a complete statement or summary of the securities, markets or developments referred to in the document. While we would endeavor to update the information herein on reasonable basis, MOSt and/or its affiliates are under no obligation to update the information. Also there may be regulatory, compliance, or other reasons that may prevent MOSt and/or its affiliates from doing so. MOSt or any of its affiliates or employees shall not be in any way responsible and liable for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. MOSt or any of its affiliates or employees do not provide, at any time, any express or implied warranty of any kind, regarding any matter pertaining to this report, including without limitation the implied warranties of merchantability, fitness for a particular purpose, and non-infringement. The recipients of this report should rely on their own investigations. This report is intended for distribution to institutional investors. Recipients who are not institutional investors should seek advice of their independent financial advisor prior to taking any investment decision based on this report or for any necessary explanation of its contents. Most and it s associates may have managed or co-managed public offering of securities, may have received compensation for investment banking or merchant banking or brokerage services, may have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past 12 months. Most and it s associates have not received any compensation or other benefits from the subject company or third party in connection with the research report. Subject Company may have been a client of Most or its associates during twelve months preceding the date of distribution of the research report MOSt and/or its affiliates and/or employees may have interests/positions, financial or otherwise of over 1 % at the end of the month immediately preceding the date of publication of the research in the securities mentioned in this report. To enhance transparency, MOSt has incorporated a Disclosure of Interest Statement in this document. This should, however, not be treated as endorsement of the views expressed in the report. Motilal Oswal Securities Limited is registered as a Research Analyst under SEBI (Research Analyst) Regulations, SEBI Reg. No. INH There are no material disciplinary action that been taken by any regulatory authority impacting equity research analysis activities Analyst Certification The views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issues, and no part of the compensation of the research analyst(s) was, is, or will be directly or indirectly related to the specific recommendations and views expressed by research analyst(s) in this report. The research analysts, strategists, or research associates principally responsible for preparation of MOSt research receive compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues Disclosure of Interest Statement INDIA CEMENTS LTD Analyst ownership of the stock No Served as an officer, director or employee No A graph of daily closing prices of securities is available at and Regional Disclosures (outside India) This report is not directed or intended for distribution to or use by any person or entity resident in a state, country or any jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject MOSt & its group companies to registration or licensing requirements within such jurisdictions. For U.S. Motilal Oswal Securities Limited (MOSL) is not a registered broker - dealer under the U.S. Securities Exchange Act of 1934, as amended (the"1934 act") and under applicable state laws in the United States. In addition MOSL is not a registered investment adviser under the U.S. Investment Advisers Act of 1940, as amended (the "Advisers Act" and together with the 1934 Act, the "Acts), and under applicable state laws in the United States. Accordingly, in the absence of specific exemption under the Acts, any brokerage and investment services provided by MOSL, including the products and services described herein are not available to or intended for U.S. persons. This report is intended for distribution only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the Exchange Act and interpretations thereof by SEC (henceforth referred to as "major institutional investors"). This document must not be acted on or relied on by persons who are not major institutional investors. Any investment or investment activity to which this document relates is only available to major institutional investors and will be engaged in only with major institutional investors. In reliance on the exemption from registration provided by Rule 15a-6 of the U.S. Securities Exchange Act of 1934, as amended (the "Exchange Act") and interpretations thereof by the U.S. Securities and Exchange Commission ("SEC") in order to conduct business with Institutional Investors based in the U.S., MOSL has entered into a chaperoning agreement with a U.S. registered broker-dealer, Motilal Oswal Securities International Private Limited. ("MOSIPL"). Any business interaction pursuant to this report will have to be executed within the provisions of this chaperoning agreement. The Research Analysts contributing to the report may not be registered /qualified as research analyst with FINRA. Such research analyst may not be associated persons of the U.S. registered broker-dealer, MOSIPL, and therefore, may not be subject to NASD rule 2711 and NYSE Rule 472 restrictions on communication with a subject company, public appearances and trading securities held by a research analyst account. For Singapore Motilal Oswal Capital Markets Singapore Pte Limited is acting as an exempt financial advisor under section 23(1)(f) of the Financial Advisers Act(FAA) read with regulation 17(1)(d) of the Financial Advisors Regulations and is a subsidiary of Motilal Oswal Securities Limited in India. This research is distributed in Singapore by Motilal Oswal Capital Markets Singapore Pte Limited and it is only directed in Singapore to accredited investors, as defined in the Financial Advisers Regulations and the Securities and Futures Act (Chapter 289), as amended from time to time. In respect of any matter arising from or in connection with the research you could contact the following representatives of Motilal Oswal Capital Markets Singapore Pte Limited: Kadambari Balachandran kadambari.balachandran@motilaloswal.com Contact : (+65) / Office Address : 21 (Suite 31),16 Collyer Quay,Singapore Motilal Oswal Securities Ltd Motilal Oswal Tower, Level 9, Sayani Road, Prabhadevi, Mumbai Phone: reports@motilaloswal.com 10 February