10 February 2016
Q3FY16 Results Update | Sector: Cement
India Cements
BSE SENSEX
23,759
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
Avg Val, (INR m)
Free float (%)
S&P CNX
7,216
ICEM IN
307.2
23.9 / 0.4
112/64
-17/9/1
314
71.8
Financials & Valuations (INR b)
Y/E Mar
2016E 2017E
Sales
40.9
44.6
EBITDA
7.5
8.5
NP
1.2
2.2
Adj.EPS (INR)
4.8
7.7
EPS Gr. (%)
59.9
BV/Sh (INR)
120.4 127.6
RoE (%)
3.2
5.8
RoCE (%)
7.8
8.9
P/E (x)
16.3
10.2
P/BV (x)
0.6
0.6
EV/EBITDA(x)
7.6
6.4
EV/Ton(USD)
58.4
58.2
CMP: INR78
Neutral
Weak volumes and pricing dip hurt profitability


2018E
50.6
10.1
3.3
12.2
58.7
138.3

8.1
10.8
6.4
0.6
5.1
56.1

Estimate change
TP change
Rating change
TP: INR88 (+13%)
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); +91 22 3982 5436
Aashumi Mehta (aashumi.mehta@motilaloswal.com); +91 22 3010 2397
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
India Cements
Exhibit 1: Realizations dip on lower TN mix and dismal Maharashtra (%)
4,746
4,777
3QFY15
1.9
3QFY16
4,655
2QFY15
4,892
4,244
1QFY15
2QFY16
4,009
4QFY14
5,032
4,429
3QFY14
1QFY16
4,116
2QFY14
4,821
4,188
2.1 2.1 2.1 2.2
1QFY14
4,464
1QFY13
2.4
2.3
4,221
4,245
4QFY12
2.7 2.6
4QFY13
4,242
3QFY12
3QFY13 4,364
4,223
2QFY12
2QFY13 4,355
4,148
2.2
Volume (m ton)
4QFY15
2.4
1QFY12
2.3
Realizations (INR/ton)
2.8
2.6
2.6
2.5
2.4
2.4
2.4
Source: Company, MOSL
Source: Company, MOSL
870
929
1,056
4QFY15
1QFY16
2QFY16
755
753
3QFY15
3QFY16
762
2QFY15
617
1QFY15
629
279
4QFY14
3QFY14
721
1QFY14
523
605
4QFY13
796
3QFY13
1,166
816
2QFY13
1QFY13
2QFY12
3QFY12
4QFY12
1QFY13
2QFY13
3QFY13
4QFY13
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
2,520
1,946
2,152
2,777
2,051
1,927
1,679
1,910
1,276
1,444
742
1,578
1,791
1,587
1,822
1,950
2,286
1,462
6.9
828
15.4
14.1
13.9
11.7
4QFY12
18.317.8
3QFY12
20.719.3
EBITDA (INR/Ton)
21.2
17.818.2
15.815.3
15.7
12.9
1,038
890
23.1
2QFY12
23.1
Exhibit 3: Trend in EBITDA/Ton (INR)
2QFY14
Exhibit 2: Margins decrease on lower realizations
Source: Company, MOSL
Exhibit 4: Key operating indicators (incl. other businesses)
INR/Ton
Net realization
RM Cost
Staff Cost
Energy Cost
Selling Exp.
Other Exp.
Total Exp
EBITDA
3QFY16
4,799
876
381
1,047
1,005
735
4,044
755
3QFY15
4,917
761
372
1,244
1,066
721
4,163
753
YoY (%)
-2.4
15.2
2.5
-15.8
-5.7
1.9
-2.9
0.2
2QFY16
4,984
641
380
1,144
1,017
747
3,928
1,056
QoQ (%)
-3.7
36.7
0.3
-8.4
-1.2
-1.6
3.0
-28.5
Source: Company, MOSL
Maintain Neutral



10 February 2016
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.
2
India Cements
Story in charts
Exhibit 5: Demand recovery to drive up utilization…
Capacity (mt)
70
78
Despatch (mt)
71
71
Utilization (%)
60
11.0 10.0
10.7 10.8
9.9
21.9
68
65
EBITDA (INR/ton)
29.1
71
67
10.1
9.1
Exhibit 6: Realizations to remain stable
63
9.5
9.0
21.5
18.3
12.4
Margin (%)
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY18E
Exhibit 7: Very high operating & financial leverage
1,092 754
435
948
839
535
749
56
28
20
11
28
33
17
32
66
36
Exhibit 8: Uptick in FCF generation (INR b)…
CFO
38
62
50
27
43
24
Capex
-2
-1
12
2
Exhibit 9: …to drive reduction in net debt
0.5
0.5
0.6
0.7
0.8
0.9
6
3
Source: Company, MOSL
Exhibit 10: Capital efficiencies to improve
RoE
16.8
1.0
0.9
15.7
10.6
10.1
0.8
8.4
20
24
27
32
34
36
35
35
33
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY18E
Source: Company, MOSL
10 February 2016
5
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY18E
3.6
8.4
4.2
7.3
RoCE
6.5
7.8
8.9
5.8
4.3
19
4
-3
Source: Company, MOSL
Net DER (x)
1.0
FCF
35
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY18E
Net debt (INR b)
979 1,082
Source: Company, MOSL
10
33
903
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY18E
Depreciation as % of EBITDA
30
20.0
12.1
Source: Company, MOSL
51
19.1
10.2
13.0 14.1 14.1 15.1 15.1 15.2 15.2 15.2 15.2 15.2
Interest as % of EBITDA
18.3
15.4
1.6
-1.3
0.8
10.8
8.1
3.2
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY18E
Source: Company, MOSL
3
India Cements
Financials and Valuations
Income Statement
Y/E Mar
Net Sales
Change (%)
EBITDA
EBITDA Margin (%)
Depreciation
EBIT
Interest
Other Income
Extraordinary items
PBT
Tax
Tax Rate (%)
Min. Int. & Assoc. Share
Reported PAT
Adjusted PAT
Change (%)
Balance Sheet
Y/E Mar
Share Capital
Reserves
Net Worth
Debt
Deferred Tax
Total Capital Employed
Gross Fixed Assets
Less: Acc Depreciation
Net Fixed Assets
Capital WIP
Investments
Current Assets
Inventory
Debtors
Cash & Bank
Loans & Adv, Others
Curr Liabs & Provns
Curr. Liabilities
Provisions
Net Current Assets
Total Assets
10 February 2016
2011
35,007
-7.2
4,337
12.4
2,440
1,897
2012
42,034
20.1
9,034
21.5
2,513
6,521
2013
45,970
9.4
8,433
18.3
2,818
5,615
2014
44,409
-3.4
5,371
12.1
2,764
2,608
2015
44,236
-0.4
6,826
15.4
2,579
4,246
2016E
40,918
-7.5
7,473
18.3
2,209
5,264
2017E
44,567
8.9
8,505
19.1
2,336
6,169
1,417
396
23
899
218
24.2
0
681
664
-79.6
2,867
193
-36
3,810
880
23.1
0
2,930
2,958
345.8
3,078
186
-200
2,524
888
35.2
0
1,636
1,765
-40.3
3,537
396
-1,091
-1,624
0
0.0
0
-1,624
-533
-130.2
4,260
308
0
295
0
0.0
0
295
295
-155.3
3,736
250
-150
1,628
563
34.6
0
1,065
1,163
295.0
3,687
275
0
2,757
551
20.0
0
2,205
2,205
89.6
2011
3,072
37,826
40,898
24,561
2,743
68,201
59,277
20,932
38,345
3,088
1,603
36,349
4,973
2,544
331
28,501
11,184
9,919
1,265
25,165
68,201
2012
3,072
37,516
40,587
27,010
3,245
70,842
65,019
23,690
41,329
1,451
8,520
31,114
5,258
2,098
29
23,728
11,571
10,247
1,325
19,542
70,842
2013
3,072
37,825
40,896
30,230
3,297
74,423
70,571
26,509
44,063
750
9,578
33,638
4,961
4,656
47
23,974
13,606
12,210
1,396
20,032
74,423
2014
3,072
35,441
38,513
32,000
3,297
73,810
70,897
29,272
41,625
1,000
9,455
35,288
5,509
4,225
31
25,523
13,559
12,965
594
21,729
73,810
2015
3,072
32,859
35,931
34,000
3,297
73,228
67,600
31,852
35,749
1,000
15,852
30,513
6,069
4,661
39
19,744
9,886
9,298
588
20,627
73,228
2016E
3,072
33,924
36,996
34,849
3,697
75,542
69,600
34,060
35,540
1,000
15,852
32,842
5,942
4,260
2,505
20,135
9,692
9,529
163
23,150
75,542
2017E
3,072
36,130
39,201
33,699
3,697
76,597
72,000
36,397
35,603
2,000
15,852
33,185
6,105
4,518
1,431
21,131
10,044
9,768
276
23,141
76,597
(INR Million)
2018E
50,628
13.6
10,139
20.0
2,442
7,697
3,580
276
0
4,392
1,098
25.0
0
3,294
3,294
49.4
(INR Million)
2018E
3,072
39,424
42,496
32,549
3,697
78,741
76,000
38,839
37,161
1,000
15,852
35,680
6,381
4,993
2,128
22,178
10,952
10,403
549
24,728
78,741
4
India Cements
Financials and Valuations
Ratios
Y/E Mar
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
Y/E Mar
Adjusted EBITDA
Non cash opr. exp (inc)
(Inc)/Dec in Wkg. Cap.
Tax Paid
Other operating activities
CF from Op. Activity
(Inc)/Dec in FA & CWIP
Free cash flows
(Pur)/Sale of Invt
Others
CF from Inv. Activity
Inc/(Dec) in Net Worth
Inc / (Dec) in Debt
Interest Paid
Divd Paid (incl Tax) & Others
CF from Fin. Activity
Inc/(Dec) in Cash
Add: Opening Balance
Closing Balance
10 February 2016
2011
2012
2013
2014
2015
2016E
2017E
2018E
2.3
10.1
133.1
1.5
79.2
8.5
17.8
132.1
2.0
24.5
5.8
14.9
133.1
2.0
43.6
-7.9
7.3
125.4
0.0
0.0
0.0
9.4
117.0
0.0
0.0
4.8
11.0
120.4
0.0
0.0
7.7
14.8
127.6
0.0
0.0
12.2
18.7
138.3
0.0
0.0
-9.9
10.7
0.6
1.1
9.8
0.0
57
-2010.9
8.3
0.7
1.2
7.9
0.0
60
16.3
7.1
0.6
1.3
7.6
0.0
58
10.2
5.3
0.6
1.2
6.4
0.0
58
6.4
4.2
0.6
1.0
5.1
0.0
56
1.6
3.6
7.3
10.1
4.3
8.4
-1.3
4.2
0.8
6.5
3.2
7.8
5.8
8.9
8.1
10.8
0.5
27
52
0.6
18
46
0.6
37
39
0.6
35
45
0.6
38
50
0.5
38
53
0.6
37
50
0.6
36
46
0.6
0.7
0.8
0.9
1.0
1.0
0.9
0.8
2011
4,337
396
-9,349
-168
23
-4,760
1,766
-2,994
1,537
576
3,878
-603
3,233
-1,417
-539
675
-207
538
331
2012
9,034
193
5,321
-378
-36
14,133
-4,105
10,028
-6,917
245
-10,777
-2,521
2,449
-2,867
-719
-3,658
-302
331
29
2013
8,433
186
-472
-836
-200
7,112
-4,851
2,261
-1,059
0
-5,910
-613
3,220
-3,078
-714
-1,184
18
29
47
2014
5,371
396
-1,714
0
-1,091
2,963
-576
2,387
123
0
-453
-760
1,770
-3,537
0
-2,526
-17
47
31
2015
6,826
308
1,111
0
0
8,244
3,297
11,542
-6,397
0
-3,099
-2,876
2,000
-4,260
0
-5,136
9
31
39
2016E
7,473
250
-57
-163
-150
7,353
-2,000
5,353
0
0
-2,000
0
849
-3,736
0
-2,887
2,466
39
2,505
2017E
8,505
275
-1,066
-551
0
7,163
-3,400
3,763
0
0
-3,400
0
-1,150
-3,687
0
-4,837
-1,074
2,505
1,431
(INR Million)
2018E
10,139
276
-889
-1,098
0
8,428
-3,000
5,428
0
0
-3,000
0
-1,150
-3,580
0
-4,730
697
1,431
2,128
5
India Cements
Corporate profile
Exhibit 1: Sensex rebased
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.
Source: MOSL/Bloomberg
Exhibit 2: Shareholding pattern (%)
Promoter
DII
FII
Others
Dec-15
28.2
14.0
28.7
29.1
Note: FII Includes depository receipts
Exhibit 3: Top holders
Sep-15
28.2
14.8
23.1
33.8
Dec-14
28.2
12.8
34.0
25.1
Source: Capitaline
Holder Name
The Bank of New York Mellon Corporation
on Behalf of Mellon Capital Mgt. Corporation
and The Boston
LIC of India
Trishul Investments Private Limited
ELM Park Fund Limited
Radhakishan S Damani
% Holding
8.6
6.1
5.7
5.0
2.0
Source: Capitaline
Exhibit 4: Top management
Name
N Srinivasan
G Balakrishnan
Exhibit 5: Directors
Designation
Vice Chairman & M.D.
President & Company Secretary
Name
Arun Datta
N R Krishnan
P L Subramanian
V Manickam
Rabinarayan Panda
Rupa Gurunath
Name
Chitra Srinivasan
Natesan Srinivasan
R K Das
S Balasubramanian Adityan
Basavaraju
Source: Capitaline
Exhibit 7: MOSL forecast v/s consensus
Exhibit 6: Auditors
Name
Bala & Co
Brahmayya & Co
Gopalaiyer & Subramanian
Kalyanasundaram & Associates
P R Sudha
10 February 2016
Type
Internal
Statutory
Internal
Internal
Secretarial Audit
Source: Capitaline
EPS
(INR)
FY16
FY17
FY18
MOSL
forecast
4.8
7.7
12.2
Consensus
forecast
6.3
10.5
15.4
Variation
(%)
-24.0
-27.0
-20.8
Source: Bloomberg
6
India Cements
NOTES
10 February 2016
7
Disclosures
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10 February 2016
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