Company Update
October 6, 2016
India Cement (INDCEM)
Rating matrix
Rating
Target
Target Period
Potential Upside
:
:
:
:
Buy
| 190
12-15 months
18%
Improving fundamentals
Whats changed?
Target
EPS FY17E
EPS FY18E
Rating
Changed from | 145 to | 190
Unchanged
Unchanged
Changed from Hold to Buy
Key financials
| Crore
FY15
FY16
FY17E*
FY18E*
N et Sa les
4,418.8
4, 377. 1
5,068.6
5,426.5
EBITDA
N et Profit
677.8
29.4
782. 4
135. 6
864.2
194.7
971.9
260.2
EP S (|)
1.0
4. 4
6.3
8.5
* FY17E and FY18E has been adjusted to factor in impact of IND AS
Valuation summary
FY15
FY16
FY17E*
P/E
168.1
36.5
18.6
27.6
Target P/E
198.4
43.1
22.0
32.6
EV/EBITDA
11.7
10.1
8.3
9.4
EV/Tonne($)
88
85
83
81
P/BV
RoNW (%)
1.4
0.8
1.4
4.1
1.3
5.1
1.2
6.5
RoCE (%)
6.3
8.4
9.5
10.6
FY18E*
Stock data
Particular
Amount
Mcap
| 4946 crore
Debt (FY16)
| 2955 crore
Cash & Invest (FY16)
| 1 crore
EV
52 week H/L
| 7900 crore
| 161/ 64
Equity cap
| 307.2 crore
Face value
| 10
Price Chart
10,000
200
8,000
150
6,000
100
4,000
50
2,000
Sep-13 Apr-14 Nov-14 Jul-15
Price (R.H.S)
| 161
0
Feb-16 Oct-16
Nifty (L.H.S)
Research Analyst
Rashesh Shah
[Link]@[Link]
Devang Bhatt
[Link]@[Link]
ICICI Securities Ltd | Retail Equity Research
India Cement (ICL), as one of the largest cement manufacturers in the
southern region, is expected to be a key beneficiary of a demand revival in
the key south regions, especially Andhra Pradesh (AP) and Telangana. Out of
the total cement capacity, ~45% of the companys capacity is in AP &
Telangana, which witnessed a significant price hike of | 60-70/bag in
September 2016. The price hike was supported by an uptick in demand and
pricing discipline. Although the impact of the price hike will be miniscule in
Q2FY17E (as the hike took place at the end of the quarter), we expect the
impact of increased prices to be fully visible from Q3FY17E onwards. Apart
from price hikes, ICL is taking steps to improve cost efficiency by increasing
usage of pet coke, incurring capex to improve plant efficiency and increasing
captive power consumption, which we believe will aid margin expansion.
Further, limited capacity addition in the south would help the company to
improve its capacity utilisation over the longer term. The stock is trading at
attractive valuation of US$80/tonne. Hence, we upgrade the stock to
BUY with a revised target price of | 190 (i.e. valuing at EV/tonne of US$90).
Government infrastructure projects, housing demand to drive growth
The companys key markets have witnessed an oversupply situation over the
past few years. However, going forward, we expect cement demand to
improve led by creation of Telangana, political stability in Andhra Pradesh,
Tamil Nadu housing scheme for poor and increase in demand from
individual house builders. We expect strong growth in volumes especially in
AP & Telangana as both governments of Andhra Pradesh & Telangana are
planning to invest heavily in infrastructure projects. As ~45% of the
companys capacity is in AP and Telangana, we expect the companys
utilisation and volumes to register healthy growth over the next few years.
Focus on cost rationalisations & better pricing to drive margin expansion
As per our channel checks, pricing in AP and Telangana has increased by
| 60-70/bag in September 2016. While the price hike of | 40-45/bag has been
absorbed by the market, the remaining | 25/bag is expected to be absorbed
post Diwali. As a result, we expect the company to witness healthy
realisation from Q3FY17E onwards. Further, ICL is planning to increase pet
coke usage to 80%. Also, the company has installed a captive power plant of
50 MW at Vishnupuram in Andhra Pradesh, which is expected to stabilise
from FY17E. The plant has helped the company to increase overall captive
consumption to 70%. In addition, ICL is investing | 250 crore in FY17E to
improve efficiency of its cement plants. This coupled with refinancing of debt
(from 11.5% to 11.0%) will further boost margins.
Available at attractive valuations!
With better realisations in the south, limited capacity addition and improved
demand outlook on the verge of formation of new state, we expect utilisation
to improve from here on. The companys pragmatic approach towards cost
rationalisation through improving fuel mix, installation power plant in AP and
improving efficiency of plants should help improve margins, going forward.
With the better operating cash flow, we expect debt levels to reduce in the
next two years. The stock is trading at attractive valuation of US$80/tonne,
which makes it a compelling buy at this level. Hence, we upgrade the stock
to BUY with a revised target price of | 190 (i.e. EV/tonne of US$90).
Financial summary
Profit and loss statement
(Year-end M arch)
Total operating Income
| Crore
FY15
4,418. 8
FY16
4,377.1
FY17E
5,068.6
FY18E
5,426.5
-0. 5
-0.9
15.8
7.1
658. 7
318. 2
668.7
340.4
725.7
325.2
785.3
349.0
Power, Oil & Fuel
Freight cos t
1136. 4
953. 1
944.6
870.3
876.5
970.1
Other Expenses
Total Operating Exp.
674. 8
3,741. 1
770.9
3,594.7
EBITDA
Growth (%)
677. 8
26. 2
Depreciation
Interes t
Cash flow statement
| Crore
(Year-end M arch)
FY15
FY16
FY17E
FY18E
Profit after Tax
Add: Depreciation
29. 4
257. 9
135.6
218.0
194.7
225.7
260.2
262.7
(Inc)/dec in Current Assets
Inc/(dec) in CL and Prov isions
478. 3
-629. 1
-96.2
124.8
-173.7
247.2
-71.7
108.8
921.0
1042.2
CF from operating a ctivities
(Inc)/dec in Investments
136. 5
-639. 7
382.1
0.5
494.0
0.0
560.0
0.0
1306.9
4,204.3
1357.2
4,454.6
(Inc)/dec in Fixed As sets
Others
329. 8
0. 0
-45.5
29.2
-250.0
0.0
-250.0
0.0
782.4
15.4
864.2
10.5
971.9
12.5
CF from inv esting activities
Is sue/(Buy back ) of Equity
-309. 9
0. 0
-15.7
0.0
-250.0
0.0
-250.0
0.0
257. 9
419. 6
218.0
373.7
225.7
340.8
262.7
316.9
Inc/(dec) in loan funds
Dividend paid & dividend tax
461. 8
0. 0
-286.3
-36.1
-200.0
-36.1
-220.0
-36.1
Other Income
Exceptional items
29. 1
0. 0
22.2
14.7
16.7
0.0
28.0
0.0
PBT
Total Tax
29. 4
0. 0
198.1
62.5
314.5
119.8
420.3
160.1
PAT
Adjusted P AT
29. 4
29. 4
135.6
150.3
194.7
194.7
260.2
260.2
-182. 1
410.8
29.6
33.6
EP S (|)
1. 0
Source: Company, [Link] Research
4.4
6.3
8.5
FY16
FY17E
Growth (%)
Raw material cost
Employee Expenses
Growth (%)
Balance sheet
(Year-end M arch)
Liabilities
Equity Capital
| Crore
FY15
FY18E
Inc/(dec) in Sec. pre mium
0. 0
0.0
0.0
0.0
-287. 6
174. 2
-46.6
-369.0
0.0
-236.1
0.0
-256.1
0. 8
3. 1
-2.5
3.9
7.9
1.4
53.9
9.3
Closing Cash
3. 9
Source: Company, [Link] Research
1.4
9.3
63.1
FY16
FY17E
FY18E
Others
CF from financing activities
N et Cash f low
Opening Cash
Key ratios
(Year-end M ar ch)
FY15
Per share data (|)
307. 2
307.2
307.2
307.2
Adjust ed EPS
1.0
4.4
6.3
8.5
Reserv e and Surplus
Total S hareholders f unds
3,285. 9
3,593. 1
3,338.8
3,646.0
3,497.5
3,804.7
3,721.6
4,028.7
Cash EPS
9.4
11.5
13.7
17.0
117.0
118.7
123.8
131.1
Total Debt
Deferred Tax Liability
3,241. 5
329. 7
2,955.2
358.9
2,755.2
358.9
2,535.2
358.9
DPS
0.0
1.0
1.0
1.0
Cash Per Shar e
0.1
0.0
0.3
2.1
M inority Interes t / Others
Total L iabilities
0. 0
7,164. 3
0.0
6,960.2
0.0
6,918.8
0.0
6,922.9
Operat ing Ratios (%)
15.3
17.9
17.1
17.9
0.7
3.1
3.8
4.8
BV
EBITDA Mar gin
As sets
Gross Block
6,533. 8
6,579.3
6,974.3
7,224.3
Inventory days
47.8
50.1
46.0
44.0
Less: Acc Depreciation
N et Block
3,158. 9
3,374. 9
3,377.0
3,202.3
3,602.6
3,371.7
3,865.3
3,359.0
Debtor days
38.5
42.8
44.3
44.3
Cr editor days
89.9
96.5
99.9
99.9
Capital WIP
Total Fixed Ass ets
300. 0
3,674. 9
300.0
3,502.3
155.0
3,526.7
155.0
3,514.0
Ret ur n Ratios (%)
RoE
0.8
4.1
5.1
6.5
Investments
Inventory
1,585. 2
606. 9
1,584.7
595.3
1,584.7
682.3
1,584.7
626.0
RoCE
6.3
8.4
9.5
10.6
RoIC
6.1
8.5
9.5
10.6
Debtors
Loans and Advance s
466. 1
1,974. 4
513.4
2,035.0
615.2
2,019.8
658.6
2,104.3
Val uation Ratios (x)
168.1
36.5
18.6
27.6
Other Current Assets
Cash
0. 0
3. 9
0.0
1.4
0.0
9.3
0.0
63.1
12.1
10.1
8.2
9.3
EV / Net Sal es
1.9
1.8
1.6
1.5
Total Current As sets
Creditors
3,051. 3
1,088. 3
3,145.0
1,157.1
3,326.6
1,387.3
3,452.1
1,485.2
Market Cap / Sales
1.1
1.1
1.0
0.9
Pr ice t o Book Value
1.4
1.4
1.3
1.2
Provis ions
Total Current Liabilities
58. 8
1,147. 1
114.8
1,271.8
131.8
1,519.0
142.6
1,627.8
Sol vency Rat ios
Debt/ EBITDA
4.8
3.8
3.2
2.6
N et Current Ass ets
1,904. 3
Application of Funds
7,164. 3
Source: Company, [Link] Research
1,873.2
6,960.2
1,807.5
6,918.9
1,824.3
6,922.9
Debt / Equity
0.9
0.8
0.7
0.6
Cur rent Ratio
2.7
2.5
2.2
2.1
Quick Ratio
2.7
2.5
2.2
2.1
PA T Mar gin
P/ E
EV / EBITDA
Source: Company, [Link] Research
ICICI Securities Ltd | Retail Equity Research
Page 2
RATING RATIONALE
[Link] endeavours to provide objective opinions and recommendations. [Link] assigns
ratings to its stocks according to their notional target price vs. current market price and then categorises them
as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional
target price is defined as the analysts' valuation for a stock.
Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction;
Buy: >10%/15% for large caps/midcaps, respectively;
Hold: Up to +/-10%;
Sell: -10% or more;
Pankaj Pandey
Head Research
[Link]@[Link]
[Link] Research Desk,
ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No. 7, MIDC,
Andheri (East)
Mumbai 400 093
research@[Link]
ICICI Securities Ltd | Retail Equity Research
Page 3
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Page 4
