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India Cements 4QFY2014 performance highlights and results update

June 5, 2014, Thursday, 06:17 GMT | 01:17 EST | 09:47 IST | 12:17 SGT
Contributed by Angel Broking

For 4QFY2014, India Cements (ICEM)’s operating performance was below our estimates. The company posted a net loss of Rs.31cr for the quarter (vs our estimate of a profit of Rs.15cr) due to a sharp decline in realizations.

OPM down 783bp yoy: ICEM’s top-line rose by a modest 4.2% qoq, impacted by low demand and a steep fall in prices in its key markets which are in South India. The company’s cement sale volume was down by 9% yoy to 2.47mn tonne. Net Plant realization was down by 6% yoy to Rs.3,057/tonne. The OPM fell by 783bp on a yoy basis to 6.9%, impacted by weak realization and increase in operational costs. The company reported a net loss of Rs.31cr for the quarter, impacted by a 58% yoy decline in operating profit to Rs.74cr. During the quarter, the company reported other operating income of Rs.44.6cr comprising profit on sale of assets of Rs.17.4cr. While the company booked a profit of Rs.49cr on sale of
land, it incurred a loss of Rs.31.9cr on sale of a ship. During the quarter, the company had exceptional expenses of Rs.126cr on account of Rs.69.4cr provision made towards fuel surcharge adjustment claimed by Andhra Pradesh Electricity Discoms and Rs.57.1cr incurred towards right of recompense with respect to restructured debts. However, the exceptional items have not been charged to Profit and Loss account and have been adjusted with general reserves.

Outlook and valuation: India Cements’ stand-alone 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 realizations, thereby resulting in higher return ratios. We recommend a Buy rating on the stock with a target price of Rs.130.