Volume contraction weighs on India Cements
Cement volumes continued to decline by 3% in the September quarter to 2.351 million tonnes, almost unchanged from the June quarter
The India Cements Ltd stock has underperformed peers in the past six months as demand did not recover as expected in southern India. Cement volumes continued to decline by 3% in the September quarter to 2.351 million tonnes, almost unchanged from the June quarter.
Despite the formation of the new state of Telangana, there has been no improvement in demand as projects have not taken off as expected. India Cements’ earnings were in line with other southern firms like Ramco Cements Ltd, which have also seen around 10% drop in volume in the three months ended 30 September. Also, there is no clarity in governmental spending and the real estate market continues to remain lacklustre in Hyderabad.
An increase in realizations per tonne by 13.1% to ₹ 4,655 after clocking a muted growth in the June quarter led to an improvement in the operating performance. Ebitda (earnings before interest, taxes, depreciation and amortization) per tonne surged by more than a half to ₹ 651 in the September quarter after dropping sharply in the June quarter due to a low base last year, according to a note from HDFC Securities Research. Power and fuel costs per tonne increased by around 80 basis points and freight costs advanced by one-fifth compared with a year ago. One basis point is one-hundredth of a percentage point.
Higher cement prices aided operating profit growth of 40% to ₹ 179 crore. Operating profit margin expanded by some four percentage points. As a result, India Cements reported a net profit of ₹ 7.49 crore after posting a loss for the past few quarters.
While the stock has underperformed other cement makers, analysts do not expect an improvement in its share price as India Cements has a high consolidated gross debt of ₹ 3,000 crore at the end of March. The stock is trading at valuations of 0.83 times one-year estimated price to book value.
The board has approved the proposal for raising around ₹ 500 crore to improve its leverage and meet capital expenditure but since the stock is cheap, it might lead to equity dilution at lower prices, said an analyst from a leading brokerage firm who did not want to be named.
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