After facing delays of 3-4 months, capacity expansion plan of the company is now on schedule. India Cements has already achieved completion of 1MT grinding unit at Chennai and has now also commissioned 1.2MT capacity at Malkapur.
This capacity is expected to take another one quarter to ramp up production. Upgradation of Vishnupuram and setting up of grinding unit are likely to get over by end of March, 2009.
Thus, post commissioning of these capacities, overall capacity of company would stand at 14MT.
However, dispatches till date in the current fiscal have been lower than our expectations. This is primarily on account of extended shutdowns at its capacities in addition to its normal routine maintenance shutdown.
Traditionally, company used to have surplus clinker during third quarter to be used during the fourth quarter.
But due to extended shutdown, surplus clinker was not available in the current fiscal resulting which we have witnessed a decline in dispatch growth till date in Q4FY09 vis-à-vis Q4FY08.
Cement prices in southern region have not witnessed a significant increase as compared to other regions in past two months but they have been fairly stable.
We thus continue to maintain our revenue estimates for the company going forward. We expect revenues to be around Rs34.2 billion and Rs35.5 billion in FY09 and FY10 respectively.
Rupee depreciation in the current quarter is likely to have an adverse impact on the financial performance of India Cements in Q4FY09 on its outstanding FCCB’s to the tune of $75 million.
Company may look at repurchasing the FCCB’s but has not taken any final decision on this front.
Assuming Re/$ to be around 51 by end of this quarter, we expect a mark to market provisioning to the tune of Rs165 million for the current quarter on the outstanding FCCB for the company.
At current market price of Rs95, stock is trading at 5.4x and 6.1x its P/E multiples on FY09 and FY10 estimates respectively.
We continue to maintain our negative bias for the company and maintain REDUCE recommendation on the stock with a price target of Rs109 due to lower than expected dispatch growth.
Concerns regarding translation losses on outstanding FCCBs, expected decline in cement prices post Q1FY10 as well as ongoing down cycle of cement sector are also key to our recommendation.