Century Textile & Industries (Century) reported net revenue of Rs9,518 million during Q1 FY09 reflecting a growth of 14% year-on-year (y-o-y). EBITDA margins contracted sharply by 720 basis points to ~17%, resulting in an EBITDA de-growth of ~20% to Rs1,635 million. This was largely due to subdued performance of cement division on higher power & fuel costs. Adjusted PAT was down by 28% y-o-y to Rs 930 million.
Going forward, rising coal and freight costs and constant government pressure to keep prices under check are likely to squeeze margins over the next few quarters, despite supply tightness.
Supply-demand situation is also expected to remain tight in FY09, as most of the new capacities are facing significant delays. However, slower demand growth of 8% in FY10 on the back of expected slower economic activity may result in surplus in FY10 (effective capacity utilization of 85%).
Our EBITDA/ tonne estimate for Century in FY09 and FY10 at Rs680 and Rs650 respectively is lower than economic industry EBITDA of Rs 850/tonne.
We believe, while volume growth in cement and paper businesses is likely to cushion margin pressures, operating profit will boost from FY12 onwards on rentals from real estate development.
We are cutting our earning forecasts by ~12% to factor in more than anticipated increase in coal prices. We believe that the development of 40 acres of prime land at Worli (Mumbai) is the key trigger for the stock and value realty business at Rs560/ share. We maintain our sector OUTPERFORMER with a revised target price of Rs864 based on SOP valuation.