Home >Markets >Mark To Market >High expenses overshadow India Cements’ deleveraging efforts

A huge pile of debt has been among the key worries for investors in the India Cements Ltd stock. In a bid to address this, the company has increased its focus on deleveraging. At the end of Q4FY21, gross debt stood at 3,000 crore, compared to 3,530 crore in Q4FY20, said the company’s management in a post-earnings conference call.

The company adopted a cash-and-carry model when the pandemic began in 2020 and continued to stick with it. This strategy resulted in a sharp reduction in receivables and generated operating cash flow of 1,040 crore in FY21. Analysts said although the cash-and-carry model may have impacted volume growth to some extent, it aided in debt reduction. Consequently, in FY21, the company’s key metric, net debt-to-Ebitda, improved to 3.7 times from 5.7 times in FY20. Ebitda is earnings before interest, tax, depreciation and amortization.

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Satish Kumar/Mint

In FY22, the south India-based company aims to repay 600 crore, of which 170 crore would be repaid in Q1, the management added. So, as of now, the company has not taken any decision on its plan to expand in central India. While these efforts are in the right direction, analysts said it was overshadowed by the company’s poor operating performance in Q4FY21.

Its Ebitda in the March quarter at 200 crore missed consensus estimates by around 9%. Analysts said the beat on realization was offset by high costs, both fixed and variable, despite a decent 13% year-on-year volume growth.

Increased costs were partly attributable to higher freight costs on increased selling in faraway markets in eastern and central India, and higher employee costs.

On a per tonne basis, the company’s cost increased by 5% sequentially in Q4FY21. The management expects power and fuel costs to be flat sequentially in Q1FY22 as the impact of higher price is already reflected in the March quarter. Employee cost is expected to decline by 11 crore per quarter on a recurring basis.

In the backdrop of elevated operating costs, the company has resorted to price hikes of 10 per bag in April and May. A cement bag weighs 50kg. The management expects another round of price increase of 15 per bag in June. However, analysts cautioned that the pandemic-led demand uncertainty and a seasonally weak monsoon quarter could lead to a reversal in price increases for the sector.

Meanwhile, ahead of its March quarter earnings on Monday, the stock hit a new 52-week high of 211 intraday on the NSE. However, the rally fizzled out later in the day with the stock ending Monday’s session down 3%. The stock remained under pressure on Tuesday as well and ended the day’s session down 5.7% as investors continued to book profits.

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