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India Cements: Volumes arrest growth - Views on News from Equitymaster
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India Cements: Volumes arrest growth
Feb 17, 2009

Performance summary
  • Topline reports flat growth during 3QFY09 due to lower volumes.
  • Operating profits decline by 26% YoY on account of higher costs of operation.
  • Net profits decline at a steeper rate of 51% YoY as a result of higher depreciation.
  • Impact of higher other income is negated by extraordinary expenses.


Financial performance snapshot
(Rs m) 3QFY08 3QFY09 Change 9mFY08 9mFY09 Change
Net sales 8,545 8,637 1.1% 25,764 29,274 13.6%
Expenditure 6,097 6,836 12.1% 17,599 21,566 22.5%
Operating profit (EBITDA) 2,449 1,801 -26.4% 8,165 7,708 -5.6%
EBITDA margin (%) 28.7% 20.9% 31.7% 26.3%
Other income 12 141 1071.7% 33 339 925.8%
Interest 273 293 7.4% 870 772 -11.3%
Depreciation 311 513 64.7% 889 1,500 68.7%
Profit before tax/(loss) 1,877 1,136 -39.5% 6,439 5,775 -10.3%
Extraordinary item 18 (132) 153 (645)
Tax 624 385 -38.3% 1,262 1,746 38.4%
Net profit 1,271 619 -51.3% 5,331 3,384 -36.5%
Net margin (%) 14.9% 7.2% 20.7% 11.6%
No of shares (m)    281.9     282.4
Diluted EPS (Rs)*        15.7
P/E (times) 6.4
*trailing twelve month earnings

What has driven performance in 3QFY09?
  • India Cements witnessed a mere 1% YoY growth in topline during 3QFY09 despite witnessing better realizations. The impact of higher prices was wiped out by lower volumes. The company produced less as two of its plants witnessed extended shut downs. The routine shut down was extended on account of heavy rains.

    Cost break-up
    (% of Sales) 3QFY08 3QFY09 9mFY08 9mFY09
    Consumption of raw material 7.8% 7.4% 7.9% 8.7%
    Staff cost 5.9% 5.9% 5.3% 4.7%
    Power and fuel 20.6% 27.1% 19.1% 22.5%
    Other expenditure 23.1% 26.2% 23.4% 12.2%
    Transportation and handling 13.9% 12.6% 12.6% 25.6%

  • The costs of operation were on the higher side during the quarter. This resulted in approximately 8% contraction in EBITDA margins. The higher onetime (cost and spares) expenses and higher coal prices exerted pressure on margins. Coal prices increased by 51% YoY. Thus, higher power and fuel costs and other expenditure dragged down operating profits by 26% YoY during 3QFY09.

  • Lower operating profits, higher depreciation charges and extraordinary expenses led the net profits to register a steep decline of 51% YoY. If one looks at the profit before tax level that excludes impact of extraordinary items, the decline in net profits was lower at 40% YoY. The extraordinary expense reported in 3QFY09 includes forex translation loss, while there was a gain during the same period last year.

What to expect?
At the current price of Rs 101, the stock is trading at an expensive valuation of over Rs 4,000 on the enterprise value per tonne (EV/tonne) basis as per FY08 numbers. The company has lined up capacity expansion plans to increase volumes and maintain market share. While this is a positive move from a long-term standpoint, the rising costs coupled with expected softening of realisations will pressurise margins in the medium term.

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