We maintain ?buy? on India Cements, but reduce the target price to R145 (R157 earlier) based on a 35% discount to replacement cost of $140 per tonne. In our view, the near-term pricing environment in southern India remains challenging, but a slowdown in new capacity additions would lead to a sharp improvement in profitability whenever demand picks up.
India Cement?s standalone recurring PAT of R26.7 crore was 26% below our estimates on account of the disappointment in realisation and higher costs.
Cement sales grew 8% y-o-y to 2.7 million tonne, which was better than the estimated industry growth of 4.3% on account of higher non-trade sales and more despatches outside of southern region. Consequently, average realisation declined more than its peers falling 3% q-o-q and 1% y-o-y.
Ebitda per tonne declined 30% y-o-y to R569 per tonne, driven by a 1% decline in net realisation and sharp increases in freight, packaging and repairs and maintenance expenses. Freight charges increased 21% y-o-y. Other expenditure/tonne increased 18% y-o-y and 19% q-o-q due to a sharp increase in repairs and maintenance and packing expenses.
Power and fuel costs per tonne remained flat y-o-y and q-o-q as benefits from a fall in international coal prices and the commissioning of the TN captive power plant were offset by higher power tariffs and rupee depreciation. With the further R1-per-kilowatt-hour power tariff hike in AP, the management expects power costs to be under pressure and savings to start accruing only post-stabilisation of the 50-MW AP captive power plant in H2FY14.