Cement volume increased 21% y-o-y to 2.35mt (estimate of 2.25mt) in Q3FY17, led by higher demand in the south market and a low base. Cement realisations rose 1.4% q-o-q (-1.4%y-o-y) due to the full impact of price hikes in AP/Telangana. Higher energy and freight costs led to EBITDA margin contraction of 229bp q-o-q (+98bp y-o-y) to 14.9%. EBITDA increased 28% y-o-y (-16%q-o-q) to Rs 1.89 billion.
We believe ICEM, which enjoys good brand recall and market share, is a healthy play on southern recovery. However, despite its strategically located plants, the cost structure is relatively high due to vintage constraints. High investments in the non-cement businesses keep valuation at discount. Maintain neutral with a TP of R138 (EV of 6.5x FY19E EBITDA and $68/tonne).
Management expects volume growth in AP/Telangana to increase in excess of 20% y-o-y led by low cost housing projects (incremental demand of 2lakh tonne of monthly volume) and irrigation projects.
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Prices have been steady in January-17 sequentially. Net plant realisations increased 2% q-o-q to R3,636 in Q3FY17 led by full impact of price hikes in AP/Telangana towards the end of Q2FY17.
ICEM intends to repay debt by Rs 2.3b in FY17 (Rs 1.8b repaid YTD). ICEM intends to incur Rs 4b towards maintenance capex in FY17 and FY18 out of which R2b will be spent in FY17. Major capex would be towards replacing of grinding mill at one of its plant.
