Due to COVID-19 impact, cement volumes plunged 21% YoY (down 11% for FY20). We estimate volumes to dip another 7% in FY21 before recovering 19% in FY22.
India Cements'(ICEM) operating performance disappointed yet again with Q4FY20 EBITDA (down 65%YoY) missing estimate 53%. Even as volumes stood 2% ahead (down 21% YoY due to COVID-19 impact), the dismal performance was primarily owing to weak realisation, which slipped 3% QoQ (4% growth estimate and 3-5% growth reported by regional peers). Overall cost was broadly in line. With current cement prices in ICEM’s markets being materially higher versus Q4FY20 and on expectation of benign fuel cost, we see limited risk to our forward estimates.
We continue tovalue ICEM at 6.5x FY22E EV/EBITDA, yielding TP of Rs 75 given limited visibility on reduction of its high debt and low RoE. Without any change in fundamentals, the stock has surged >80% in the past six months. We believe this may be on account of a single investor increasing stake in ICEM (from 1.3% in Q2FY20 to ~20% in Q4). Pending clarity over the objective behind spike in stake, maintain ‘REDUCE’.
Due to COVID-19 impact, cement volumes plunged 21% YoY (down 11% for FY20). We estimate volumes to dip another 7% in FY21 before recovering 19% in FY22. Realisation dipped ~3% QoQ, but rose mere 1% for FY20. However, current prices are much higher versus Q4 and we expect them to stay firm. Overall cost/t stood broadly flat YoY and we expect it to stay benign given soft fuel prices. EBITDA/t at Rs 255 dipped 56% YoY and grew a modest 4% to Rs 531 in FY20. We estimate Rs 610 for FY21 and Rs 705 in FY22. We keep estimates unchanged.
With no change in business fundamentals and leverage concerns, we continue to value ICEM at 6.5x FY22E EV/EBITDA and maintain ‘REDUCE’ with TP of Rs 75/share. Having surged >80% in the past six months (which we believe could be owing to increase in stake to ~20% by a single large investor), the stock currently trades at ~8x FY22E.