Cement - Q4FY12 Result Preview - Centrum ... - all-mail-archive

all.mail.archive.com

Cement - Q4FY12 Result Preview - Centrum ... - all-mail-archive

INDIA

09 Apr 2012

Cement

Sanjeev Kumar Singh

sanjeev.singh@centrum.co.in

+91 22 4215 9643

Summary Estimates

Q4FY12 Result Preview

Pricing strong but margins under pressure

We expect aggregate sales volumes of our cement universe to

grow 8.5% YoY (and 15.8% QoQ) to 33.2mt driven by strong

cement demand across the country due to busy construction

activities in the quarter. Average cement realization is

expected to improve 10.8% YoY (and 1.2% QoQ) to

Rs4,027/tonne led by sharp price hikes during Q1 and Q2 of

FY12E. Though volume and realization are expected to

increase, rising costs would lead to a marginal 4bps

contraction in average EBITDA margin of our universe.

Industry despatches during the quarter is expected to

increase 8.3% YoY to 63.1mt. Though the manufacturers are

able to pass on the rising costs to consumers, we are not

expecting margin expansion in the near future due to rising

costs for players. Slowdown in housing and real estate

construction activities along with economic slowdown which

has kept capex cycle of industries under pressure remain a

concern for sustainable demand growth. We believe that

large-cap cement companies (ACC, Ambuja and Ultra Tech)

are trading at a premium to their historical valuations and

maintain Sell on these stocks. We have a Hold rating on

Grasim Industries and Shree Cement. We prefer mid-caps and

have a Buy on Orient Paper, India Cements and JK Cement due

to attractive valuations.

Strong volume growth in the seasonally best quarter:

Aggregate sales volume of our coverage universe is expected to

grow 8.5% YoY (and 15.8% QoQ) driven by strong construction

activities (Q4 is seasonally the best quarter for cement

companies). Large cement players’ volume is expected to grow

by 7-9% YoY. We expect 14.5% YoY and 12.1% YoY volume

growth for Shree Cement and Orient Paper respectively in the

quarter.

Steep increase in realization expected: Average realization of

cement for our coverage universe is expected to increase 10.8%

YoY (and 1.2% QoQ) to Rs4,027/tonne primarily due to sharp

price hikes taken during Q1 and Q2 of FY12E.

Cost pressure will lead to marginal decline in operating

margins: Though the realization and volume of our universe is

expected to increase, average operating margin of our universe is

expected to decline marginally by 4bps to 22.4%. Among large

cement players, ACC is expected to report the highest margin

decline of 183bps YoY. Among mid-caps, we expect margin

improvement of 320bps each for India Cements and JK Cement.

Prefer mid-caps due to attractive valuations: Large-cap cement

companies are trading at a premium to their mean trading multiples,

which we believe is unwarranted considering the weak demand

environment, expected volatility in realization and decline in return

ratios. We maintain Sell on ACC, Ambuja and UltraTech. We have a

Hold rating on Grasim Industries and Shree Cement. We maintain

Buy on mid-caps (Orient Paper, India Cements, and JK Cement) under

our coverage due to attractive valuations.

Price Performance (%)*

1M 6M 1Yr

ACC (0.5) 17.8 17.1

Ambuja Cement 3.9 16.7 13.4

Ultra Tech Cement 2.1 37.2 37.7

Grasim Ind (4.1) 11.5 2.6

Shree Cements 3.3 70.1 53.7

India Cement 7.8 52.1 8.5

JK Cement 20.5 52.4 24.9

Orient Paper 6.9 (0.4) 6.2

NIFTY (0.9) 10.2 (11.4)

*as on 09 April 2012

Source: Bloomberg, Centrum Research

Companies Volume (MT) Realization/tonne (Rs) Net Sales (Rs Mn) EBITDA (Rs Mn) EBITDA margin (%) Adj PAT (Rs Mn)

Q4FY12E YoY (%) QoQ (%) Q4FY12E YoY (%) QoQ (%) Q4FY12E YoY (%) QoQ (%) Q4FY12E YoY (%) QoQ (%) Q4FY12E Q4FY11 Q3FY12 Q4FY12E YoY (%) QoQ (%)

ACC* 6.72 9.1 12.9 4,264 9.5 2.0 28,655 19.5 15.2 6,101 10.1 63.1 21.3 23.1 15.0 3,749 6.9 54.6

Ambuja* 6.10 8.1 15.3 4,403 12.5 - 26,845 21.6 15.3 7,254 18.6 59.7 27.0 27.7 22.8 4,548 11.6 53.8

Ultra Tech 11.57 6.8 14.4 4,037 10.4 2.5 52,851 17.7 15.6 11,822 15.8 22.5 22.4 22.7 21.1 7,085 15.8 38.4

Grasim Ind $ - - - - - - 71,076 11.2 13.5 14,991 (2.5) 14.5 21.1 24.1 20.9 7,389 - 31.0

Shree Cement 3.30 14.5 15.8 3,873 17.4 2.0 14,095 31.7 12.0 4,125 39.4 24.1 29.3 27.7 26.4 1,108 25.2 87.2

India Cements 2.77 8.7 26.8 4,245 11.4 0.0 11,939 19.6 26.8 2,523 41.2 29.7 21.1 17.9 20.7 816 49.1 45.0

JK Cement^ 1.60 4.9 25.6 3,774 7.9 0.5 7,570 13.6 23.1 1,550 34.7 30.1 20.5 17.3 19.4 672 25.5 54.4

Orient Paper 1.11 12.1 13.4 3,596 6.5 2.0 7,992 14.8 38.8 1,293 (0.9) 44.9 16.2 18.7 15.5 745 (5.6) 72.4

Note: *Y/E Dec (Data for Q1CY12) – standalone financials, $ consolidated financials

^

Grey cement sale volume

Source: Companies, Centrum Research Estimates

Please refer to important disclosures/disclaimers in Appendix A

Centrum Equity Research is available on Bloomberg, Thomson Reuters and FactSet


ACC

We expect 19.5% YoY increase in net sales to Rs28.7bn led by 9.1% YoY growth in sales volumes

to 6.72mt and 9.5% YoY rise in cement realization to Rs4,264/tonne. On a sequential basis, net

sales is expected to increase 15.2% QoQ which would be driven by 12.9% QoQ increase in sales

volume and 2% QoQ increase in grey cement realization.

EBITDA is expected to improve 10.1% YoY (and 63.1% QoQ) to Rs6.1bn, impacted by the

increase in sales volume and realization.

EBITDA margin is expected to decline 1.8pp YoY to 21.3% primarily due to increase in fuel and

freight costs. On a sequential basis, EBITDA margin is expected to improve 6.3pp QoQ led by

lower other expenses and volume increase. EBITDA/tonne is expected to be Rs908 against

Rs900 in Q1CY11 and Rs629 in Q4CY11.

Adjusted PAT is expected to increase 6.9% YoY (and 54.6% QoQ) to Rs3.7bn. Adjusted PAT

margin is expected to be 13.1% against 14.6% in Q1CY11 and 9.7% in Q4CY11.

Ambuja Cements

We expect Q1CY12 net sales to increase 21.6% YoY (and 15.3% QoQ) to Rs26.8bn. Sales volume

is expected to increase 8.1% YoY (and 15.3% QoQ) to 6.1mt. Realization/tonne is expected to

increase 12.5% YoY to Rs4,403/tonne.

EBITDA is expected to increase 18.6% YoY (and 59.7% QoQ) to Rs7.3bn led by an increase in

sales volume and realization.

EBITDA margin is expected to decline 70bps YoY to 27% primarily due to increase in fuel and

freight costs. On a sequential basis, EBITDA margin is expected to improve 4.2pp QoQ primarily

due to improvement in sales volume. EBITDA/tonne is expected to be Rs1,190 against Rs1,084

in Q1CY11 and Rs927 in Q4CY11.

Adjusted PAT is expected to increase 11.6% YoY (and 53.8% QoQ) to Rs4.5bn. Adjusted PAT

margin is expected be 16.9% against 18.5% in Q1CY11 and 12.7% in Q4CY11.

UltraTech Cement

We expect net sales to increase 17.7% YoY (and 15.6% QoQ) to Rs52.9bn. Sales volume

(domestic grey cement and clinker) is expected to increase 6.9% YoY (and 14.5% QoQ) to

11.57mt. Domestic realization is expected to increase 10.4% YoY (and 2.5% QoQ) to

Rs4,037/tonne.

EBITDA is expected to increase 15.8% YoY (and 22.5% QoQ) to Rs11.8bn mainly because of

higher realization and cement sales.

EBITDA margin is expected to be 22.4% vs 22.7% in Q4FY11 and 21.1% in Q3FY12. Blended

EBITDA/tonne is expected to be Rs1,021 against Rs975 in Q4FY11 and Rs924 in Q3FY12.

Adjusted PAT is expected to register 15.8% YoY (and 38.4% QoQ) increase to Rs7.1bn. Adjusted

PAT margin is expected to be 13.4% against 13.6% in Q4FY11 and 11.2% in Q3FY12.

Grasim Industries

Consolidated revenue is expected to increase 11.2% YoY (and 13.5% QoQ) to Rs71.1bn. EBITDA

is expected to decline 2.5% QoQ to Rs15bn mainly because of decline in VSF margins.

Consolidated EBITDA margin is expected to be 21.1% against 24.1% in Q4FY11 and 20.9% in Q3FY12.

Adjusted PAT is expected to remain flat at Rs7.4bn in the quarter. Adjusted PAT margin is

expected to be 10.4% vs. 11.6% in Q4FY11 and 9% in Q3FY12.

We expect the company to report standalone revenue of Rs13.1bn (down 7.7% YoY), EBITDA of

Rs2.9bn (down 37.4% YoY) and PAT of Rs2.8bn (down 28.8% YoY). VSF sales volume is expected

to decline 5.4% YoY to 81,000 tonnes. VSF realization is expected to decline 13.8% YoY to

Rs125/kg in the quarter.

2

Cement


Shree Cement

We expect net sales to improve 31.7% YoY (and 12% QoQ) to Rs14.1bn. EBITDA is expected to

increase 39.4% YoY and 24.1% QoQ to Rs4.1bn.

Sales volume (Cement and Clinker) is expected to increase 14.5% YoY (and 15.8% QoQ) to

3.3mt. Cement realization is expected to increase 17.4% YoY (and 2% QoQ) to Rs3,873/tonne.

Power sales volume is expected to be 303mn units against 257.4mn units in Q4FY11 and 256mn

units (own generation only) in Q3FY12. Power realization is expected to be Rs4.35/kwh against

4.65/kwh in Q4FY11 and Rs4.47/kwh in Q3FY12.

EBITDA margin is expected to improve 1.6pp YoY (and 2.9pp QoQ) to 29.3% driven by

improvement in cement realization and sales volume.

Adjusted PAT is expected to increase 25.2% YoY (and 87.2% QoQ) to Rs1.1bn. Adjusted PAT

margin is expected to be 7.9% against 6.1% in Q4FY11 and 4.7% in Q3FY12.

India Cements

We expect 19.6% YoY (and 26.8% QoQ) increase in net sales to Rs11.9bn driven by 11.4% YoY

improvement in cement realization and 8.7% YoY increase in cement sales volume.

Cement sales volume is expected to increase 8.7% YoY (and 26.8% QoQ) to 2.77mt. Cement

realization is expected to increase 11.4% YoY (flat on sequential basis) to Rs4,245/tonne.

EBITDA is expected to increase 41.2% YoY (and 29.7% QoQ) to Rs2.5bn driven by strong volume

and realization increase. EBITDA margin is expected to improve 3.2pp YoY (47bps QoQ) to

21.1%. EBITDA/tonne is expected to be Rs897 vs Rs696 in Q4FY11 and Rs864 in Q3FY12.

Adjusted profit is expected to increase 49.1% YoY (and 45% QoQ) to Rs816mn. Adjusted PAT

margin is expected to be 6.8% against 5.5% in Q4FY11 and 6% in Q3FY12.

We estimate the IPL franchisee revenues at Rs150mn, wind mill revenues at Rs60mn and freight

earnings at Rs110mn during the quarter.

JK Cement

We expect net sales to increase 13.6% YoY (and 23.1% QoQ) to Rs7.6bn. Grey cement sales

volume is expected to increase 4.9% YoY (and 25.6% QoQ) to 1.6mt. Grey cement realization is

expected to increase 7.9% YoY (and 0.5% QoQ) to Rs3,757/tonne.

EBITDA is expected to increase 34.7% YoY (and 30.1% QoQ) to Rs1.6bn led by improvement in

realization and sales volume. EBITDA margin is expected to improve 3.2pp YoY (and 1.1pp QoQ)

to 20.5%.

Consolidated EBITDA/tonne is expected to be Rs914 in the quarter against Rs695 in Q4FY11 and

Rs875 in Q3FY12.

Adjusted profit is expected to increase 25.5% YoY (and 54.4% QoQ) to Rs672mn. Adjusted PAT

margin is expected to be 8.9% against 8% in Q4FY11 and 7.1% in Q3FY12.

Orient Paper & Industries

We expect net sales to increase 14.8% YoY (and 38.8% QoQ) to Rs8bn. Grey cement sales

volume is expected to increase 12.1% YoY (and 13.4% QoQ) to 1.1mt. Grey cement realization is

expected to increase 6.5% YoY (and 2% QoQ) to Rs3,596/tonne.

We have assumed the paper division’s revenue at Rs1.1bn (up 12.6% YoY) and electrical

division’s revenue at Rs2.9bn (up 10.6% YoY).

EBITDA is expected to decline 0.9% YoY to Rs1.3bn primarily due to expected decline in

electrical segment’s margins. EBITDA margin is expected to be 16.2% against 18.7% in Q4FY11

and 15.5% in Q3FY12.

Adjusted profit is expected to decline 5.6% YoY to Rs731mn (up 72.4% QoQ). Adjusted PAT

margin is expected to be 9.1% against 11.1% in Q4FY11 and 7.4% in Q3FY12.

3

Cement


Appendix A

Disclaimer

Centrum Broking Ltd. (“Centrum”) is a full-service, Stock Broking Company and a member of The Stock Exchange, Mumbai (BSE) and National Stock Exchange of India Ltd. (NSE). Our

holding company, Centrum Capital Ltd, is an investment banker and an underwriter of securities. As a group Centrum has Investment Banking, Advisory and other business relationships

with a significant percentage of the companies covered by our Research Group. Our research professionals provide important inputs into the Group's Investment Banking and other

business selection processes.

Recipients of this report should assume that our Group is seeking or may seek or will seek Investment Banking, advisory, project finance or other businesses and may receive commission,

brokerage, fees or other compensation from the company or companies that are the subject of this material/report. Our Company and Group companies and their officers, directors and

employees, including the analysts and others involved in the preparation or issuance of this material and their dependants, may on the date of this report or from, time to time have

"long" or "short" positions in, act as principal in, and buy or sell the securities or derivatives thereof of companies mentioned herein. Centrum or its affiliates do not own 1% or more in the

equity of this company Our sales people, dealers, traders and other professionals may provide oral or written market commentary or trading strategies to our clients that reflect opinions

that are contrary to the opinions expressed herein, and our proprietary trading and investing businesses may make investment decisions that are inconsistent with the recommendations

expressed herein. We may have earlier issued or may issue in future reports on the companies covered herein with recommendations/ information inconsistent or different those made in

this report. In reviewing this document, you should be aware that any or all of the foregoing, among other things, may give rise to or potential conflicts of interest. We and our Group may

rely on information barriers, such as "Chinese Walls" to control the flow of information contained in one or more areas within us, or other areas, units, groups or affiliates of Centrum.

Centrum or its affiliates do not make a market in the security of the company for which this report or any report was written. Further, Centrum or its its affiliates did not make a market in

the subject company’s securities at the time that the research report was published.

This report is for information purposes only and this document/material should not be construed as an offer to sell or the solicitation of an offer to buy, purchase or subscribe to any

securities, and neither this document nor anything contained herein shall form the basis of or be relied upon in connection with any contract or commitment whatsoever. This document

does not solicit any action based on the material contained herein. It is for the general information of the clients of Centrum. Though disseminated to clients simultaneously, not all clients

may receive this report at the same time. Centrum will not treat recipients as clients by virtue of their receiving this report. It does not constitute a personal recommendation or take into

account the particular investment objectives, financial situations, or needs of individual clients. Similarly, this document does not have regard to the specific investment objectives,

financial situation/circumstances and the particular needs of any specific person who may receive this document. The securities discussed in this report may not be suitable for all

investors. The securities described herein may not be eligible for sale in all jurisdictions or to all categories of investors. The countries in which the companies mentioned in this report are

organized may have restrictions on investments, voting rights or dealings in securities by nationals of other countries. The appropriateness of a particular investment or strategy will

depend on an investor's individual circumstances and objectives. Persons who may receive this document should consider and independently evaluate whether it is suitable for his/

her/their particular circumstances and, if necessary, seek professional/financial advice. Any such person shall be responsible for conducting his/her/their own investigation and analysis of

the information contained or referred to in this document and of evaluating the merits and risks involved in the securities forming the subject matter of this document.

The projections and forecasts described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies.

Projections and forecasts are necessarily speculative in nature, and it can be expected that one or more of the estimates on which the projections and forecasts were based will not

materialize or will vary significantly from actual results, and such variances will likely increase over time. All projections and forecasts described in this report have been prepared solely by

the authors of this report independently of the Company. These projections and forecasts were not prepared with a view toward compliance with published guidelines or generally

accented accounting principles. No independent accountants have expressed an opinion or any other form of assurance on these projections or forecasts. You should not regard the

inclusion of the projections and forecasts described herein as a representation or warranty by or on behalf of the Company, Centrum, the authors of this report or any other person that

these projections or forecasts or their underlying assumptions will be achieved. For these reasons, you should only consider the projections and forecasts described in this report after

carefully evaluating all of the information in this report, including the assumptions underlying such projections and forecasts.

The price and value of the investments referred to in this document/material and the income from them may go down as well as up, and investors may realize losses on any investments.

Past performance is not a guide for future performance. Future returns are not guaranteed and a loss of original capital may occur. Actual results may differ materially from those set forth

in projections. Forward-looking statements are not predictions and may be subject to change without notice. Centrum does not provide tax advice to its clients, and all investors are

strongly advised to consult regarding any potential investment. Centrum and its affiliates accept no liabilities for any loss or damage of any kind arising out of the use of this report.

Foreign currencies denominated securities are subject to fluctuations in exchange rates that could have an adverse effect on the value or price of or income derived from the investment.

In addition, investors in securities such as ADRs, the value of which are influenced by foreign currencies effectively assume currency risk. Certain transactions including those involving

futures, options, and other derivatives as well as non-investment-grade securities give rise to substantial risk and are not suitable for all investors. Please ensure that you have read and

understood the current risk disclosure documents before entering into any derivative transactions.

This report/document has been prepared by Centrum, based upon information available to the public and sources, believed to be reliable. No representation or warranty, express or

implied is made that it is accurate or complete. Centrum has reviewed the report and, in so far as it includes current or historical information, it is believed to be reliable, although its

accuracy and completeness cannot be guaranteed. The opinions expressed in this document/material are subject to change without notice and have no obligation to tell you when

opinions or information in this report change.

This report or recommendations or information contained herein do/does not constitute or purport to constitute investment advice in publicly accessible media and should not be

reproduced, transmitted or published by the recipient. The report is for the use and consumption of the recipient only. This publication may not be distributed to the public used by the

public media without the express written consent of Centrum. This report or any portion hereof may not be printed, sold or distributed without the written consent of Centrum.

This report has not been prepared by Centrum Securities LLC. However, Centrum Securities LLC has reviewed the report and, in so far as it includes current or historical information, it is

believed to be reliable, although its accuracy and completeness cannot be guaranteed.

The distribution of this document in other jurisdictions may be restricted by law, and persons into whose possession this document comes should inform themselves about, and observe,

any such restrictions. Neither Centrum nor its directors, employees, agents or representatives shall be liable for any damages whether direct or indirect, incidental, special or

consequential including lost revenue or lost profits that may arise from or in connection with the use of the information.

This document does not constitute an offer or invitation to subscribe for or purchase or deal in any securities and neither this document nor anything contained herein shall form the

basis of any contract or commitment whatsoever. This document is strictly confidential and is being furnished to you solely for your information, may not be distributed to the press or

other media and may not be reproduced or redistributed to any other person. The distribution of this report in other jurisdictions may be restricted by law and persons into whose

possession this report comes should inform themselves about, and observe any such restrictions. By accepting this report, you agree to be bound by the fore going limitations. No

representation is made that this report is accurate or complete.

The opinions and projections expressed herein are entirely those of the author and are given as part of the normal research activity of Centrum Broking and are given as of this date and

are subject to change without notice. Any opinion estimate or projection herein constitutes a view as of the date of this report and there can be no assurance that future results or events

will be consistent with any such opinions, estimate or projection.

This document has not been prepared by or in conjunction with or on behalf of or at the instigation of, or by arrangement with the company or any of its directors or any other person.

Information in this document must not be relied upon as having been authorized or approved by the company or its directors or any other person. Any opinions and projections

contained herein are entirely those of the authors. None of the company or its directors or any other person accepts any liability whatsoever for any loss arising from any use of this

document or its contents or otherwise arising in connection therewith.

Centrum and its affiliates have not managed or co-managed a public offering for the subject company in the preceding twelve months. Centrum and affiliates have not received

compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for service in respect of public offerings, corporate

finance, debt restructuring, investment banking or other advisory services in a merger/acquisition or some other sort of specific transaction.

As per the declaration given by him Mr Sanjeev Kumar Singh, analyst and/or any of his family members do not serve as an officer, director or are any way connected to the

company/companies mentioned in this report. Further, as declared by him, he has not received any compensation from the above companies in the preceding twelve months. Our entire

research professionals are our employees and are paid a salary. They do not have any other material conflict of interest of the research analyst or member of which the research analyst

knows of has reason to know at the time of publication of the research report or at the time of the public appearance.

While we would endeavour to update the information herein on a reasonable basis, Centrum, it's associated companies, their directors and employees are under no obligation to update

or keep the information current. Also, there may be regulatory, compliance or other reasons that may prevent Centrum from doing so.

Non-rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable regulations and/or Centrum

policies, in circumstances where Centrum is acting in an advisory capacity to this company, or any certain other circumstances

Key to Centrum Investment Rankings

Buy: Expected outperform Nifty by>15%, Accumulate: Expected to outperform Nifty by +5 to 15%, Hold: Expected to outperform Nifty by -5% to +5%, Reduce: Expected to underperform

Nifty by 5 to 15%, Sell: Expected to underperform Nifty by>15%

4

Cement


Centrum Broking Limited

Member (NSE, BSE, MCX-SX), Depository Participant (CDSL) and SEBI registered Portfolio

Manager

Regn Nos

CAPITAL MARKET SEBI REGN. NO.: BSE: INB011454239, NSE: INB231454233

DERIVATIVES SEBI REGN. NO.: NSE: INF231454233 (TRADING & SELF CLEARING MEMBER)

CDSL DP ID: 12200. SEBI REGISTRATION NO.: IN-DP-CDSL-20-99

PMS REGISTRATION NO.: INP000000456

MCX – SX (Currency Derivative segment) REGN. NO.: INE261454236

Website: www.centrum.co.in

Investor Grievance Email ID: investor.grievances@centrum.co.in

Compliance Officer Details :

Mr. Praveen Malik; Tel: (022) 42159703; Email ID: praveen.malik@centrum.co.in

REGD. OFFICE Address

Bombay Mutual Bldg.,2nd Floor, Dr. D. N. Road, Fort,

Mumbai - 400 001

Correspondence Address

Centrum House, 6th Floor, CST Road, Near Vidya Nagari Marg,

Kalina, Santacruz (E), Mumbai 400 098.

Tel: (022) 4215 9000

5

Cement

More magazines by this user
Similar magazines