Revival of India Cements’ earnings is easier said than done

But this sale could well be a drop in the ocean for its deleveraging efforts, unless of course its operating metrics improve significantly. Remember that the company’s sale of its entire holding in Springway Mining Pvt. Ltd (SMPL) to JSW Cement for almost ₹477 crore in October has not made much difference owing to India Cements’ weak financial performance in the past few quarters. As analysts from ICICI Securities point out, “Despite the cash consideration received from the sale of SMPL, India Cements’ net debt for FY23 could reduce by a mere about ₹160 crore given it was one of the worst operating years for India Cements (with a first ever Ebitda loss of more than ₹170 crore and high working capital requirement).” As on March-end, India Cements’ consolidated debt was ₹2,939 crore and it rose to ₹2,947 crore as on June-end. Ebitda is earnings before interest, tax, depreciation, and amortization; a key profitability measure. Sure, after three quarters of an Ebitda loss, the June quarter (Q1FY24) saw a profit on this metric. But year-on-year volume growth was flat at 2.7 million tonnes in Q1 and realization was subdued. The company is undertaking initiatives to get a handle on its operating costs. It has appointed Boston Consulting Group which would help cut costs by ₹200 a tonne by March.

Still, India Cements lags on capacity additions, eroding its market share. Motilal Oswal Financial Services estimates the company has lost significant market share of 800 basis points over FY10–23. The brokerage expects its loss of market share in the south to continue given the capacity additions by peers.Additionally, external factors are unexciting. Dealer channel checks by brokerages show in recent months, cement prices in the south have been on a relatively weaker footing. Elevated competitive intensity amid excess supply in the region has kept prices suppressed, which would reflect in the realization. In this backdrop, the stock’s modest 6% returns so far in 2023 is not surprising and industry challenges may make meaningful gains harder. The stock trades at a FY25 estimated EV/Ebitda of around 13 times, showed Bloomberg data. EV is enterprise value.

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Updated: 26 Sep 2023, 09:32 PM IST