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Lower realizations restrict margin expansion
* A miss on volumes/realizations:
Volumes grew 5.5% YoY to 7.5mt (our estimate: 7.61mt) in 1QCY19. Cement realizations were flat QoQ at INR4,701/t (our estimate: INR4,794), as higher prices in south were offset by weaker prices in east. Revenue grew 8% YoY to INR39.2b (our estimate: INR40.5b).
* Higher-than-estimated cost leads to margin miss:
Blended cost/t increased 3% YoY (flat QoQ) to INR4,518 (our estimate: INR4,484). Blended EBITDA/t stood at INR708 (+2% YoY, +4% QoQ; our estimate: INR839), resulting in EBITDA of INR5.3b (+8% YoY, +4% QoQ; our estimate: INR6.38b). Operating margin came in at 13.5% (flat YoY, +0.45pp QoQ). During the quarter, receipt of Orders Giving Effect (OGE) to the CIT(A) orders for certain assessment years on disposal of certain appeals sanctioning income tax refunds resulted in interest income and reversal of provision for interest on income tax aggregating INR2.76b. The company has made provision of INR1.77b against this due to the uncertainty of its ultimate realisability. Net income of INR994.8m is included in other income. Reported PAT grew 38% YoY to INR3.38b (our estimate: INR3.53m), while adj. PAT declined 3% YoY to INR2.38b.
* Valuation view:
We cut our EBITDA/PAT estimate by 11%/9% for CY19 and by 9%/9% for CY20 to factor in lower growth in volumes and realizations. The stock trades at 9x CY20E EV/EBITDA. We raise our valuation multiple to 10x Jun’21E EV/EBITDA, as we reduce the valuation multiple discount to UTCEM (we value UTCEM at 14.5x FY21EV/EBITDA) to factor in the higher RoCE improvement of ACC relative to UTCEM. We, thus, arrive at a TP of INR1,913 (implied EV/tonne of USD 120 on CY20).
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