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Yes Securities Report
The India Cement Ltd.'s performance came as expected with a net loss of Rs 855 million. Revenue declined by 5% YoY as net sales realisation dipped by 9% YoY, however volume growth of +5% YoY supported the free fall.
Total cost/tonne declined by 15% YoY primarily on account of eased power cost/te by 29% YoY. Despite the decline in total cost, it remained at elevated level, which coupled with weak NSR resulted in subdued Ebitda of Rs 19/tonne.
In absolute terms, Ebitda was at Rs 44 million in Q2 FY24 against the loss of Rs 762 million in Q2 FY23 guided by higher volumes and eased cost.
Management guided margin recovery with the easing of fuel cost and optimising supply-chain efforts (Rs 200/tonne through Boston Consulting Group consulting). Considering operating inefficiencies, India Cements finally plans to refurbish/ upgrade all plants and critical equipment which is expected to improve efficiency by cutting operating/variable costs.
However, we believe this plan is under development and will not be realised in near future as it is expected to be funded by land monetisation which will only happen at a favorable price.
In the short-run, India Cements aims to realise Rs 200/tonne of cost savings through supply-chain without any capex outlay.
At current market price the stock trades at 12/11 times enerprise value/Ebitda on FY25/26E.
We rolled forward our estimate to FY26 and arrived at a price target of Rs 195 with a 'Reduce' rating valuing at 10.5 times EV/Ebitda on FY26E.
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