Recommendation From Cement Sector

This section gives a recommendation of a stock having stock margin padding price below Rs 100 with sound fundamentals and expected to give handsome returns over a one-year time horizon

India Cements

WELL-POISED TO CAPITALISE ON GOVT'S INFRA PUSH

HERE IS WHY
Government's impetus for infra development
to improve cement demand
Improved margins
Capacity expansion

There are a lot of industries in India that are still lagging behind in terms of usage, and one such industry is cement. India's per capita cement consumption is less than 200 kg, compared to over 1,000 kg in China and 500 kg as the global average. The impetus given by the government towards housing and infrastructure is likely to help bridge that gap. In the next five years, cement demand in India is estimated to cross 550 MT per year. All the cement companies will be the beneficiaries of the rise in cement demand; however, companies with dominant position in certain geographies are likely to benefit more than the others.

India Cements is one such company that is the largest manufacturer of cement in South India. It has seven integrated cement plants. Sankar, Coramandel and Raasi Gold are the brands owned by India Cements.

The company is yet to declare its Q1FY20 numbers. However, in Q4FY19, on a standalone basis, the total revenue from operations rose to Rs.1563.99 crore from Rs.1397.81 crore in Q4FY18, posting YoY growth of 11.88 per cent. EBITDA stood at Rs.192.22 crore in Q4FY19 as against Rs.158.44 crore in Q4FY18, marking an increase of 21.32 per cent. EBITDA margin improved by 95 bps YoY to 12.29 per cent in Q4FY19 from 11.34 per cent in Q4FY18. Net profit exhibited growth of 24.32 per cent as it rose to Rs.43.85 crore in Q4FY19 from Rs.35.27 crore in Q4FY18. However, EPS decreased to Rs.1.24 in Q4FY19 from Rs.1.35 in Q4FY18, thereby falling by 8.15 per cent 

For the year ended March 31, 2019, the company reported a reasonably stable operating performance on a weak base. The standalone total income from operations rose 5.38 per cent YoY to Rs.5627.99 crore in FY19 from Rs.5340.72 crore in FY18. The net profit stood at Rs.69.44 crore in FY19 and Rs.100.62 crore in FY18, showing a fall of 31 per cent YoY. Consequently.

On a positive note, the company's capacity utilisation improved to 84 per cent from 78 per cent YoY. This was largely aided by the busy season, which elevated the demand for cement. The margins of the company were dragged on account of one-time expense of Rs.14 crore in raw material costs related to licensing and Rs.5 crore in employee costs relating to wage settlement related expenses. The logistics costs fell 5% YoY to Rs.1,024/tonne on account of better lead distance. The price hikes in the states of Andhra Pradesh and Telangana drove realisations by 5 per cent YoY to Rs.4,672/ tonne. As realisations continued to overtake cost inflation, the operating performance improved. The company has planned capital expenditure of Rs.100 crore on land acquisition for greenfield expansion in central India.

The new government is expected to pursue development agenda more seriously to support economic reforms through rapid growth in infrastructure across housing, rail, road, waterways and highways. Hence, increased government spending and incentives to housing, should lead to growth in the cement sector from this fiscal, which will help India Cements increase its market share. By virtue of these factors, we urge our reader-investor to BUY this stock.