Please refer to important disclosures at the end of this report Equity Research October 5, 2017 ICICI Securities Limited is the author and distributor of this report Top picks Shree Cement UltraTech Cement Ambuja Cement Ramco Cement Cement Cost escalations to impact profitability Research Analysts: Krupal Maniar, CFA [email protected]+91 22 6637 7254 Dharmesh Shah [email protected]+91 22 6637 7480 Cement companies under our coverage are likely to report average EBITDA/te decline of ~Rs100/te YoY and ~Rs240/te QoQ mainly led by cost escalations which could not be passed-on owing to seasonality. Total costs/te are expected to be up by 3-4% YoY and QoQ led by price increases in pet coke, diesel, slag, packing material etc. Average realisations are likely to be down ~4% QoQ in South and 2-3% QoQ in most other regions. On a YoY basis, realisations are expected to be up ~10% in West region, flat in South, and up ~2% in most other regions. Sand mining issues in Uttar Pradesh & Bihar and continued muted demand in Tamil Nadu impacted overall demand growth during Q2FY18. We estimate industry volumes to be up 4-5% YoY led by better demand in North, West and East regions. We believe news flow on volumes and prices would improve meaningfully over the next few months as construction activities resume post monsoon / festive season. Given the current low utilisation rate at ~70%, we believe peak EBITDA/te is unlikely to be realised any time before FY21-FY22E and the same is yet to be discounted. Any correction in cement stocks would be an opportunity to accumulate, in our view. SRCM, UTCEM, ACEM and TRCL remain our preferred picks in the sector. Industry volumes likely up 4-5% YoY, implying utilisations of 64% - broadly flat YoY. Volumes in South region are likely to be flat YoY as strong volume growth in Andhra Pradesh / Telangana is offset by volumes decline in other southern states. Rest of the regions have likely grown in mid-single digit YoY during Q2FY18. SRCM / ACEM / DBEL / JKCE / JKLC are expected to report high single / low double-digit volume growth. We factor low-single digit volume growth for UTCEM on an organic basis and 19% YoY growth including that of JPA’s assets. While ACC is expected to report mid-teen volume growth; ICEM / TRCL should report muted volume growth. Average EBITDA/te likely down ~11% YoY / ~22% QoQ to Rs832/te. Average pan India realisation is likely to be up ~1-2% YoY / down ~2-3% QoQ. Total costs/te is expected to be up 3-4% YoY and QoQ led by price increases in pet coke, diesel, slag, packing material etc (on YoY basis) and due to poor operating leverage in seasonally weak quarter (on QoQ basis). Average EBITDA/te including other operating income and government incentives for companies under our coverage is expected to decline ~Rs100/te YoY and ~Rs240/te QoQ. Q2FY18 result picks: ACC (ADD), ACEM (BUY) and JKCE (BUY) are expected to report healthy 18-28% YoY EBITDA growth during Q2FY18. Quarterly summary Company Sales EBITDA# PAT JAS ’17* % chg JAS ’17* % chg JAS ’17* % chg (Rs mn) (YoY) (QoQ) (YoY) (QoQ) (YoY) (QoQ) UTCEM^ 64,245 19.0 (1.7) 12,179 5.5 (21.9) 3,548 (41.0) (60.2) ACC 28,645 15.8 (13.5) 3,486 27.4 (45.3) 1,441 75.7 (55.8) ACEM^ 22,797 13.7 (19.3) 3,879 28.0 (40.4) 2,749 58.0 (29.9) SRCM 21,572 7.5 (14.9) 5,257 (25.0) (26.2) 2,846 (48.0) (35.3) DBEL 18,800 11.7 (8.7) 4,334 3.0 (22.1) 595 91.2 (63.7) ICEM^ 12,630 NM (2.1) 1,749 NM (8.3) 185 NM (30.2) TRCL 9,920 (2.0) (2.4) 2,620 (25.8) (9.8) 1,353 (34.6) (13.1) JKCE 10,570 16.0 2.7 1,871 17.7 (5.4) 627 53.3 (21.0) JKLC 7,367 12.4 (18.2) 792 (15.4) (34.2) 52 (79.1) (81.6) ORCMNT 5,082 32.3 (10.6) 641 286.5 (45.2) 19 NM (95.2) PRSC^ 12,167 4.2 (8.1) 634 9.7 (41.8) (143) (32.6) (185.9) Total 213,794 13.5 (8.6) 37,443 (0.4) (27.2) 13,270 (22.9) (48.1) *JAS: July-August-September’17; ^standalone; #including other operating income; Source: I-Sec research INDIA
14
Embed
Equity Research INDIA - Moneycontrol.comstatic-news.moneycontrol.com/static-mcnews/2017/10/Q2FY...Krupal Maniar, CFA [email protected] JKLC +91 22 6637 7254 Dharmesh
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
Please refer to important disclosures at the end of this report
Equity Research October 5, 2017
ICICI Securities Limited is the author and distributor of this report
Cement companies under our coverage are likely to report average EBITDA/te decline of ~Rs100/te YoY and ~Rs240/te QoQ mainly led by cost escalations which could not be passed-on owing to seasonality. Total costs/te are expected to be up by 3-4% YoY and QoQ led by price increases in pet coke, diesel, slag, packing material etc. Average realisations are likely to be down ~4% QoQ in South and 2-3% QoQ in most other regions. On a YoY basis, realisations are expected to be up ~10% in West region, flat in South, and up ~2% in most other regions. Sand mining issues in Uttar Pradesh & Bihar and continued muted demand in Tamil Nadu impacted overall demand growth during Q2FY18. We estimate industry volumes to be up 4-5% YoY led by better demand in North, West and East regions. We believe news flow on volumes and prices would improve meaningfully over the next few months as construction activities resume post monsoon / festive season. Given the current low utilisation rate at ~70%, we believe peak EBITDA/te is unlikely to be realised any time before FY21-FY22E and the same is yet to be discounted. Any correction in cement stocks would be an opportunity to accumulate, in our view. SRCM, UTCEM, ACEM and TRCL remain our preferred picks in the sector.
Industry volumes likely up 4-5% YoY, implying utilisations of 64% - broadly flat
YoY. Volumes in South region are likely to be flat YoY as strong volume growth in
Andhra Pradesh / Telangana is offset by volumes decline in other southern states.
Rest of the regions have likely grown in mid-single digit YoY during Q2FY18. SRCM /
ACEM / DBEL / JKCE / JKLC are expected to report high single / low double-digit
volume growth. We factor low-single digit volume growth for UTCEM on an organic
basis and 19% YoY growth including that of JPA’s assets. While ACC is expected to
*December ending CY17E, CY18E, CY19E; Source: I-Sec research Note: We are not changing any reco, target and estimates in this report. We will review each stock individually after the quarterly results.
Source: Company data, I-Sec research; *including other operating income Note: We are not changing any reco, target and estimates in this report. We will review each stock individually after the quarterly results.
Source: Company data, I-Sec research; *including other operating income
Price chart
20
70
120
170
220
270
Oct-
14
Ap
r-15
Oct-
15
Ap
r-16
Oct-
16
Ap
r-17
Oct-
17
(Rs)
Price chart
25
45
65
85
105
125
145
Oct-
14
Ap
r-15
Oct-
15
Ap
r-16
Oct-
16
Ap
r-17
Oct-
17
(Rs)
Cement ICICI Securities
14
In case of industry/sector reports or a report containing multiple stocks, the rating/recommendation for a particular stock may be based on the last released stock
specific report for that company.
This report may be distributed in Singapore by ICICI Securities, Inc. (Singapore branch). Any recipients of this report in Singapore should contact ICICI Securities,
Inc. (Singapore branch) in respect of any matters arising from, or in connection with, this report. The contact details of ICICI Securities, Inc. (Singapore branch) are as follows: Address: 10 Collyer Quay, #37-16 Ocean Financial Tower, Singapore - 049315, Tel: +65 6232 2451 and email: [email protected], [email protected].
"In case of eligible investors based in Japan, charges for brokerage services on execution of transactions do not in substance constitute charge for research
reports and no charges are levied for providing research reports to such investors."
New I-Sec investment ratings (all ratings based on absolute return; All ratings and target price refers to 12-month performance horizon, unless mentioned otherwise)
BUY: >15% return; ADD: 5% to 15% return; HOLD: Negative 5% to Positive 5% return; REDUCE: Negative 5% to Negative 15% return; SELL: < negative 15% return
ANALYST CERTIFICATION
We /I, Krupal Maniar, CA, CFA; Dharmesh Shah, CA Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Analysts are not registered as research analysts by FINRA and are not associated persons of the ICICI Securities Inc.
Terms & conditions and other disclosures:
ICICI Securities Limited (ICICI Securities) is a full-service, integrated investment banking and is, inter alia, engaged in the business of stock brokering and distribution of financial products. ICICI Securities Limited is a SEBI registered Research Analyst with SEBI Registration Number – INH000000990. ICICI Securities is a wholly-owned subsidiary of ICICI Bank which is India’s largest private sector bank and has its various subsidiaries engaged in businesses of housing finance, asset management, life insurance, general insurance, venture capital fund management, etc. (“associates”), the details in respect of which are available on www.icicibank.com.
ICICI Securities is one of the leading merchant bankers/ underwriters of securities and participate in virtually all securities trading markets in India. We and our associates might have investment banking and other business relationship with a significant percentage of companies covered by our Investment Research Department. ICICI Securities generally prohibits its analysts, persons reporting to analysts and their relatives from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover.
The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of ICICI Securities. While we would endeavour to update the information herein on a reasonable basis, ICICI Securities is under no obligation to update or keep the information current. Also, there may be regulatory, compliance or other reasons that may prevent ICICI Securities 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 ICICI Securities policies, in circumstances where ICICI Securities might be acting in an advisory capacity to this company, or in certain other circumstances.
This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This report and information herein is solely for informational purpose and shall not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. ICICI Securities will not treat recipients as customers by virtue of their receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate the investment risks. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. ICICI Securities accepts no liabilities whatsoever for any loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. 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.
ICICI Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment in the past twelve months.
ICICI Securities or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction.
ICICI Securities or its associates might have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the companies mentioned in the report in the past twelve months.
ICICI Securities encourages independence in research report preparation and strives to minimize conflict in preparation of research report. ICICI Securities or its associates or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither ICICI Securities nor Research Analysts and their relatives have any material conflict of interest at the time of publication of this report.
It is confirmed that Krupal Maniar, CA, CFA; Dharmesh Shah, CA Research Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months.
Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions.
ICICI Securities or its subsidiaries collectively or Research Analysts or their relatives do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month preceding the publication of the research report.
Since associates of ICICI Securities are engaged in various financial service businesses, they might have financial interests or beneficial ownership in various companies including the subject company/companies mentioned in this report.
It is confirmed that Krupal Maniar, CA, CFA; Dharmesh Shah, CA Research Analysts do not serve as an officer, director or employee of the companies mentioned in the report.
ICICI Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report.
Neither the Research Analysts nor ICICI Securities have been engaged in market making activity for the companies mentioned in the report.
We submit that no material disciplinary action has been taken on ICICI Securities by any Regulatory Authority impacting Equity Research Analysis activities.
This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject ICICI Securities and affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction.
This report has not been prepared by ICICI Securities, Inc. However, ICICI Securities, Inc. 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.