EARNINGS SURGE FOR INDIA CEMENT
is a Chennaibased supplier. Both subsidiaries Trinetra Cement and Trishul Concrete Products are held by India Cements through another subsidiary, ICL Financial Services.
A restructuring will lead to benefits for India Cements, say analysts. The loans of both subsidiaries will get cleared up. This falls under India Cements’ strategy of realigning its business verticals and focusing only on core business, said an analyst with a domestic brokerage. Further, there are expectations of ~300-400 crore in tax savings from the merger due to unabsorbed losses. Since FY17E FY18E India Cements has a yearly tax outgo of ~80100 crore, the total benefits may be realised over three-four years, say analysts.
A larger regional footprint for India Cements also makes its exposure to South less risky. Apart from enabling faster growth and tax benefits, the merger should also lead to debt reduction. The company has already paid ~230 crore of its FY17 target of ~250 crore. The news flow has seen India Cements stock gain over 18 per cent in two days to ~190.
Meanwhile, the Street’s sentiment on India Cements has continued to Sales Ebitda Netprofit (~ crore) margin (~ crore) (%) EPS (~) improve, with rising realisations and expectations of debt reduction in last one year. Hopes of strong demand revival in Telangana and Andhra Pradesh kept sentiment strong. The union news now comes at a time when cement prices in Andhra Pradesh and Telangana have gone up. The price of cement bag (50 kg) in South India, which had declined from ~326 before note ban to ~282 in March 2017, has now moved up to ~317.
Anand Rathi Research estimates India Cements’ standalone revenues and profit to grow over 19 per cent in March quarter. After pegging earnings growth at 16 per cent in FY17, Motilal Oswal Securities expects India Cements’ profit to rise 70 and 36.5 per cent in FY18 and FY19, respectively.
The company is trading at replacement cost of close to $90 a tonne, which is at a substantial discount to Ramco Cements ($160). Gap is likely to reduce.