>CEMENT SECTOR (MOTILAL OSWAL)

■ India Cements’ 4QFY09 results were lower than our estimates, with EBITDA margins of 25.4%. Higher RM cost and higher other cost impacted performance. The management gave positive outlook for the industry for FY10, and expects marginal improvement in FY10 realizations over FY09.

■ Net sales grew just by 5.3% to Rs8.9b, being impacted by 5.5% YoY decline in volumes to 2.32MT. However, realizations were higher by 2.9% QoQ (~10.7% YoY) to Rs3,733/ton, benefiting from part retention of excise duty cut. Volume growth was impacted by on-going brownfield expansions and power cuts in TN & AP. Income from IPL of Rs165m for 4Q and Rs685m for FY09.

■ EBITDA de-grew by 14% to Rs2.25b, resulting in EBITDA margins contraction of 570bp YoY (~150bp QoQ improvement) to 25.4%. Margins were impacted by higher RM cost and higher other expenditure. Higher depreciation, higher interest and lower other income further restricted recurring PAT to Rs1b (~26% YoY decline).

■ Setting up CPPs, plans to acquire to coal mines: India Cement is planning to set-up 100MW CPP in Tamil Nadu and Andhra Pradesh with capex of Rs5b. However, its investment in CPP would depend on the structure of ownershipof these assets. Further, it is pursuing coal mining rights in Indonesia to meet its coal requirements.

■ We are downgrading our EPS estimates for FY10 by 4.3% to Rs20.3, but maintain FY11 EPS at Rs14.7. Downgrade in FY10 estimates is to factor in for higher RM and other expenditure as well as EBITDA losses in shipping business. The stock is valued at 6.5x FY10 EPS (fully diluted, ex-treasury stock), 3.6x FY10E EBITDA and US$59/ton (at 14MT capacity). Maintain Buy.

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