>INDIA CEMENTS: 1QFY2011 Result Update

India Cements’ net sales de-grew by 8.1% yoy during 1QFY2011 on account of the substantial decline in prices in Andhra Pradesh, which contributes around 45% of the company’s overall revenues. The net plant realisation NPR) for the quarter stood at Rs2,501/tonne, down 21% yoy. The management indicated that it is looking at increasing the proportion of its sales volume from Tamil Nadu and Kerala to 60% (from the current 50%) to achieve better realisation. We maintain a Buy on the stock.

■ Operating profit down 71.2%: On the operating front, the company’s margins fell by 2,244bp yoy to 10.3% (32.7%) on account of the fall in realisations and increase in raw material and freight costs. The company’s operating profit stood at Rs91cr, down 71.2% yoy. Net profit dropped 82.7% yoy to Rs25cr primarily due to the poor operating performance. Bottom-line was however, bolstered by the Rs26.4cr of profit booked from the stake sale in Bharati Cement. Adjusting the foreign exchange translation loss of Rs11.6cr (Rs21cr gain in 1QFY2010) and exceptional income from stake sale, net profit stood at Rs Rs10.2cr.

■ Outlook and Valuation: We expect the pricing pressure in the southern region to continue over the next few quarters on the back of excess capacity and lack of demand particularly in Andhra Pradesh due to reduced government spending on infrastructure and housing projects. We maintain a Buy on the stock with the SOTP-based Target Price of Rs139.

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