>India Cements 4QFY10 results below estimates, hit by provisioning for staff costs; Buy (MOTILAL OSWAL)

India Cements’ 4QFY10 results were below our estimates, with EBITDA of Rs1.26b and recurring PAT of Rs294m, impacted by higher staff cost (up ~37% QoQ). Key highlights:

■ Volumes grew by 27% to 2.95mt, driven by commissioning of new capacities. Realizations were up 3.2% QoQ (but down 16.2% YoY) at Rs3,125/ton.

■ EBITDA margins declined by 12.3pp YoY (~40bp QoQ) to 13.1%, impacted by higher staff costs due to higher provisioning for employee benefits.

■ 4QFY10 IPL revenue was Rs307m and EBITDA was Rs207m.

■ The management indicated that cement prices were recovering and realizations were higher by at least Rs10/bag during 4QFY10.

■ The company sold its 3% stake in Bharathi Cement to Vicat but it did not disclose the consideration and profit from stake sale.

Valuation and view: We maintain our EPS estimates. The stock is valued at 17.2x FY11E EPS (fully diluted, extreasury stock), 8x FY11E EBITDA and US$83/ton (at 15.5mt capacity). Valuations are attractive considering bottom of the cycle earnings. Maintain Buy with a target price of Rs166 (US$95/ton FY11 capacity – a 15% discount to replacement cost).

To read the full report: INDIA CEMENT