Sharekhan has maintained ‘buy’ on India Cements

Sharekhan has maintained ‘buy’ on India Cements with a revised price target of Rs 260. The company’s Jan-Mar 2007-08 revenues (including Vishaka Cement) grew by 8 per cent year on year to Rs 844 crore. Operating profit margin declined by 250 basis points year on year to 31.2 per cent. The drop in OPM was mainly on account of a sharp increase in other expense and employee cost. Consequently the operating profit remained flat at Rs 262.9 crore.

The increase in other expense was primarily due to booking of India Premium League expenses of Rs 9 crore, write off of Rs 5 crore, managerial remuneration of Rs 10.6 crore and an increase in the packing cost. The increase in the staff cost was due to bonus paid and an additional provision made for leave salary.

During the quarter, realisation per tonne increased by 29.3 per cent to Rs 3,436 per tonne, cost per tonne grew by 34.3 per cent to Rs 2,366 tonne, while the earnings before interest, depreciation, tax and amortisation per tonne rose by 19.6 per cent to Rs 1,071 per tonne.

During the quarter under review, the company had extraordinary expenses of Rs 48.1 crore, representing the charges incurred on one-time settlement of the loan with the lenders. The reported net profit declined by 38.2 per cent to Rs 104.5 crore. Thus, the adjusted net profit fell by 22.3 per cent to Rs 131.5 crore.

India Cements Jan-Mar 2007-08 revenues (excluding Vishaka Cement) grew by 46.6 per cent year on year to Rs 844 crore. The operating profit margin declined by 190 basis points year on year to 31.2 per cent. Consequently the operating profit reported a growth of 38 per cent to Rs 262.9 crore. The adjusted net profit declined by 5.9 per cent to Rs 131.5 crore.

For 2007-08, the standalone net sales stood at Rs 3,044.3 crore, up 35 per cent year on year. The operating profit margin improved by 290 basis points to 35.5 per cent. The adjusted profit after tax stood at Rs 664.6 crore, up 40.6 per cent.

Sharekhan expects India Cements' earning growth to come under pressure due to a surge in input cost and an increase in the effective tax rate. To factor in higher input cost, the brokerage has revised their 2008-09 net profit estimates downward by 6 per cent.

Sharekhan expects the company to post earnings per share of Rs 25.7 and Rs 25.6 in 2008-09 and 2009-10 respectively. At the market price of Rs 120, the share trades at 4.7X and 4.7X its 2008-09 and 2009-10 earnings and enterprise value (EV)/EBIDTA of 3.6X and 3.5X for 2008-09 and 2009-10 respectively.