India Cements Q1 Review - Low Capacity Utilisation, Weak Pricing Led To An Operating Loss: Motilal Oswal

Motilal Oswal Report

India Cements Capital Ltd. reported an operating loss of Rs 310 million versus Ebitda estimate of Rs 288 million) in Q1 FY25. Sales volume declined ~26% YoY to 2.0 mt (13% miss). Blended realization declined 5% YoY (3% miss). Net loss (adjusted for profit on sale of grinding unit) stood at Rs 1.2 billion versus estimated Rs 543 million net loss.

Management indicated that the company’s capacity utilisation was hit by the liquidity crunch on account of sustained losses in the previous quarters.

The promoter and promoter group have entered into a share purchase agreement on July 28, 2024, with UltraTech Cement Ltd. to sell their entire stake at a price of Rs 390, subject to necessary regulatory approvals.

Given the recent corporate development, we change our valuation method from enterprise value/Ebitda to enterprise value/tonne, as that would protect the downside despite deteriorating operating performance.

We now value India Cements Capital at a replacement cost (enterprise value/tonne of $ 100) versus valuing it at 11 times FY26E EV/Ebitda earlier, and arrive at our target price of Rs 310. Reiterate 'Sell'.

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