EQUITIES

Brokerages not impressed with Radhakishan Damani’s cement bet after Rs 111 crore net loss

A whopping 93% of the respondents said they expected volumes to shrink 10-30% in FY2021 in the base case scenario, i.e. the lockdown easing in May. Extension

Ace investor Radhakishan Damani’s top cement sector stock pick, India Cements reported a net loss of Rs 111 crore in the January-March quarter. Net sales for the cement manufacturer dropped 26.3% to Rs 1,151 crore on-year basis while EBITDA sharply declined 59%, a number that was below the expectations on the street. The decline was nudged by lower than expected realisation and volumes. Although the stock price has continued to surge higher and higher this year making it one of the few shares that are positive year to date, analysts say the movement is fueled by Radhakishan Damani’s investment and not by any change in fundamentals of India Cements.

India Cements management estimates that the company lost nearly 0.4mnte volumes in March owing to the coronavirus outbreak. Volumes declined 11% YoY to 11mnte with 71% utilisation. The company reported an increase in net-debt to Rs 3,630 crore owing to low profitability and further investment of Rs 50 crore in various subsidiaries in the last fiscal year, brokerage firm ICICI Securities said in a note. “Adjusted net loss stood at Rs 11 crore. Reported net loss stood at Rs110 crore as the company has made Rs 100 crore provision for expected credit losses in respect of some advances and receivables primarily from subsidiaries. ICICI Securities has a SELL rating on the scrip with a target price of Rs 65. India Cements shares were trading at Rs 126 per share on Thursday.

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Realisations for India Cements were way off what peers reported. Realisations were down 3% in the March quarter, whereas other cement manufacturers from the region saw a growth of 3% to 5% in the realisations. “We continue to value ICEM at 6.5x FY22E EV/EBITDA, yielding TP of Rs 75 given limited visibility on reduction of its high debt and low RoE.,” said brokerage firm Edelweiss. Analysts at Edelweiss did take not of the hike in equity stake in the March quarter by Avenue Supermarts promoter Radhakishan Damani. “Without any change in fundamentals, the stock has surged 80% in the past six months. We believe this may be on account of a single investor increasing stake in India Cements,” the brokerage said while putting a REDUCE rating on the stock. Radhakishan Damani now holds close to 20% stake in India Cements.

The fear of debt remaining elevated at India Cements is a worry that Motilal Oswal too has pointed out in a note . Earlier this month, news reports said that Radhakishan Damani could be looking to pick up more stake in the company and make an offer to take over India Cement. Motilal Oswal said that such a move remains a key monitorable. The brokerage has a NEUTRAL rating on the stock with a target price of Rs 120. 

The story for the cement sector is looking gloomy at this juncture with demand down which has forced postponements. “Post coronavirus pandemic, what we have seen in the cement stock prices is that valuations have become more reasonable, so in that context there is some respite in what we were seeing then and what we are seeing now. There are postponements of capacity but then demand has also weakened,” Milind Raginwar, Research analyst at Centrum Broking told Financial Express Online earlier this week. As things normalise demand is expected to go up and supply will follow, he added. Fuel prices that have fallen and are expected to stay low might help cement manufacturers cut operational costs. 

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