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India Cements Equity Research

HomeUncategorizedIndia Cements Equity Research

Date of Research – 18 January 2016

Price – Rs. 81.35

About the Company

Established in 1946, The India Cements Limited (“India Cement” or the “Company“) is engaged in the production and sale of cement in India. The Company’s first plant was setup at Sankarnagar in Tamil Nadu in 1949. Today, the Company operates with seven plants spread over Tamil Nadu and Andhra Pradesh. The Company offers cement for various applications, including, precast concrete items, concrete components, and multi-storey buildings, as well as runways, concrete roads, bridges and for general-purpose use. The Company also provides blended cement for marine structures, mass concrete pours in dams, and plastering and finishing works; sulphate resisting portland cement for foundations, piles, basements and underground structures, sewage and water treatment plants.

In addition, India Cement offers ready mix concrete for large construction projects, including dams, bridges, industrial structures, and small and medium projects. 

The Company is the market leader with a market share of 28% in the South. The Company markets its cement products under the Coromandel King, Sankar Sakthi, Raasi Gold, Coromandel Super Power, Sankar Super Power, and Raasi Super Power brand names. 

Key Financial Figures

Consolidated (Rs. Cr)
Particulars FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 
Total Income from Operations 5,178.71 5,104.76 5,082.66 4,889.63  5,880.16 
Expenses 4,203.20 4,493.34 4,297.60 3,998.86   4,972.63  
Earnings Before Other Income, Interest, Tax and Depreciation (Operating Profit) 975.51 611.42 785.06 890.77   907.53  
Depreciation 323.95 319.66 302.85 263.92   276.01  
Finance Costs 369.08 410.73 478.05 420.78   379.97  
Other income 4.58 4.29 0.19 0.01   – 
Exceptional items 20.00 3.20   – 
PBT 267.06 (114.68) 4.35 202.88   251.55  
Tax 88.44 1.21 5.54 68.83   94.00  
PAT (before Minority Interest and share of Associates) 178.62 (115.89) (1.19) 134.05   157.55  
Profit/ (loss) attributable to Minority Interest 4.47 4.80 2.32 2.24   7.53  
Share of profit / (loss) of Associates (13.87) (3.87) (0.20) (2.57)  (1.01) 
Consolidated Profit / (Loss) for the year 188.02 (116.82) (3.31) 134.38   151.03  

Profitability Analysis

Consolidated (%)
Particulars FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
Operating Profit Margin Ratio 18.84 11.98 15.45 18.22  15.43 
Net Profit Margin Ratio 3.45 (2.27) (0.02) 2.74  2.68 

Operating profit margin is a measurement of the proportion of a company’s revenue that is left over after paying for production costs such as raw materials, salaries and administrative costs. Net profit margin is arrived at by deducting non operating expenses such as depreciation, finance costs and taxes out of operating profit and shows what is left for the shareholders as a percentage of net sales. Together these ratios help in understanding the cost and profit structure of the firm and analysing business inefficiencies.

Key Balance Sheet Figures

Sources of Funds / Liabilities (Rs. Cr)
Particulars FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Share Capital 307.18 307.18 307.18  307.18  307.18 
Share application money pending allotment 0.10 0.10 –  –  – 
Reserves & Surplus 3,639.56 3,683.88 3,363.76  3,073.37  3,122.98 
Net worth (shareholders funds) 3,946.74 3,991.15 3,670.94 3,380.55  3,430.16 
Minority Interest 13.54 21.33 25.04  26.39  28.69 
Long term borrowings 1,751.90 2,132.12 2,240.70  2,445.42  2,075.54 
Current liabilities 2,389.08 2,513.29 2,618.91  2,359.55  2,551.10 
Other long term liabilities and provisions 245.87 227.95 239.40  137.54  143.29 
Deferred Tax Liabilities 331.14 335.94 336.74  337.85 367.29 
Total Liabilities 8,678.37 9,221.80 9,131.73  8,687.30  8,596.08 

 

Application of Funds / Assets (Rs. Cr)
Particulars FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Fixed Assets 5,377.15 5,555.14 5,322.07  4,697.28  4,491.51 
Noncurrent Investments 420.82 436.24 440.10  439.55  442.12 
Current assets 1,310.89 1,575.71 1,667.77 1,793.19  1,812.03
Long term advances and other noncurrent assets 1,560.63 1,654.71 1,701.79  1,757.28  1,850.42 
Deferred Tax Assets –  –  – 
Foreign Currency Monetary Item Translation Difference Account 8.88 –  –  – 
Total assets 8,678.37 9,221.80 9,131.73  8,687.30  8,596.08 

Efficiency Analysis

 
Particulars FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
ROCE 16.79 15.88 16.54  13.41 16.10
ROE / RONW 6.88 4.71 (3.16)  (0.04) 3.91

Return on Capital Employed (ROCE) measures a company’s profitability from its overall operations by calculating the return generated on the total capital invested in the business (i.e. equity + debt). Return on Equity (ROE) or Return on Net Worth (RONW) measures the amount of profit which the company generates on money invested by the equity shareholders. In short, ROE draws attention to the return generated by the shareholders on their investment in the business. Together these ratios can be used in comparing the profitability of the company with other companies in the same industry.

Valuation Analysis

Consolidated
Particulars FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
Total Income from Operations (Rs. Cr.) 5,178.71 5,104.76 5,082.66 4,889.63 5,880.16
Growth (%) 11.48 % (1.43 %) (0.43 %) (3.80 %) 20.26 %
PAT (Rs. Cr.) 188.02 (115.89) (1.19) 134.05 157.55
Growth (%) (30.74 %) (161.64 %) 11364.71 % 17.53 %
Earnings Per Share – Basic (Rs. ) 6.12 (3.80) (0.11) 4.37 5.29
Earning Per Share – Diluted (Rs. ) 6.12 (3.80) (0.11) 4.37 5.29
Price to Earnings 13.68 18.62 39.13

Dividend History

The Company has maintained an average dividend yield of 1.66 % over the last 5 financial years.

Liquidity and Credit Analysis

Current Ratio

Higher current ratio implies healthier short term liquidity comfort level. A current ratio below 1 indicates that the company may not be able to meet its obligations in the short run. However, it is not always a matter of worry if this ratio temporarily falls below 1 as many times companies squeeze out short term cash sources to achieve a capital intensive plan with a longer term outlook. ICL’s average current ratio over the last 5 financial years has been 0.79 times which indicates that the Company has been maintaining sufficient cash to meet its short term obligations.

Long Term Debt to Equity Ratio

Companies operating with high debt to equity on their balance sheets are vulnerable to economic cycles. In times of slowdown in economy, companies with high levels of debt find it increasingly difficult to service the interest on their borrowings as profit margins decline. We believe that long term debt to equity ratio higher than 0.6 – 0.8 could affect the business of a company and its results of operations.

ICL’s average long term debt to equity ratio over the last 5 financial years has been 0.51 times which indicates that the Company operates with reasonable level of debt and is placed well to withstand economic slowdowns.

Interest Coverage ratio

Interest coverage ratio indicates the comfort with which the company may be able to service the interest expense (i.e. finance charges) on its outstanding debt. Higher interest coverage ratio indicates that the company can easily meet the interest expense pertaining to its debt obligations. In our view, interest coverage ratio of below 1.5 should raise doubts about the company’s ability to meet the expenses on its borrowings. Interest coverage ratio below 1 indicates that the company is just not generating enough to service its debt obligations.

ICL’s average interest coverage ratio over the last 5 financial years has been 4.61 times which indicates that the Company has been generating enough for the shareholders after servicing its debt obligations.

Ownership pattern

In its latest stock exchange filing dated 30 September 2015, India Cements reported a promoter holding of 28.23 %. Large promoter holding indicates conviction and sincerity of the promoters. We believe that a greater than 35 % promoter holding offers safety to the retail investors.

At the same time, institutional holding in the Company stood at 36.73 % (FII+DII). Large institutional holding indicates the confidence of seasoned investors. At the same time, it can also lead to high volatility in the stock price as institutions buy and sell larger stakes than retail participants.

About the Author

Rajat Sharma pictureRajat Sharma is a well known stock market analyst and commentator. He has covered Indian markets for over a decade and is regarded for consistently identifying early stage investment opportunities. Attorney by qualification, Rajat has done extensive work for improving corporate governance and disclosure standards.

 

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