Tuesday, October 20, 2009

INDIA CEMENT EXCELLENT LONG TERM



When the country was mourned with low rainfall in this monsoon at that time some one else was on a smile mood. The cement industry was the only benefited sector due to low rainfall. Delayed rains in several parts of the country, helped to ensure strong demand conditions in the September ‘09 quarter from segments such as government-funded infrastructure projects and the housing sector in smaller towns and rural areas. As demand was their, constructors were busy in building and cement consumption was happening at robust speed.


This article will bring out few of the following facts of India Cement along with others key issues:
1. Sector outlook for long term
2. India Cement prospects-its order book, plans for expansion and financial overview.
3. Technical Outlook –current prospect of investments and future.
4. Investment strategies

This time the delayed monsoon became a boon for the cement industry as a whole projects of constructions were on better capacity as compared to previous financial years.In this years monsoon the government took a keen focus on injecting more funds to improve the country's rickety infrastructure, along with the activities in the realty sector, which was passing through a major slump, is picking up.

India’s governments have poured funds into the infrastructure projects demanded by domestic and foreign capital. Cement consumption across the country grew 14.6% during the July-August period driven by a strong growth in the northern and eastern regions according to monthly data provided by the Cement Manufacturers Association. Demand during the quarter, from July and August particularly , picked up owing to higher consumption from semi-urban and rural infrastructure and construction backed by infrastructure spending.
In the coming days cement sector will witness huge demand due to India's infrastructure sector has the potential to attract investments worth $1.5 trillion (Rs 75 lakh crore) over the coming decade. So even if we take a conservative outlook over a decade we find that still Indian cement companies will grow like any thing. The return on theirs expansion plans will yield them healthy return without doubt. The 11th Five-Year Plan envisages an outlay of over $500 billion of investment for infrastructure.
The investment in infrastructure has risen from 4.9 per cent of the gross domestic product (GDP) in 2002-03 to 6 per cent last year.Even if we look at the investment route that derives the demand of infra projects in India we get private equity (PE) players are rushing in to raise funds of. Rs 8,500 crore for the infrastructure sector. At present, close to Rs 8,541 crore is in the process of being raised. Out of this, Rs 6,800 crore is being raised by India-dedicated infrastructure funds.At the same time we find that Cement industry is being questioned regarding the prospevt of huge capacity utilization and its pricing effect. We all know that Indian economy can only grow at the rate of 6%-9% backed on infrastructure growth. So just envisage the growth of infrastructure that will be required to achieve the 6%-9% growth of the Indian economy. Now all these infra projects will need huge quantum of steel and cement the prime inputs of infrastructure sector. So the future prospect of cement industry is very strong and will face the situation of shortage of material if production capacity is not expanded. Hence its is well justified to increase the production capacity and match the future demand.

INDIA CEMENT PROSPECTS.
India’s cement industry is expected to mark a record expansion in capacity this year, reaching about two hundred and seventy six million tonnes. India Cements is now one of the cheapest stocks under various valuation metrics — be it price-to-book value, price-to-earnings multiple. For instance, India Cements trades at just 1.2 times its book value.The other key areas which makes the prospects of the company more visible are:

1. The company has been attempting to diversify its presence beyond the southern markets.
2. It made its first foot mark of diversification by buying up one million tonnes cement grinding unit capacity in Maharashtra. India Cements’ installed capacity at the end of FY 09 was 12.95 million tonnes compared with 8.81 million tonnes a year earlier.
3. Capacity addition has been made in order to increase its market share and meet more upcoming demand.
4. In last two years, the company had invested around Rs 1,960 crore in capacity expansion. This expansion has been funded largely through internal accruals.
5. Very recently the company acquired Indo Zinc, a loss-making zinc producer. It was taken over due to Indo Zinc was implementing a project for setting up a cement plant in Rajasthan with a capacity of 1.5 million tonnes, but this project will now be implemented by India Cements.
6. Estimated cost of setting up this plant will be around Rs. Rs 600 crore and also it raised Rs 592.5 crore via a QIP for its expansion plans .
7. So less cost debt to effect its profitability that will be generated from its expansion .
8. The company is well placed in terms of expansion and capacity utilization. Its capacity utilization is 70.3%.

So the company is well planning regarding diversification and expansion and more importantly expanding with reasonable step calculation. Its not making miscalculated robust expansion and misuse of funds and reserves of the company. Its funds raising plans are in parallel with upcoming demand. The company is making diversification and not remaining south centered.

FINANCIAL OVERVIEW.
Quarterly Report Analysis March 2009 v/s June 2009
1. Operating profit we find a jump of 24.98%.This reflects the company operation is efficient enough and no misuse of resources.
2. Interest cost goes up by 9.97% which is consistent with previous quarter reports. The company is not exposed to high risk and leverage.
Half yearly report analysis (September 2008 v/s March 2009) and Year to Year comparison (March 2008 v/s March 2009).
1. Other income goes astronomically high by 3100%.In the previous quarters we find inconsistency in other income.
2. Operating profit drops by 29.56%.
3. EPS drops by 43.73%.
4. The reserves of the company grew by 16.5%.This indicates healthy growth and later we will also find consistency of reserves growth.
5. For the YoY we find reserves grew by 15.9%.Again we get consistency.
6. Secured loans grew at normal % as compared to previous financial years at 6.7%.
7. Unsecured loans also grew at 13.24%,consistent with previous YoY.
8. Capital work in progress also grew by 57.24%.This reflect the company have enough working capital supply and consistency in previous YoY. Working capital management is excellent.
9. YoY expenses dropped by 43.04%.Less expenses results to more savings and increased profitability.
10. But the companies Fixed deposits dropped by 80.8%.This indicates that company looses more in terms of fixed interest incomes.
11. The most important things which makes the company more competitive is its reduced contingent liabilities. We find 47.19% reduced contingent liability.
The below chart shows the Earnings,Dividend and Price relation.



TECHNICAL OUTLOOK
1. The RSI indicates oversold levels. Its stand below 30 and looks for buying.
2. But when we look beyond RSI to Stochastic RSI we find more specific outcomes. We find that Stochastic RSI indicated too much oversold according to the present calculations. It’s below 20 marks and deep below which indicates rock bottom valuation.
3. William %R indicates also rock bottom oversold valuation.
4. The MACD graph depicts that both MACD line and Signal line are standing at zero levels. The signal line is crossed from below the MACD line and gets ready for a rising above MACD line.
5. When we look into accumulation and distribution of the stock we find that stock has sold off too much. It might be due to skeptical outlook of the market and cement industry prospects. The too much stretched valuation of the market as a whole has led to a decline in the valuation along with sell off of the stock to rock bottom levels.

I would like to make clear that all the above findings are based upon the calculation standing at the present market situation. It might change with the next market movement timings. This outlook is only provided to identify the present position of the stock and to provide a guideline to only those who have invested and remained invested till now. I am not suggesting at present to invest in this stock at these market conditions. At the same time, I am not asking to stop from investment and rely completely on these technical calculations. The calculation being discussed to give you an over view of the present position of the stock.
The below chart 1 shows the RSI,Stochastic RSI,William %R followed with MACD.



The Chart 2 shows the Accumulation and Distribution


INVESTMENT STRATEGIES
The strong financial position of company followed with efficient use of assets and resources gives the company a competitive prospect. The companies well calculated decision regarding expansion within its limitation makes the company more strong with reduced risk. The financial position of the company makes it more strong and competitive. Reduced contingent liabilities make it sounder to drive new expansion plans without borrowed capital. We only find strong consistency in building reserves and control over expense growth. One more important point to be noticed here is that the company is expanding within its limitation. In other words very calculated steps are being laid before expansion. The company did not go for a wild idea of expansion. The company desires do diversify and market it goods to other states also. For this the company purchased two different plants in Maharashtra and Rajasthan. The interest cost is very less and reasonable although we find inconsistency in the previous quarters and yoy . The company is very cost conscious. Since in order to reduce the power cost the company went for building up a separate power unit for the company. The two power plants would give the company the advantage of cost as the variable cost is estimated at about Rs 2.50 a unit against Rs 3.75-4for grid power, which is not always available. On an average, every tonne of cement needs about 80-85 units of electricity
This will give the company more cost advantage with expansion. It gets the advantage of pricing its goods to competitive levels.
The below chart shows the stock price movement.



So investing in this stock will fetch good return over a log term prospect. The expense, cost, diversification, separate power plants all increases the prospect of healthy return over investments. The company technically remains oversold. But the over all market condition doesn’t suggest to go for buying at these levels. It should be chosen and kept separately for long term investment. For long term it’s a good stock to add in your portfolio. India cement have all the components that’s a stock performance requires over a long term.

0 comments:

  © Blogger template 'Minimalist H' by Ourblogtemplates.com 2008

Back to TOP