IIFL is bullish on India Cements and has recommended buy rating on the stock with a target of Rs 140 in its December 9, 2010 research report.
“India Cements’ demand growth has slowed down in the current year on account of sluggish demand from infrastructure segment. Costs have increased sharply and the industry needs to pass on these costs. ICL is taking various initiatives to reduce costs. To reduce energy costs, ICL plans to install captive power plants to the tune of 120MW. ICL has acquired an Indonesian coal mine to secure supply at a concessional rate. ICL is better-placed today compared to the previous down cycle, as reserves and capacity have increased.”
“After strong growth for the last four years, cement demand growth has slowed down in FY11, owing to sluggish demand from the infrastructure segment. Infrastructure projects are delayed, because of issues in land acquisition and financial closure. Thrust on infrastructure development and housing will have to increase if cement demand is to improve. In the past 2-3 quarters, energy, logistics and raw-material costs have increased sharply (coal prices in international markets are up ~40% YoY; ICL’s per-tonne freight expenses increased 31% YoY in 2QFY11). Industry has to pass on these costs, despite weak demand.”
“ICL plans to install captive power plants to the tune of 120MW (to commence in phases from 1QFY12) to reduce energy costs. Purchase of an Indonesian coal asset should secure supply at a concessional rate (production likely to start from 1HFY12). We reiterate our BUY rating on the stock with a target price of Rs 140, in view of likely improvement in efficiencies from 1HFY12 and attractive valuations from a long-term perspective,” says IIFL research report.
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