Shares of India Cements plunged over 6 per cent in Tuesday’s trade, as the company’s decision to divest its entire holding in Springway Mining to JSW Steel for Rs 476.87 crore failed to impress analysts. The future growth plans of the company look uncertain, analysts said, adding that the stock valuations continue to look unattractive.
From a 52-week low of Rs 145.55 on June 20 to a 52-week high of Rs 298.45 on September 20, this Radhakishan Damani (RK Damani) scrip soared 105 per cent in a matter of three months, before correcting a bit. On Tuesday, the scrip fell 6.18 per cent to hit a low of Rs 258 on BSE.
Brokerage Motilal Oswal said expectations of consolidation in the cement sector had led to an upside in the stock despite significant pressure on earnings.
“Valuations at 15.8 times FY24E EV/Ebitda and $82 EV/tonne appear unattractive, given the absence of capacity addition plans and high net debt/Ebitda (3.2 times in FY24E revised). We reiterate our ‘Sell’ rating on the stock with a price target of Rs 180 against Rs 165 earlier,” Motilal Oswal said.
RK Damani held 11.34 per cent stake in India Cements as of June 30. Gopikishan Shivkishan Damani, Radhakishan’s younger brother, held 8.11 per cent stake in the cement maker. Besides, Radhakishan Damani and Gopikishan Damani together also held 1.34 per cent stake in the company.
All in all, Damanis held 20.8 per cent stake in the company as of June 30.
The future growth plans of the company look uncertain, said Motilal Oswal Securities, as it noted that the cement maker has not added any capacity after the up-gradation of its Chilamkur unit in June 2010, which resulted in over 800 basis points market share loss for the company over FY10-22.
The company management in its March quarter earnings conference call showed its intent to monetise some assets, mainly land in order to improve liquidity. The company was not envisaging any expansion plan, given the low-capacity utilisation, analysts noted.
While the move is certainly welcome, it is still far from material de-leveraging given the post-deal net debt remains high at Rs 2,700 crore, said Nuvama Institutional Equities.
“Significant sale of other non-core assets (mainly the huge land-bank) is required to drive further re-rating of the stock and hence a key monitorable. With current valuations (13 times FY24E EV/Ebitda) appearing rich, we maintain ‘REDUCE’ and revise our TP to Rs 112 against Rs 103 earlier,” it said.
The stock has an average target price of Rs 142.50, based on six brokerage recommendations, as per publicly available data with Trendlyne. The target suggests a 45 per cent potential downside.