India Cements sells non-core assets, but investors are not impressed

 India Cements sells non-core assets, but investors are not impressed

Investment in non-core businesses and increased debt have been a problem for investors in India Cements.

• This deal alone is unlikely to help India Cements see a meaningful de-leveraging. Post this deal, net debt remains at a high of around ₹2,700 crore, which is almost eight times the FY23E net debt/Ebitda.

Shares of India Cements Ltd fell 4.2% on the NSE in opening deals on Tuesday. This sharp drop comes after the company sold its entire stake in wholly owned subsidiary Springway Mines Pvt Ltd to JSW Cement for a total cash consideration of Rs 476.87 crore.

Investment in non-core businesses and increased debt have been a problem for investors in India Cements. In view of this, this step is a step in the right direction. Then why aren't investors excited?

This is because the deal alone is unlikely to help India Cements see a meaningful de-leveraging.

Analysts at Nuvama Institutional Equities said the company's net debt stood at Rs 30,600 crore in FY12, which is likely to increase due to higher working capital requirements in H1FY23. Post this transaction, the net debt remains at around ₹2,700 crore, which is almost eight times the FY23E net debt/Ebitda. Nuvama's report said the Ebitda for earnings before interest tax, depreciation and amortization is lower.

Therefore, the brokerage house is of the view that the sale of such non-core assets, mainly huge land banks, is the key to driving material de-leveraging.

In a press release on October 10, the company said that it has received cash of ₹373.87 crore and the remaining ₹103 crore will be received before December 31, 2022.

Investors would recall that India Cements stock saw a sharp jump recently despite its poor fundamentals.

"Despite significant pressure on earnings, the stock has risen on expectations of consolidation in the cement sector (up 42% since 1Q results), said analysts at Motilal Oswal Financial Services. The domestic brokerage house expects the company's Ebitda/tonne to be Rs 18 in Q2FY23. Ebitda is short for earnings before interest, taxes, depreciation and amortization.

The company's valuation appears unattractive at 15.8 times FY24E EV/Ebitda and 82 EV/tonne, given the absence of capacity addition plans and higher net debt/Ebitda, the report said.