Springway sale won’t help debt-ridden India Cements much

This is a step in the right direction given the high level of debt of India Cements. The company’s net debt as on March 31 was approx. 3,000 crores. The market capitalization of India Cements was close on Tuesday 7,500 crores. However, this deal alone can’t help the company reduce its debt meaningfully. The sale of other non-core assets such as its vast land bank will be crucial for India Cements to see significant de-leveraging.

“As per the management commentary in the past, India Cements has a land-bank of around 27,000 acres in various locations in South India. The sale of these non-core assets is important to drive significant re-ratings of the stock,” said a Nuvama Research report dated October 11.

There is one more concern. Springway Mining has limestone land and is setting up a cement plant in Madhya Pradesh. “This plant would have ensured the growth of India Cements business at least for the next few years. With the company selling its entire stake here, its growth will be curtailed in future,” said Mangesh Bhadang, an analyst at Nirmal Bang Institutional Equities. India Cements’ outlook is not very encouraging. According to Nuvama, operationally, FY23 will be operational. In what is estimated to be one of the toughest years for India Cements, Ebitda per tonne is projected to fall to nearly a multi-year low. 300, which means a decline of about 40% year-over-year. Ebitda is earnings before interest, taxes, depreciation and amortization. Despite the weak trading conditions, this stock has seen a sharp jump in recent days. Adani Group’s entry into the cement sector has raised hopes of consolidation. This gave rise to several mid and small cap cement stocks and India Cements was one of them. “India Cements is viewed as a potential acquisition candidate, which is also reflected in its current valuation. The stock has been volatile lately on rumours and thus, the takeout is likely to materialize or not,” said Satyadeep Jain, an analyst at Ambit Capital. Despite Tuesday’s sharp fall, India Cements shares are now in FY23. However, as things stand, the stock is down 18.4% from the 52-week high seen in September.