Why Damani Family Is Betting On India Cements When Analysts Aren’t
Why India Cements jumped 40 percent in two days...
Shares of the India Cements Ltd. beat analyst forecasts to surge more than 40 percent in two days to hit a seven-month high after the Damani family bought stake in the southern company expecting a turnaround.
Billionaire Gopikishan Damani, younger brother of D-Mart supermarket chain founder Radhakishan Damani, picked up 2.8 percent stake in India Cements on Tuesday, according to disclosures to exchanges. The younger sibling purchased additional 2.7 percent equity on Wednesday, while Radhakishan Damani bought additional 0.9 percent equity, according to bulk deal data on the National Stock Exchange of India Ltd. website.
That, according to BloombergQuint’s calculations, increased the siblings’ holding in the cement maker to 11.1 percent.
BloombergQuint couldn’t reach the Damani brothers for comment.
The investment comes as the average of 12-month analyst targets compiled by Bloomberg suggest a downside of 18 percent for India Cements at a target price of Rs 84 apiece—the stock closed at Rs 104.45 on Wednesday. Only four of 14 analysts tracking the stock recommend a ‘Buy’; seven suggest ‘Hold’ and three rate it a ‘Sell’. Brokerages recently downgraded the stock given its higher working capital requirement and delayed expansion plans on funding constraints.
The cement maker’s working capital requirement rose to Rs 573 crore as of December from Rs 300 crore in September, according to its filings. That was driven by a liquidity crunch, a sluggish economy, and a leveraged balance sheet because of investments in non-core assets. The company, with a capacity of 16 million tonnes per annum, also put on hold the plan to set up a new integrated cement factory in Madhya Pradesh and a grinding unit in Uttar Pradesh.
Stalled projects in Andhra Pradesh and Telangana, deferred spending on infrastructure in the two states, an extended monsoon and excess capacity had eroded pricing power in the south, India Cements’ home market, till December.
Yet, demand recovered month-on-month in January and February, supporting higher prices in the southern region. Cement turned costlier by about Rs 50 a bag in Andhra Pradesh and Telangana and by around Rs 30 in other states in the region in January, according to a BloombergQuint Survey.
“The overall demand in south is picking up with Andhra Pradesh and Telangana contributing,” India Cements said in the earnings statement for October-December. “The expectation is that the worst is over, and the cement industry will see a robust growth.”
India Cements’ operating profitability also recovered in the first nine months of 2019-20 after declining for at least four straight years. That, the management said in investor calls, was aided by volume push and cost savings by shifting to fuel based on price, lower power consumption and reduced logistics expenses.
And while the company’s profitability rebounded, it remains one of the cheapest bets with its enterprise value per tonne among the lowest for regional cement makers.
Aided by the latest surge, India Cements stock has rallied nearly 45 percent so far this year, beating peers. Orient Cement Ltd. has gained 23 percent, JK Cement Ltd. is up 22 percent and Birla Corp Ltd. has risen 21 percent.