 "India Cements: CSK ban removes overhang")
The two-year ban on Chennai Super Kings (CSK) is sentimentally negative for India Cements, the owner of the IPL franchise. However, it will not have any significant impact on the company's financials, which also means that the downside is limited. It is thus not surprising that post-verdict, the stock saw a knee-jerk reaction falling 6.7 per cent intra-day, but recovered some ground to close 3.5 per cent lower at Rs 90 levels.
The financial impact is negligible, as the franchise rights of CSK had already been transferred to a separate entity at the end of the March'15 quarter. Thus, no profits from the IPL franchise were being included by analysts in their forward earnings estimates. The IPL team had been accruing Rs 140-Rs 180 crore to the revenues and much lesser to profitability and was not too significant. Further, in the past, analysts had become optimistic on the franchise being sold and India Cements getting funds that could lower its debt.
In fact, the India Cements' stock was already trading at discounts to its south Indian peers, says Shrenik Gujrathi at Angel Broking who believes the IPL overhang was one of the reasons. Although the ban will mean no cash inflow on account from sale of the franchise, the verdict will dissipate the scepticism for India Cements in some time. And, the stock will thereby start trading purely on fundamentals of its cement business, which could be a blessing in disguise, say analysts.
Meanwhile, on business fundamentals, one still does not see much traction in the South Indian market and thus for the June quarter, cement companies may see volumes decline. But, strong pricing discipline, realisations and margins may offset some pressure. Analysts at Motilal Oswal Securities estimate India Cements' volumes to decline by 8.5 per cent year-on-year to 2.34 million tonnes during the June'15 quarter. However, they expect to realisations improve 11.7 per cent to Rs 4,741 per tonne, and Ebidta margins by 60 basis points to 13.5 per cent. But, higher interest costs and lower Ebidta will mean a rise in net loss.
Positively, the Street is optimistic of a demand recovery in Andhra Pradesh and Telangana from the September quarter.
The financial impact is negligible, as the franchise rights of CSK had already been transferred to a separate entity at the end of the March'15 quarter. Thus, no profits from the IPL franchise were being included by analysts in their forward earnings estimates. The IPL team had been accruing Rs 140-Rs 180 crore to the revenues and much lesser to profitability and was not too significant. Further, in the past, analysts had become optimistic on the franchise being sold and India Cements getting funds that could lower its debt.
In fact, the India Cements' stock was already trading at discounts to its south Indian peers, says Shrenik Gujrathi at Angel Broking who believes the IPL overhang was one of the reasons. Although the ban will mean no cash inflow on account from sale of the franchise, the verdict will dissipate the scepticism for India Cements in some time. And, the stock will thereby start trading purely on fundamentals of its cement business, which could be a blessing in disguise, say analysts.
Meanwhile, on business fundamentals, one still does not see much traction in the South Indian market and thus for the June quarter, cement companies may see volumes decline. But, strong pricing discipline, realisations and margins may offset some pressure. Analysts at Motilal Oswal Securities estimate India Cements' volumes to decline by 8.5 per cent year-on-year to 2.34 million tonnes during the June'15 quarter. However, they expect to realisations improve 11.7 per cent to Rs 4,741 per tonne, and Ebidta margins by 60 basis points to 13.5 per cent. But, higher interest costs and lower Ebidta will mean a rise in net loss.
Positively, the Street is optimistic of a demand recovery in Andhra Pradesh and Telangana from the September quarter.