Friday, February 2, 2018

Concall highlights of Novelis, Vedanta, JSW Steel, Supreme Ind, Asian Paints, Shree Cement and Sagar Cement

Novelis - Q3 FY18 Conference Call Update - evaluating both organic and inorganic expansion | Beat on EBITDA
·          Adjusted EBITDA: Expected full year Adjusted EBITDA in higher range of guidance of $1.15-1.20bn. Adjusted EBITDA increased 20% YoY to $305mn in Q3FY18
·          Volumes: Shipments of 796KT increased 6% YoY; automotive shipments increased 12%
·          Inorganic/Organic: Novelis is evaluating both organic and inorganic expansions for growth
·          Expansion: $300mn automotive sheet capacity addition in Kentucky with a capacity of 200KT by 2020. Heat treatment and pre-treatment line
·          Acquired: Rolling mill facilities for Euro 200mn in Sierre (Switzerland) from Constellium. 90% of automotive material for Novelis in Europe is sourced from Sierre
·          Shutdown: Lithographic Sheet capacity shutdown in Europe
·          US Tax Rate: Reduction from 35% to 21%. A net $18mn non-cash income tax benefit for the re-measurement of deferred tax assets and liabilities in accordance with the recently enacted US tax reform
·          Capex: $250mn of maintenance capex
·          Capacity: Peak output possible of 3.3mn tons

Vedanta Limited (VEDL IN, BUY, FV Rs355) - Q3FY18 Conference Call Summary | Beat on Consolidated EBITDA
·         Q3FY18: Consolidated EBITDA increased by 13% YoY to Rs67.8bn which was ahead of our estimates at Rs66.0bn on back of better than expected performance in power and iron ore partly offset by weaker performance in copper
·          Near Term Expansion Priority: 1.2mn tons Zn-Pb, 750 tons of Silver at HZ. Gamsberg output of 400KT, Oil & Gas production of 275-300Kboepd, Aluminum output of 2.3mn tons, Copper Smelter expansion to 800KT, Iron Ore ramp up to 20.5mn tons
·          Medium Term Expansion: 1.5mn tons Zn-Pb and 1000 tons silver at HZ. Gamsberg phase 2 & 3 (350KT incremental), Swartberg 75KT, Oil & Gas 300-500Kboepd, Lanjigarh Refinery 6MT, Jharkhand IO 10mn tons
·         Zinc International: Gamsberg on target for first production by mid CY18 and full ramp up in 9-12 months. CoP expected at $1000-1150/T, capex target of $400mn. FY18 production of 250KT. Q4 CoP at $1700
·          Zinc India: 950KT of refined Zn-Pb, Silver 500+ tons. FY18 CoP of $950-975 per ton
·          Oil & Gas: Q4 Rajasthan production at 165Kboepd. FY18 Gross production of 185-190kboepd, FY19 220-250kboepd, FY20 275-300kboepd
·          Aluminum: 1.5-1.6mn tons production (excluding trial runs). Alumina production of 1.2-1.3mn tons in FY18. CoP estimated at $1850-1900 per ton in Q4
·          Power: TSPL quarterly availability of 97%, FY18 target of 75%
·          Coal: Low availability of linkage coal resulted in higher cost. Auction + Linkage share dropped from 55% in Q1FY18 to 37% in Q3FY18. Expect improvement in availability in Q4FY18
·          Iron Ore: Granted additional allocation of 3.0mnt tons in Goa. 2mn tons production expected in Q4FY18. Increase in allocation in progress in Karnataka. Current discount of 20% for Goa ore (adjusted for 58%)
·          Copper: TC/RC has declined to 20.8c/lb. CY18 TC/RC at 11% lower than that of CY17 at USc 21.3/lb. 400KT expansion - EPC awarded, completion by Q3 FY20
·          Net Debt: Q3FY18 net debt at Rs162.95bn versus at Rs155.92bn in Q2FY18

JSW Steel (JSTL IN, BUY, FV Rs300) – Q3FY18 Result Conference Call Summary - improved domestic demand | Beat on EBITDA
·          Demand: Indian demand growth aided by government based spends. Global demand is improving for Steel
·          FY18: Total sales target of 15.5mn tons
·          NCLT: JSTL interest in Monnet Ispat, Bhushan Steel, but not interested in Essar Steel, Electrosteel
·          Imports: Coated product imports increased by 107% and colour coated product imports increased by 250%. JSTL has highlighted this trend to government. Government has introduced BIS for colour coated
·          JSTL Exports: 30% share of total sales in Q3FY18 versus 21% in Q3FY17
·          NSR: Increase of 14% YoY and 5% QoQ in Q3FY18 or by Rs1500 per ton QoQ. 5-6% increase in Jan'18
·          JSW Coated: Tarapur Galvanizing capacity increased by 75KT on back of de-bottlenecking
·          Captive Iron Ore: 0.71mn tons of captive source after two mines become operational by 31st March 2018
·          Karnataka: 35mn tons of Category A & B approval from Supreme Court. In addition category C mines production in next year.
·          Odisha: 20mn tons of capacity has been shut. Actual impact only 5-6mn tons of production. Expect supply to normalize in current quarter
·          Coking Coal: $6 per ton increase during the quarter. In Q3FY18 coking coal consumption cost of $187. Expect $10-15 per ton higher in Q4FY18.
·          VAT Refund: No clarity from the government as of now. JSTL is using 5% (pre-GST levels)
·          Net Debt: Rs420.68bn as of Dec'17 versus Rs427.64bn in Sep'17
·          Capex: Rs46.52bn spent in 9MFY18 (Rs60bn in FY18, reduced from Rs80bn). Full three year expenditure guidance unchanged
·          Revenue acceptance of 1249mn, and capital acceptance of 194mn

Supreme Industries (SI IN) - Q3 FY18 Conference Call Summary - Seeing improvement in demand
·          Demand: Volume growth of 19.2% YoY and value growth of 14.7% YoY in Q3FY18. Housing sector demand has improved
·          Industry Growth: 3.3% decline in PVC and 13.3% growth in CPVC volumes in 9M FY18
·          Packaging: Lower growth (3.1%) was on back of capacity constraints (in protective packaging)
·          FY18: SI maintains full year volume growth target of 12%
·          Supreme Petrochem: Fall in volumes by 13.5% last quarter due to price cut by competitor. Q4FY18 performance is strong
·          VAP: share of value added products stood at 40% in Q3FY18 versus 43% in Q3FY17
·          Joint Venture: JV with Kumi Kasei (Kumi) for manufacture and sale of injection moulded plastic components for automotive application. SI's share of 24%
·          CPVC: Received approval for fire sprinklers. Management expects good demand from next quarter. SI's CPVC volume growth was above industry
·          DWC: Pipe demand has not picked up yet. SI expects DWC demand to pick up in next year
·          Dealer: Liquidity remains tight at dealer level, SI expects decline in creditor days in Q4FY18
·          Capex: SI plans to invest Rs4.25-4.50bn (from Rs3.5bn planned in beginning of the year) in FY18
·         Capacity: Current capacity of 544KT will increase to 600KT by end of the year. Industrial Segment - 61KT, Consumer Product - 27.5KT, Plastic Piping - 387KT, Packaging - 63KT

Asian Paints (APNT IN) - Q3 FY18 Conference Call Summary - Demand has not reached pre-GST levels
·         Demand: Recovery for paint industry remained a little subdued. Decorative paint business in India reported single digit volume growth. Demand has not reached pre-GST level
·         Region: Demand in south was weak in Q3 (recovery started in Dec). North and East demand was good during the quarter
·         PAT: Consolidated PAT (from continuing operations) increased by 19.6% YoY, standalone net profit increased by 24.2% YoY
·         Price: No price increase during the quarter
·         Raw Material: Prices continue to move up, APNT is monitoring the trend and evaluating hikes
·         Other Expenses: Cost reduction initiatives under taken to reduce other expenses (including investment in renewables, low marketing spends)
·         International Market: Indonesia - improvement in sales during the quarter. International operations performance impacted by adverse currency impact Ethiopia and Egypt
·         Capex: Total Capex plan of Rs12bn in FY18
·         New Plants: First phase of two new plants in next financial year
·         Home Improvement: No plans to add any new category in home improvement in near term. Positive about scaling up the existing product portfolio
·         Dealer Addition: APNT adds around 3000 dealers per year. Current dealer addition run rate at similar levels

Shree Cement (SRCM IN, BUY, FV Rs24,000) - UCC Cement Acquisition Call Takeaways
·         Investment Rationale:  Generate higher return on accrued cash and cultural fit. The plant is fully depreciated
·         India versus overseas: India remains Preferred market for SRCM. Domestic expansions remain on track
·         GCC Cement Market:  GCC is a 8 Player market. Cement industry has grown at 2% in last 5 years
·         UCC is biggest in UAE and 2nd largest in GCC (10% in GCC, 18% UAE)
·         Current Utilization: Clinker - 100% utilization, cement - 65%, 1.9mn tons of cement production in 9M (Sep'17)
·         Clinker exports to India: SRCM doesn't plan to import clinker or cement from UAE to India. SRCM plans to sell UCC's cement in nearby geographies
·         Price Control: There are no price controls in this market. Price control is in Saudi Arabia (at higher price, due to inefficient plants)
·         Limestone: currently UCC only has grey cement grade limestone. Limestone supply is not a constraint
·         Limestone Price: UCC's Limestone purchase price UAD14.8 per ton. This will reduce to UAD14.5 per ton
·         Cost Savings: SRCM plans to reduce operating cost, increase production
·         Pet coke: UCC can't use pet coke due to higher grade of limestone

Sagar Cements (SGC IN, Unrated) - Q3 FY18 Result Call Summary - AP & Telangana demand remains strong, Expect recovery in prices
·         Demand: AP & Telangana FY18E at 15% YoY (9M FY18 13%), Karnataka FY18E at 5% (9M FY18 3%), Tamil Nadu FY18E at -10% (9M FY18 -15%), Kerala FY18E at -10% (9M FY18 -2%), Maharashtra FY18E at 10% (9M FY18 8%)
·         FY19E: Tamil Nadu & Kerala 0-5%, AP & Telangana 15% (excluding Amaravati based demand), Maharashtra 10%, Karnataka 0-5%, East >10%
·         Contracted Capacity: 11,000 tons in Q3FY18 and 47,000 tons in 9MFY18
·         Price: During the quarter price lower in Maharashtra due to increased competition. Expect price to improve in the current quarter. January higher by Rs150 per ton than quarter average
·         Sand: No issues in AP & Telangana, Karnataka government has launched branded sand. Tamil Nadu government may also follow Karnataka
·         Fuel Cost: Increased by 6% due to increase in cost of imported coal. Expect BMM fuel cost to reduce to Rs900 per ton (from Rs1040 per ton in Q3FY18)
·         Fuel Comparison: Singareni Coal at Rs1.2/Kcal, Imported coal at Rs1.35/Kcal, Pet Coke at Rs1.05/Kcal
·         Pet Coke: Average price of Rs7900 per ton (landed) in Q3FY18 versus Rs6000 per ton in Q3FY17
·         Freight: Declined on back of low lead distance (360kms) from Rs823 per ton in Q3FY17 to Rs778 per ton in Q3FY18
·         New Facility: 1.2mn tons Grinding unit expected by September 2018, 18MW Captive Power Plant by March 2019
·         Industry Capacity: KCP and Shree Cement, NCL Capacity ramp up in next year
·         WHR: Total savings of Rs40mn from WHR. Expect more savings from 6MW of WHR
·         Debt: Total Consolidated debt of Rs5.1bn and cash of Rs0.8bn
·         Capex: FY18 target of Rs1.75bn (9M Rs1.2bn), FY19E 1.30bn

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