Ace investor Radhakishan Damani increases stake in India Cements, here’s why you should not

India Cements has seen its share price surge over 63% since the beginning of this year. The stock traded at Rs 73 on January 1 and today it is up at Rs 119.20 per share. The stock has jumped 18.4% in the last five days, primarily after the company reported its latest shareholding pattern which revealed that ace Investor Radhaikishan Damani has increased his stake to 20% in the company in the January-March quarter. Radhakishan Damani who is the promoter of Avenue Supermarts is also well-known for his investing practices. However, is it a good enough reason for investors to buy the stock if a billionaire investor is putting his money in?

Brokerage and research firm Centrum Broking has a sell rating on the stock with a tart price of Rs 55. “ICEM’s fundamentals continue to be weak and will remain weak given the current challenging environment. However, the investor action of increasing stake from 4.73% (end-3QFY20) to ~20.0% by 4QFY20 by a prominent investor has kept the valuations elevated,” Centrum broking said in a report. Cement capacity of India Cement has been stagnant at 15.90 million MT since financial 2018 and is expected to remain the same, however, sales volumes are expected to continue falling and might do so till the next financial year. Centrum Broking expects the fall significantly to Rs 14 crore in this fiscal from Rs 121 crore in the previous fiscal.

Centrum Broking said that in the near term the valuations of India Cements might continue to stay inflated due to Radhakishan Damani’s investment in the company, but has termed that to be a complete disconnect from the fundamentals. “Unfavourable market conditions and lower realizations have led to no major debt reduction for ICEM. Working capital loans, however, have increased by Rs400mn (Rs 40 crore) to Rs5.72bn (Rs 527 crore) in 3QFY20 will continue to further increase impacting interest payments and earnings,” the report said. Any capacity addition by India Cements is expected to stress the balance sheet further. “Weighing the pressure on margins and balance sheet we have assigned a higher discount of 50% to the replacement cost (Rs7.5bn/mt) to arrive at ICEM’s fair value of Rs55. At our TP, the stock trades at an EV/EBITDA of 8.0x which is near its mean valuation. We retain our ‘Sell’ rating on the stock,” it said.

Avenue supermarts promoter Radhakishan Damani bought 4.7 crore shares of India Cements between January and March, increasing his stake to 6.1 crore at the end of March from 1.4 crore at the end of December last year. Radhakishan Damani’s brother Gopikishan Damani had earlier this year bought a 2.75% stake in India Cements when the stock was trading at a discount of 37% from its 52-week-high. Damani and his brother had purchased a 4.2% stake in the company on March 17, helping the stock to zoom over 10% back then.

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