Operationally, FY23 is turning out to be one of the most difficult years for India Cements.

Shares of India Cements Ltd nosedived on Tuesday by 11% on the NSE. This sharp negative reaction came after the South-based cement maker announced divestment of its entire stake in wholly-owned subsidiary Springway Mining Pvt. Ltd to JSW Cement Ltd, post market hours on Monday. The total consideration for the deal is almost ₹ 477 crore.

Given India Cements’ high debt level, this is a step in the right direction. As on 31 March, the company’s net debt was about ₹ 3,000 crore. On Tuesday, India Cements’ market capitalisation was about ₹ 7,500 crore. However, this deal alone may not help the company in reducing its debt meaningfully. Sale of other non-core assets such as its huge land bank would be crucial for India Cements to see significant de-leveraging.

“According to management commentary in the past, India Cements has a land-bank of around 27,000 acres across various locations in south India. Sale of these non-core assets is key to drive significant re-rating of the stock," said a Nuvama Research report dated 11 October.

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There is another concern. Springway Mining owns limestone bearing land and is setting up a cement plant in Madhya Pradesh. “This plant would have ensured India Cements’ business growth for at least the next few years. With the company selling its entire stake here, its growth in future would be curtailed," said Mangesh Bhadang, an analyst at Nirmal Bang Institutional Equities. India Cements’ outlook isn’t too encouraging. According to Nuvama, operationally, FY23 is turning out to be one of the most difficult years for India Cements, with Ebitda per tonne estimated to drop to a multi-year low of around ₹ 300, which means about 40% year-on-year decline. Ebitda is earnings before interest, tax, depreciation and amortization. Despite weak business conditions, the stock has seen a sharp uptick lately. With the entry of the Adani Group into the cement sector, the hope of consolidation has increased. This led to a rally in a slew of mid and smallcap cement stocks and India Cements was one of them. “India Cements is seen as a likely acquisition candidate, which is also reflected in its current valuation. The stock has been volatile lately on rumors and, thus, probability of takeout materializing or not," said Satyadeep Jain, an analyst at Ambit Capital. Despite Tuesday’s sharp fall, shares of India Cements have gained 16.5% so far in FY23. However, as things stand, the stock is down by 18.4% from the 52-week high seen in September.

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