Mangalam Cement - Restrained performance; expansion to drive growth; Buy - Anand Rathi

Realisation less than estimated. Mangalam Cement's 4QFY13 realisation rose 3% yoy to Rs. 3,510 a ton (down 5% qoq). Aggregate volumes (cement and clinker) were down 13% yoy (up 14% qoq) to 0.52m tons. Revenue declined 10% yoy and came lower than we estimated. For FY13, the company posted 5% yoy aggregate volume growth and 12% yoy revenue growth.

- EBITDA/ton dipped 23% yoy, 50% qoq, to Rs. 340, lower than we estimated primarily due to lower realisations. Cost pressures on a per-ton basis arose mainly from raw material (up 29% yoy) and staff costs (up 46% yoy). Power & fuel cost per ton of cement rose 8% yoy but dropped 18% qoq due to depletion of clinker inventories. Freight charges rose 4% yoy and were flat qoq.

- Key developments. Work is underway on Mangalam's brownfield expansion of 0.5m clinker and 1.25m cement capacities in Rajasthan and is targeted for commissioning by 3QFY14. Mangalam Timber Products (a group company) had issued 7.5% non-cumulative redeemable preference shares of Rs. 100 each to Mangalam Cement in lieu of conversion of its outstanding loans (including interest) of Rs. 344.7m, reflected as non-current investments in the Mar'13 balance sheet.

- Our take. 4QFY13 revenue and operating performance were below our estimates. With the brownfield expansion slated for commissioning in 3QFY14, we expect a much-improved FY14-15 performance. The expansion besides providing benefits of additional volumes would aid reduction in per-ton fixed costs. We retain a Buy, with a price target of Rs. 195. At the target price of Rs. 195, the stock would trade at 4x Jun'14e EV/EBITDA, 5x PE and an EV/ ton of US$45. Risks. Fall in cement prices, sharp rise in pet coke prices.

Source : Equity Bulls

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