Mangalam Cement - Result Update - Q4FY13 - SPA

Mangalam Cement reported below than expected set of numbers in Q4FY13 largely on the back of sharp decline in volumes. This was due to subdued demand for cement coupled with closure of clinker unit for couple of months resulting in decline in clinker sales volume from 79304 tn in Q4FY12 to 10957 tn in Q4FY13. Upcoming clinker and cement capacity of 0.50 mt & 1.25 mt by Oct 13 & Dec 13 respectively will drive the next leg of growth. We introduce FY15 estimates and retain our BUY rating on the stock with a revised target of INR 209 (Previous TP 193).

Volume led de-growth in revenues

MCL reported a sharp decline of 12.7% YoY in volumes at 0.52 mt in the last quarter largely due to lower clinker sales coupled with poor cement offtake even in peak construction period. Clinker sales volume declined by 86.2% to 10957 tn against 79304 tn in Q4FY12 due to closure of clinker unit coupled with improvement in utilization rate of Unit I where the production was impacted last year. Excluding clinker, cement volumes declined by 1.3% as a result of which blended realisations increased marginally by 3.2% YoY to INR 3505/tn.

EBIDTA/tn declined by 23.2%

EBIDTA/tn declined by 23.2% to INR 337/tn in Q4FY13 from INR 439/ tn in Q4FY12 and INR 677/tn in Q3FY13 primarily due to lackluster demand & depressed realisations coupled with hike in employee and freight expenses. The total cost/tn surged by 7.1% YoY to INR 3168/tn. Employee cost & Other expenses increased by 11.8% to INR 516/tn due to proposed expansion. Freight cost increased by 17.7% to INR 1086/tn on the back of hike in freight rates.The adjusted raw material cost however declined by 13.1% to INR 593/tn as MCL successfully reduced its high grade limestone consumption on the back of using petcoke as a fuel.

Expansion plans delayed by 3-4 months

MCL's plans of increasing its clinker capacity by 0.50 mtpa to 2.20 mtpa at its existing units through optimization & setting up a new grinding unit of 1.25 mtpa in Morak (Rajasthan) has been delayed by 3-4 months and is now set to go on stream by October 13 & December 13 respectively. This would entail a capex of INR5.03 bn, out of which it has already incurred INR 2.59 bn in last couple of years and plans to incur the balance in FY14. Increased capacity would enable MCL to maintain its market share and will lead to volume growth from FY15 onwards.

Increasing presence in northern region provides demand visibility

MCL has been increasing its presence in the structurally sound northern region and currently derives ~65% of its total sales from this region. The company intends to cater primarily to Northern market with its new capacities, thereby further increasing its presence in the region. Northern region provides better cement demand visibility as compared to other regions largely due to increasing investment in urban infrastructure projects across various states (Delhi, NCR, Chandigarh, etc.) and hydel power projects especially in J&K and Himachal Pradesh.

Outlook & Valuation

Commissioning of new capacities along with self sufficiency in power and usage of petcoke as fuel coupled with presence in structurally sound northern region provides strong prospects for the company. MCL is also a consistent dividend payer & dividend yield at CMP works out to 4.81% its FY15E dividend of INR 6. We have introduced FY15E estimates and expect the company to register a CAGR of 21% & 3% in topline and bottomline over FY13-15E. At the CMP of INR 115, the stock trades at attractive valuations of FY15E P/BV of 0.56x & PE of 4.12x and EV/tn of INR 1711 its FY15E capacity. We retain our BUY rating on the stock with a revised target of INR 209 (Previous TP 193) based on FY15E EV/tn of INR 2400.

Source : Equity Bulls

Keywords