Madras Cements - 1QFY2014 Result Update - Motilal Oswal

Madras Cement (MC) posted lower-than-estimated numbers in 1QFY14. Volumes grew by 2.6% YoY (flat QoQ) to 2.21mt (v/s est. 2.12mt), driven by growth in West Bengal, despite a 4% decline in core markets of Tamil Nadu/ Kerala. Cement realizations declined by ~INR160/ton QoQ (-INR90/ton QoQ) due to market mix changes and decline in prices in key markets.

- Cost was higher by ~INR290/ton YoY (-INR110/ton QoQ) due to (a) higher RM cost (due to higher imported gypsum, limestone and fly ash cost). Imported Gypsum and limestone are INR800-900/ton costlier than domestic, (b) higher energy cost (due to usage of linkage coal inventory, which is expensive currently). However, other expenses QoQ fell by ~INR185/ton, on account of lower CSR expenses and advertising expenses.

- EBITDA declined by 36% YoY (39% QoQ) to ~INR2b (v/s est. INR2.6b), impacted by pressure on realizations and cost, translating into contraction in EBITDA margin to 20.4% (-10.6pp YoY, 5.2pp QoQ). Cement EBITDA per ton declined by ~INR467/ton YoY (INR28/ton QoQ) to INR768. However, higher depreciation, interest and taxes restricted PAT to ~INR689m (v/s est. INR1.15b).

- We downgrade EPS estimates for FY14E/15E by -16%/-13% to factor (a) lower realization estimates of -INR2/bag in FY14E (v/s earlier est. of INR3.5/bag), (b) lower volume estimate of 5% YoY in FY14E (v/s earlier est. of 6% YoY), and (c) lower PLF in the power business. This translates to FY14E/15E cement EBITDA/ton of INR943/INR1,119, and SOTP of INR228 (30% upside).

- MC trades at 8x FY15E EPS, 4.9x FY15E EBITDA and EV of USD70/ton. We maintain a Buy with target price of INR228 (30% upside).

Source : Equity Bulls

Keywords