BUY Mangalam Cement - Stellar operational performance; AnandRathi Institutional Research

Mangalam Cement - Stellar operational performance; Buy with a target price of Rs 434

Mangalam posted decent Q1 FY17 results, with 6% revenue growth yoy, backed by 4% realisation and 2% volume growth. The better operating performance led to a Rs. 724 EBITDA/ton vs. a Rs. 60/ton EBITDA loss yoy. We are sanguine about the company's growth prospects and maintain our Buy rating, with a target of Rs. 434 (earlier Rs. 351).

Realisations and volumes improve. Mangalam's cement revenue rose 6% yoy in Q1 FY17, aided by a rise in both, realisations (4% yoy to Rs. 3,448 a ton) and volumes (2% yoy, 8.3% qoq, to 0.65m tons). Of its dispatches, 33% was to Rajasthan and UP each, 27% to MP, and 7% to Delhi and the NCR. It operated at 72% capacity. We expect demand to improve after the good rains in the North and Central regions.

Strong EBITDA/ton aided by lower operational costs. EBITDA/ton improved from a negative Rs. 62 a year ago to Rs. 724 in Q1 FY17, primarily due to a significant drop in operational costs. The greater use of pet-coke (100% in kilns and its power plant) led to lower power & fuel costs (down 37%), aided by lower raw material costs (down 43%, due to lower clinker production) and other expenditure (down 51%) yoy. The far better operating performance led to Rs. 226m PAT, beating our Rs. 189m estimate. We expect that greater capacity utilization would further drive profitability.

Expansion on track. Mangalam is further increasing its cement capacity to 3.75m tpa by setting up a 0.5m-ton split grinding unit at Aligarh, UP, expected to be commissioned soon. The company plans it to be 100% PPC, which would fully optimize production capabilities and penetrate its core market more effectively because of the lower lead distance.

Valuations. We maintain a Buy. At our target of Rs. 434, the stock trades at 7x FY18e EV/EBITDA, a ~40% discount to our target multiple for mid-cap cement companies. The target implies a PE of 12.2x and an EV per ton of $62.9. Risks. Tepid demand, drop in cement prices.

Shares of MANGALAM CEMENT LTD. was last trading in BSE at Rs.315 as compared to the previous close of Rs. 311.45. The total number of shares traded during the day was 7372 in over 204 trades.

The stock hit an intraday high of Rs. 318.4 and intraday low of 312.2. The net turnover during the day was Rs. 2331206.

Source : Equity Bulls

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