Visit http://indiaer.blogspot.com/ for complete details Madras Cement |
Results marginally below estimates. Maintain REDUCE |
REDUCE
CMP: Rs113 Target Price: Rs113
n APAT at Rs185 mn (-89% yoy) below estimates (Rs210 mn). Revenues at Rs6.42bn (-24.3%yoy) – Cement volumes (2.07 mt) down 1.9%, realisation (Rs2780/t) down 24.7% yoy
n EBITDA at Rs1.06bn (-68.2% yoy), marginally below estimates on account of higher RM costs(Rs577/t, +10.6%yoy). EBITDA/t at Rs195 down 84.6%
n Downgrade earnings by 6.1% for FY11 & 9.3% for FY12 on account of partial divestment of wind mills (MCL sold 26.4 MW out of ~186 MW capacity) and lower volumes
n Though recent price hikes would mean that the worst is possibly over for MCL, valuations at PER 10.5X and EV/t of USD88 leaves little upside. Maintain REDUCE
Revenues down 24.3% yoy dragged by 24.7% decline in realisation
MCL’s revenues for the quarter at Rs 6.42bn down 24.3% yoy (7.9% qoq) dragged by
cement revenues (Rs5.75bn v/s est of Rs5.68bn) decline of 26.2% yoy. Windmill power
revenues declined 2.8%yoy. Cement volumes declined 4.5%yoy with realizations
declining 24.7% yoy at Rs2780/t against our estimate of Rs2841/t.
Increasing costs pressures drag EBITDA down by 68.2%yoy
MCL’s EBITDA for the quarter at Rs1.07bn declined 68.2% yoy and 44.5% qoq. The
EBIDTA came in below our estimates of Rs1.13 bn on account of higher RM costs
(Rs578/t v/s estimate of Rs495/t). Power and fuel costs at Rs829/t increased 14.7% yoy
led by increase in coal & petcoke prices. Consequently MCL saw 6.6%yoy increase in
the total cost to Rs2586/t.
EBITDA/t at Rs195 down 84.6%
With sharp fall in realization and higher costs , MCL’s EBITDA/t at Rs 195 ( our estimate
of Rs264/t) nosedived 84.6% yoy and 75%qoq . Overall EBITDA margins contracted
2300bps to 16.6%. These levels of profitability were last seen in FY06 with EBITDA/t of
Rs374/t. However we believe that with recent price hikes and improving demand supply
scenario, the worst seems to be over for MCL.
APAT down 88.6% yoy
APAT at Rs185mn declined 89.1%yoy, below our estimates of Rs210mn. Reported net
profit stood at Rs311mn, down 81.7% yoy .Extraordinary items included tax write back
on account of sale of its 26.4MW windmills (out of ~ 186 MW) for a consideration of
Rs1.37 bn.
Downgrading earnings
We are downgrading our earnings estimate for MCL by 6.1% for FY11 ( EPS of Rs8.3 ) and
by 9.3% for FY12(EPS of Rs10.8). The downgrade in earnings is led by lower than
expected cement volumes and partial divestment of wind mills (sale of 26.4 MW windmills
out of ~ 186 MW of aggregate capacity)
Expect worst to be over for MCL ….
As mentioned earlier MCL’s Q2FY10 EBIDTA/t of Rs202/t is the lowest level of profitability
since FY2006. With these abysmal levels of profitability we have seen emergence of
producers understanding and pricing discipline, leading to cement prices being hiked by
Rs25-50/bag across various states in southern region. With recent hikes average cement
prices have reached ~Rs235-240/bag across Southern region. Our FY12E numbers for
MCL are modeled at ~Rs233/bag. Hence even if the prices decline we do not see material
downgrade to estimates. Hence we believe that the worst is possibly over for MCL, as far
as profitability is concerned.
International coal prices (Richard bay South Africa) are currently ruling at USD88 down 6%
from recent peaks. Adjusted for appreciation in INR against USD, the price are down 10%
from recent peaks. With MCL procuring close to 65-70% of its coal requirements from
international markets, the recent correction in coal prices is expected to moderate cost
pressure on MCL.
…however valuations leaves limited upside – Maintain REDUCE
We are increasing our target price for MCL to Rs113 as compared to Rs101 earlier. We
have valued MCL at an EV/ton of USD90 and PER of 10X. The increase in our target price
is driven by rollover of valuation to FY12 numbers. However, with the stock trading at 10.5X
and EV/ton of USD89 on FY12 numbers, we see limited upside for the stock. Further on our
estimates MCL is expected to register an FY12 RoCE of 10.9%, which is still below the cost
of capital. Further MCL’s is discounting its FY12 FCF/share of Rs8.2 by 13.8X, higher than
that of ACC which is at 11X. Maintain REDUCE.
No comments:
Post a Comment