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C eme n t u t i l i s a t i o n r a t e s t o imp r o v e…
We met the management of Mangalam Cement to get an update on
development in its power and cement business. The following are the key
takeaways from the meeting.
• The proposed expansion of the 1.25 MTPA cement grinding unit
is expected to come on stream by Q4FY13. After the expansion,
the total cement capacity would reach 3.25 MTPA by FY13E. We
expect the capacity utilisation rates to improve in H2FY12 on
account of a pick-up in demand during the period as the monsoon
season ends. We expect the utilisation rate at ~78% in FY12E and
~82% in FY13E as compared to ~76% in FY11
• The thermal captive power plant (CPP) addition of 17.5 MW has
increased the total thermal CPP capacity to 35 MW. Also, there is
~13.65 MW of wind power plant, which takes the total captive
power capacity to ~49 MW. The current power requirement for
the cement operation is ~22 MW. Hence, the company can sell
the surplus power on a merchant basis. However, the company
has not been selling surplus power as the merchant power rates
are in line with the current power generation cost of | 3.8 per unit
• The company has started using petcoke as fuel for the cement
and power plant operations as against domestic coal previously.
The calorific value of petcoke is ~8500 Kcal/kg
V a l u a t i o n
At the CMP of | 101, the stock is trading at 9.0x and 6.0x its FY12E and
FY13E earnings, respectively. It is trading at EV/EBITDA of 4.5x and 6.6x
FY12E and FY13E EBITDA, respectively. On an EV/tonne basis, the stock
is trading at $34 and $39 its FY12E and FY13E capacities, respectively. We
are maintaining our target price on the stock at | 139 with a BUY rating.
At our target price, the stock is trading at $45 per tonne (~65% discount
to replacement cost of $125 per tonne) at FY13E capacity of 3.25MT.
Cement sales volume to grow at ~5% CAGR during FY11-13E
As the utilisation rates are expected to increase in H2FY12 on account of
an expected pick-up in cement, we expect the FY12E utilisation rate at
~78% as against ~76% in FY11. In FY13E, the utilisation rate is expected
to increase to ~82%. The total cement sales volume is expected to grow
~4% YoY in FY12E to 1.66 MT and ~6% YoY in FY13E to 1.76 MT
Valuations
The company plans to expand its clinker capacity by 0.4 MTPA at its
existing unit and set up a new grinding unit of 1.25 MTPA in Aligarh (UP),
which are expected to be commissioned by Q4FY13. The total capital
outlay is ~| 400 crore over FY12E and FY13E for the expansion plan.
After the expansion projects, the total cement capacity would reach 3.25
MTPA by FY13E. We expect cement sales volume of 1.66 MTPA in FY12E
and 1.76 MTPA in FY13E. EBITDA per tonne is expected at | 474 per
tonne in FY12E and | 475 per tonne in FY13E.
At the CMP of | 101, the stock is trading at 9.0x and 6.0x its FY12E and
FY13E earnings, respectively. It is trading at EV/EBITDA of 4.5x and 6.6x
FY12E and FY13E EBITDA, respectively. On an EV/tonne basis, the stock
is trading at $34 and $39 its FY12E and FY13E capacities, respectively. We
are maintaining our target price on the stock at | 139 with a BUY rating.
At our target price, the stock is trading at $45 per tonne (~65% discount
to replacement cost of $125 per tonne) at FY13E capacity of 3.25MT.
Exhibit : Valuation
Valuation remarks
FY13E Cement Capacity of MCL (MTPA) 3.25
Replacement Cost - MCL @ $45 per tonne 676
FY13E Net Debt (MCL) 298
Equity Value - MCL 378
FY10 Book Value of MTPL 20
Equity Value - MTPL @ 1x P/BV 20
Target Market Cap 398
NoS (Post merger) 2.85
Target Price 139
CMP 101
Potential Upside 38%
Source: Company, ICICIdirect.com Research
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
C eme n t u t i l i s a t i o n r a t e s t o imp r o v e…
We met the management of Mangalam Cement to get an update on
development in its power and cement business. The following are the key
takeaways from the meeting.
• The proposed expansion of the 1.25 MTPA cement grinding unit
is expected to come on stream by Q4FY13. After the expansion,
the total cement capacity would reach 3.25 MTPA by FY13E. We
expect the capacity utilisation rates to improve in H2FY12 on
account of a pick-up in demand during the period as the monsoon
season ends. We expect the utilisation rate at ~78% in FY12E and
~82% in FY13E as compared to ~76% in FY11
• The thermal captive power plant (CPP) addition of 17.5 MW has
increased the total thermal CPP capacity to 35 MW. Also, there is
~13.65 MW of wind power plant, which takes the total captive
power capacity to ~49 MW. The current power requirement for
the cement operation is ~22 MW. Hence, the company can sell
the surplus power on a merchant basis. However, the company
has not been selling surplus power as the merchant power rates
are in line with the current power generation cost of | 3.8 per unit
• The company has started using petcoke as fuel for the cement
and power plant operations as against domestic coal previously.
The calorific value of petcoke is ~8500 Kcal/kg
V a l u a t i o n
At the CMP of | 101, the stock is trading at 9.0x and 6.0x its FY12E and
FY13E earnings, respectively. It is trading at EV/EBITDA of 4.5x and 6.6x
FY12E and FY13E EBITDA, respectively. On an EV/tonne basis, the stock
is trading at $34 and $39 its FY12E and FY13E capacities, respectively. We
are maintaining our target price on the stock at | 139 with a BUY rating.
At our target price, the stock is trading at $45 per tonne (~65% discount
to replacement cost of $125 per tonne) at FY13E capacity of 3.25MT.
Cement sales volume to grow at ~5% CAGR during FY11-13E
As the utilisation rates are expected to increase in H2FY12 on account of
an expected pick-up in cement, we expect the FY12E utilisation rate at
~78% as against ~76% in FY11. In FY13E, the utilisation rate is expected
to increase to ~82%. The total cement sales volume is expected to grow
~4% YoY in FY12E to 1.66 MT and ~6% YoY in FY13E to 1.76 MT
Valuations
The company plans to expand its clinker capacity by 0.4 MTPA at its
existing unit and set up a new grinding unit of 1.25 MTPA in Aligarh (UP),
which are expected to be commissioned by Q4FY13. The total capital
outlay is ~| 400 crore over FY12E and FY13E for the expansion plan.
After the expansion projects, the total cement capacity would reach 3.25
MTPA by FY13E. We expect cement sales volume of 1.66 MTPA in FY12E
and 1.76 MTPA in FY13E. EBITDA per tonne is expected at | 474 per
tonne in FY12E and | 475 per tonne in FY13E.
At the CMP of | 101, the stock is trading at 9.0x and 6.0x its FY12E and
FY13E earnings, respectively. It is trading at EV/EBITDA of 4.5x and 6.6x
FY12E and FY13E EBITDA, respectively. On an EV/tonne basis, the stock
is trading at $34 and $39 its FY12E and FY13E capacities, respectively. We
are maintaining our target price on the stock at | 139 with a BUY rating.
At our target price, the stock is trading at $45 per tonne (~65% discount
to replacement cost of $125 per tonne) at FY13E capacity of 3.25MT.
Exhibit : Valuation
Valuation remarks
FY13E Cement Capacity of MCL (MTPA) 3.25
Replacement Cost - MCL @ $45 per tonne 676
FY13E Net Debt (MCL) 298
Equity Value - MCL 378
FY10 Book Value of MTPL 20
Equity Value - MTPL @ 1x P/BV 20
Target Market Cap 398
NoS (Post merger) 2.85
Target Price 139
CMP 101
Potential Upside 38%
Source: Company, ICICIdirect.com Research
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