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 INR
5.03 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.
No comments:
Post a Comment